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US Reciprocal Tariffs. Trade Imbalance and Tariff Differentials as Key Factors

We expect Trump’s reciprocal tariffs to impact Vietnam, India, China, Taiwan and Thailand the most among EM Asian economies. The hit on growth might be stronger for Vietnam, Taiwan and Thailand, given their relatively larger exposure to trade with the US (as measured as a % of GDP).

US Reciprocal Tariffs. Trade Imbalance and Tariff Differentials as Key Factors
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  1. US reciprocal tariffs – trade imbalance & tariff differentials matter the most 

    US reciprocal tariffs – trade imbalance & tariff differentials matter the most 

    According to Trump’s Memorandum on Reciprocal Trade and Tariffs (hereafter the “Memorandum”) announced on 13 February, the US government will apply reciprocal tariffs by forming a number for its trading partners considering the following: 

    1. Tariffs imposed on US products 

    2. Trading partners’ taxes (including value-added tax) 

    3. Non-tariff barriers and restrictions of market access 

    4. FX deviation from market value.

     

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    It remains unclear to us how significantly each of those above factors would contribute to the reciprocal tariff rates by the US. The size of the US trade deficit with its trading partners will likely be an important input for the decision, since Trump’s rationale for introducing reciprocal tariffs is to correct the US trade deficit. Furthermore, US Treasury Secretary Scott Bessent suggested the US would focus on the 15% of countries that have the highest tariffs and largest trading volume with the US. 

    Six EM Asian economies, namely China, Vietnam, Taiwan, Korea, India and Thailand, rank among the top ten of the trading partners that the US runs a trade deficit with. Therefore, they are likely a major target for the reciprocal tariff hikes by the US. It is interesting to note that, as of 2024, the US trade deficit with China had declined by 20% from 2017, before the US-China trade war under Trump’s first term, but it remains the largest deficit the US runs with any single economy. However, US trade deficit with EM Asia expanded by 36% during that period, as the US trade deficit expanded notably with many other Asian economies, in particular Vietnam, Taiwan and Korea.  


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    David Forrester

    David Forrester

    Senior FX Strategist at Crédit Agricole Corporate and Investment Bank.


    Topics

    chinaindiataiwanthailandvietnamUS treasurydonald trumptrading partnerseconomic impactUS tariffs

    Scott Bessent

    reciprocal tariffs

    trade imbalance

    tariff differentials

    US trade deficit

    market access restrictions

    non-tariff barriers

    value-added tax

    FX deviation

    EM Asia

    US-China trade war

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