Reciprocal tariffs explained by tariff lawyers

On Wednesday, April 2, 2025 President Trump signed an executive order (the “EO”) that stands to be the most consequential of his presidency; the EO imposes “reciprocal tariffs” that touch and concern just about every good imported into the United States. While reciprocal tariffs were part of the President’s platform throughout the election cycle, their arrival has caused no small amount of fear and speculation. In this article, our tariff lawyers will break down the EO into the essential bits that you need to know to rest easy while navigating this uncharted territory.

Background

The main authority cited by President Trump in order to impose reciprocal tariffs is the International Emergency Economic Powers Act (the “IEEPA”) (50 U.S.C. 1701 et seq.). The IEEPA allows the President to declare a national emergency in response to an “unusual and extraordinary threat…to the national security, foreign policy, or economy of the United States.” Having declared such a national emergency, the IEEPA grants the President the power to “investigate, regulate, or prohibit…any transactions in foreign exchange…”

This is an incredibly broad delegation of authority from Congress to the President. By passing this law back in 1977, Congress gave the President the power to legislate international trade by decree. Understandably, changes to the tariff rates are likely included in the authority to “regulate any transaction in foreign exchange.”

To justify declaration of an emergency, the EO cites a long list of grievances including, inter alia: 1) high tariffs charged against U.S. goods by foreign countries; 2) discriminatory non-tariff barriers such as licensing, technical regulations, intellectual property infringement, non-market practices, corruption, and substandard labor regulations; 3) currency manipulation and value added taxes.

The EO states:

…according to the WTO, the United States has among the lowest simple average MFN tariff rates in the world at 3.3 percent, while many of our key trading partners like Brazil (11.2 percent), China (7.5 percent), the European Union (EU) (5 percent), India (17 percent), and Vietnam (9.4 percent) have simple average MFN tariff rates that are significantly higher.” 

Moreover, these average MFN tariff rates conceal much larger discrepancies across economies in tariff rates applied to particular products.  For example, the United States imposes a 2.5 percent tariff on passenger vehicle imports (with internal combustion engines), while the European Union (10 percent), India (70 percent), and China (15 percent) impose much higher duties on the same product.  For network switches and routers, the United States imposes a 0 percent tariff, but for similar products, India (10 percent) levies a higher rate.  Brazil (18 percent) and Indonesia (30 percent) impose a higher tariff on ethanol than does the United States (2.5 percent).  For rice in the husk, the U.S. MFN tariff is 2.7 percent (ad valorem equivalent), while India (80 percent), Malaysia (40 percent), and Turkey (an average of 31 percent) impose higher rates.  Apples enter the United States duty-free, but not so in Turkey (60.3 percent) and India (50 percent).

The EO goes on to link these trade practices to reduced domestic wages and consumption, inhibited domestic manufacturing, and decreased military preparedness. On the basis of these findings, the EO declares an emergency under the IEEPA and imposes sweeping tariffs on imports into the United States.

Reciprocal Tariffs Explained

At their inception, the reciprocal tariffs were anticipated to be a 1:1 ratio of foreign tariffs to U.S. tariffs. That way, if Country A has a 30% tariff on U.S. goods, the U.S. would place a 30% tariff on Country A goods. The reciprocal tariffs imposed by the EO are calculated differently.

According to the United States Trade Representative (“USTR”), the reciprocal tariffs are calculated thus:

Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing… To conceptualize reciprocal tariffs, the tariff rates that would drive bilateral trade deficits to zero were computed….While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero.

The USTR article goes on to describe a complex economic formula, based on country-specific trade data such as elasticity of imports, passthrough from tariffs to import prices, total imports from a given country, and total exports from that country. Put plainly, the reciprocal tariffs were calculated as the tariff rate that would drive the U.S. trade deficit with a given country to zero, based on import and export data. A full explanation of the calculation, as well as supporting academic sources can be found here.

What You Need To Know About The Executive Order

What are the new tariff rates?

