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US Set to Announce New Round of Reciprocal Tariffs Amid Global Trade Tensions

The US administration is poised to announce a new round of “reciprocal” tariffs on 2 April after imposing a range of tariffs on China, Mexico, and Canada, a separate set of tariffs on steel, aluminum, and derivative products, and newly announced levies on autos and auto parts. 

US Set to Announce New Round of Reciprocal Tariffs Amid Global Trade Tensions
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Table of contents

  1. The US administration’s 2 April announcement 
    1. Anticipated reaction: retaliation and negotiation 

      There is a wide range of potential outcomes related to the announced tariff rates, the sectors and countries targeted, the effective date of the tariffs, and their ultimate duration. How targeted countries respond is also highly uncertain. 

      Who and what? The new reciprocal tariffs will likely target a range of countries (potentially focusing on Europe and Asia ex-China) and products (potentially pharmaceuticals, semiconductors, lumber, copper) to address other countries’ persistent trade surpluses with the US and grievances related to high tariff and non-tariff barriers. 

      How high? Recall that the tariffs imposed during Trump 1.0 were much smaller (the US effective tariff rate rose from 1.5% in 2016 to 3.0% in 2020), primarily focused on China, and followed a highly stimulative reduction in personal and corporate taxes.

      The 2025 tariffs are much larger than in Trump 1.0: The effective tariff rate has increased from 2.5% to approximately 9%. Wednesday’s reciprocal tariffs could push the effective tariff rate another 4 percentage points higher. Anything further could move tariffs beyond a revenue-raising “sweet spot.”

      How long? We do not know how long the previously enacted tariffs and any future tariffs will remain in force, but we believe peak tariff uncertainty may soon be behind us. Much of the work the administration set out to achieve will have been put in place, and there are numerous potential offramps available.  

       

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      The US administration’s 2 April announcement 

      The Trump administration’s “reciprocal tariffs” arrive on Wednesday. Details of this announcement are still in flux, particularly given the short time between the confirmation of the lead economics heads to their roles and the 1 April deadline for the findings of the ongoing trade policy investigations to be on the president’s desk. 

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      Countries: While the president originally framed reciprocity as an effort to bring US tariff rates up to levels imposed on US exports, the plan may instead target roughly a dozen countries or regions that run persistent large trade surpluses with the US. These include mainland China, the EU, Mexico, Vietnam, Taiwan, Japan, Canada, Switzerland, South Korea, South Africa, Malaysia, Thailand, Indonesia, and India (see Fig. 1).

      The range of tariffs assigned to each country would seek to counter a range of grievances over higher specific product tariffs and a range of perceived nontariff trade barriers, such as value-added taxes, digital services taxes, and corporate tax havens. Countries that have already faced a steep rise in tariff rates in 2025 might be assigned lower reciprocal tariffs, but the modeling we have done assumes a low- to mid-teens tariff rate.

      We expect the president to employ either the International Economic Emergency Powers Act or Section 338 of the Tariff Act of 1930 to be able to implement these tariffs without a lengthy investigative delay. These reciprocal tariffs could be subject to a months-long implementation process to give targeted countries an opportunity to negotiate potential agreements. 

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      Products: We will likely also see tariffs announced on certain products, similar to the 26 March tariffs on autos and auto parts. The product tariffs would likely first require an extended investigation if they are ultimately imposed under Section 232 on national security grounds. The auto tariffs, which also fall under Section 232, emerged more rapidly because the administration leveraged a previous 2019 investigation to fast-track its announcement. 

      In our view, this new round of reciprocal and product tariffs will likely bring the effective tariff rate from today’s estimated 9% level into the low teens—at a minimum (see  Fig. 2). To put this into perspective, President Trump’s oft- touted campaign promise of a 10% universal tariff and a  60% tariff on China would bring the US effective tariff rate to over 18% (assuming 2024’s level of imports, which is a giant oversimplification given the likely drop in imports).

      us set to announce new round of reciprocal tariffs amid global trade tensions grafika numer 2us set to announce new round of reciprocal tariffs amid global trade tensions grafika numer 2

      Anticipated reaction: retaliation and negotiation 

      This year's US tariffs have prompted other governments to respond with equal tariffs (and a range of other nontariff measures) and consumer boycotts of US goods and services independently of government action (a collapse in Canadian  travel). Some countries, like Mexico, have taken a wait-and- see approach, preferring to give dialogue and diplomacy  time to achieve tariff removal. From here, we would note the following potential regional considerations: North America: A large share of the announced and implemented tariffs in North America have already been shielded from the US-Mexico-Canada (USMCA) free trade agreement. The positive tone that emerged out of President Trump’s meeting with Canadian Prime Minister Carney on 28 March could presage a broader deescalation of tariffs across North America, especially given the emergence of a pragmatic US-Mexico bilateral relationship. Potential offramps include steps already taken to bolster border security and fight drug trafficking, as well as the potential to write tougher rules-of-origin content requirements into the upcoming USMCA review to prevent the transshipment of goods into North America to avoid tariffs. 

      European Union: As we wrote in our 12 March report, “Reciprocal tariffs for Europe – no quick fix,” there are unlikely to be many available offramps to tariffs given recent retaliation and the 2018/19 experience under Trump 1.0. There have been hopeful signs of negotiation in the reported willingness of the EU trade commissioner to consider a lower import tariff rate on cars. The range of US grievances with Europe over nontariff barriers is quite long and includes corporate tax havens, higher product tariff rates, prohibitions on the import of certain agricultural products, digital services taxes, carbon border-adjustment taxes and value-added taxes. In our view, US tariffs on the European Union are likely to be more long-lasting and broader than for North America and Asia ex-China. 

      China: The 2025 tariff increases have been concentrated on China both through the 20% additional blanket tariffs and the 25% steel and aluminum derivative product tariffs. The two leaders are looking to arrange a June summit and could  use this opportunity to find offramps to resurrect the long- dormant 2020 Phase 1 agreement in exchange for lower  tariffs. Concessions on the geopolitical front and on the issue of fentanyl could also factor into the tariff equation. 

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      Global: Tariffs that are too high would disrupt global trade and economic activity, running the risk of negating the potential federal revenue gain. In 2024, the US collected USD 76 billion in customs revenue, down from USD 90 billion in 2022 because of the steady decline in imports directly from China. The new 2025 tariffs imposed prior to the auto tariffs on 26 March would have added an estimated USD 156 billion per year to US federal revenue, assuming a steady level of imports. Over 10 years, this revenue could generate a considerable offset to the planned extension of the 2017 personal tax cuts or the president’s promised tax exemptions on income from tips, overtime and Social Security benefits. Even if the tariffs were not legislated or written into the budget reconciliation instructions, the administration might be able to attract the support of fiscally conservative Republicans who would otherwise balk at the projected budget deficit increase.  

       


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      UBS

      UBS is a Swiss financial company with main branches in Zurich and Basel (in Switzerland). It also has offices in New York (in the United States). It is involved in private, investment and institutional banking. It was formed from the merger of Union Bank of Switzerland and Swiss Bank Corporation in June 1998.


      Topics

      fiscal policyglobal tradeeconomic uncertaintyeconomic impactglobal supply chainsTrade negotiationstrade warTrump administrationUS tariffs

      China tariffs

      retaliation

      reciprocal tariffs

      tariff policy

      effective tariff rate

      Section 338

      International Economic Emergency Powers Act

      USMCA

      EU trade policy

      revenue impact

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