• In the beginning, all imported articles will be subject to a 10% ad valorem duty rate, additional to other duties and taxes.
• Later, the 10% ad valorem duty rate will increase to the following country-specific rates, additional to other duties and taxes:
  • Algeria 30%;
  • Angola 32%;
  • Bangladesh 37%;
  • Bosnia and Herzegovina 36%;
  • Botswana 38%;
  • Brunei 24%;
  • Cambodia 49%;
  • Cameroon 12%;
  • Chad 13%;
  • China 34%;
  • Côte d`Ivoire 21%;
  • Democratic Republic of the Congo 11%;
  • Equatorial Guinea 13%;
  • European Union 20%;
  • Falkland Islands 42%;
  • Fiji 32%;
  • Guyana 38%;
  • India 27%;
  • Indonesia 32%;
  • Iraq 39%;
  • Israel 17%;
  • Japan 24%;
  • Jordan 20%;
  • Kazakhstan 27%;
  • Laos 48%;
  • Lesotho 50%;
  • Libya 31%;
  • Liechtenstein 37%;
  • Madagascar 47%;
  • Malawi 18%;
  • Malaysia 24%;
  • Mauritius 40%;
  • Moldova 31%;
  • Mozambique 16%;
  • Myanmar (Burma) 45%;
  • Namibia 21%;
  • Nauru 30%;
  • Nicaragua 19%;
  • Nigeria 14%;
  • North Macedonia 33%;
  • Norway 16%;
  • Pakistan 30%;
  • Philippines 18%;
  • Serbia 38%;
  • South Africa 31%;
  • South Korea 26%;
  • Sri Lanka 44%;
  • Switzerland 32%;
  • Syria 41%;
  • Taiwan 32%;
  • Thailand 37%;
  • Tunisia 28%;
  • Vanuatu 23%;
  • Venezuela 15%;
  • Vietnam 46%; 
  • Zambia 17%; 
  • Zimbabwe 18%.

When will the new rates come into effect?

• On or after 12:01 a.m. on April 5, 2025: the initial 10% additional duty will apply to all goods entered for consumption, withdrawn from warehouse, or loaded on a vessel and in transit. 
• On or after 12:01 a.m. on April 9, 2025: the additional country-specific duty will apply to all goods entered for consumption, withdrawn from warehouse, or loaded on a vessel and in transit. 

Is anything excluded from this new tariff?

• The EO contains a 37 page annex (“Annex II”) of goods that are excluded from the new tariffs. The link to Annex II is here. Annex II mainly consists of goods that are already subject to tariffs under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), goods that are under investigation under Section 232, and goods that may become subject to Section 232 duties. Other goods on Annex II include some copper, pharmaceuticals, semiconductors, lumber, critical minerals, energy, and energy products.
• The 10% ad valorem rate in this EO does not apply in addition to the 25% (non-USMCA qualifying goods) and 10% (non-USMCA qualifying potash) tariffs already imposed on Mexico and Canada in previous executive orders. Mexico and Canada do not have country specific increased rates. USMCA originating goods still receive preferential treatment.
• If 20% or more of the value of a good is U.S. origin, the tariff only applies to the non-U.S. content of the good. 
• Goods entitled to duty free de minimis treatment under 19 U.S.C. 1321(a)(2)(A)-(B) are excluded – except from China (which we will touch on in another article). Goods entitled to duty free de minimis treatment under 19 U.S.C. 1321(a)(2)(C) are excluded only until further notice. 

Going Forward

The EO expressly states that these new tariff rates will be subject to change. If any country retaliates against the reciprocal tariff, as many have threatened to do, the tariff rate can increase. If any country cooperates, whether by remedying the aforementioned discriminatory treatment or by otherwise negotiating, the tariffs could be decreased or limited in scope. If the state of U.S.domestic manufacturing continues to decline, the tariffs could increase. Therefore, there is likely to be significant changes in the state of these tariffs in the coming days, depending on the reactions of other countries.

Conclusion

While these tariffs set the stage for rapid changes in the flow of international trade, understanding them is the key to dispelling any anxiety. As new tariff regulations continue to evolve, navigating these changes requires experienced legal counsel. At Liang + Mooney, PLLC, our seasoned tariff lawyers can answer your questions and concerns with sophisticated legal solutions.  If you seek strategic counsel and insight into how these changes could affect your operations, we invite you to contact us to schedule a consultation.