Is this really a reciprocal tariff remedy?

The president of the United States of America issued an executive order on April 2 this year to impose reciprocal tariffs.

The order contains two actions. First, the imposition of a 10 percent baseline tariff on imports from all countries starting from April 5, in addition to the currently applicable tariffs.

Second, the imposition of country-specific tariffs on imports from 53 targeted countries, also in addition to the currently applicable tariffs, starting from April 9.

The executive order states that "Large and persistent annual US goods trade deficits are caused in substantial part by a lack of reciprocity in our bilateral trade relationships. This situation is evidenced by disparate tariff rates and non-tariff barriers that make it harder for US manufacturers to sell their products in foreign markets".

It further clarifies that although tariff negotiations in the GATT and WTO have been on a reciprocal basis, the simple average tariff on imports by the US is significantly lower than those of the European Union, India, Brazil, Vietnam, and China.

Product-specific tariff comparisons with these countries also show similar results. Moreover, the order asserts that non-tariff barriers deprive US manufacturers of reciprocal access to markets around the world.

It also mentions that trading partners have repeatedly blocked multilateral and plurilateral solutions, including in the context of new rounds of tariff negotiations and efforts to discipline non-tariff barriers.

At the same time, with the US economy disproportionately open to imports, US trading partners have had few incentives to provide reciprocal treatment to US exports in bilateral trade negotiations.

Thus, this executive order aims to reduce the trade deficit through the imposition of reciprocal tariffs.

Just before issuing this order, the US president signed, on February 13 of 2025, a Presidential Memorandum entitled "Reciprocal Trade and Tariffs," which directed a further review of trading partners' non-reciprocal trading practices and an examination of the relationship between those practices and the trade deficit.

This included an analysis of tariffs imposed on US products and unfair, discriminatory, or extraterritorial taxes, non-tariff barriers, burdensome regulatory requirements, etc., imposed by trading partners on US businesses, workers, and consumers.

There is no doubt that the imposition of reciprocal tariffs aims at reducing the trade deficit. The first step toward this is the 10 percent baseline tariff on imports from all countries.

However, this tariff does not relate to reciprocity. It is surprising to see how the country-specific reciprocal tariffs have been estimated.

Surprisingly, none of the president's directives to examine the policies of trading partners are reflected in the formula used to calculate the reciprocal tariffs.

The formula simply estimates the tariff levels that might balance the US trade with specific countries, aiming for a zero trade deficit.

The order refers to these as "reciprocal tariffs," although the country-specific tariffs proposed are half of these estimated tariffs, and are termed as "discounted reciprocal tariffs".

Many are under the impression that these tariffs are equivalent to those imposed by partner countries. This is not the case. The simplistic estimation assumes that if the trade policies of two countries are the same, there would be no trade deficit or surplus—which is clearly unrealistic.

For instance, the US and Israel have had a Free Trade Agreement (FTA) since 1985. Both countries enjoy duty-free access to each other's markets.

Nevertheless, the US runs a goods trade deficit with Israel, although it has a surplus in services and investment. Under these circumstances, it is implausible that Israel imposes an equivalent of a 34 percent tariff on US goods.

Similarly, Bangladesh's exports face a 15 percent import-weighted tariff in the US, while US exports to Bangladesh face only a 3.32 percent weighted average tariff (considering customs duty, supplementary duty, and regulatory duty).

There are no specific import barriers against the US It is equally unlikely that other barriers in Bangladesh raise the equivalent tariff to 74 percent.

Therefore, it is evident that the tariffs estimated by the US are not truly reciprocal tariffs. Rather, they are the rates projected to eliminate the US trade deficit with individual trading partners.

Now, the question arises: how will Bangladesh's exports be affected by the imposition of reciprocal tariffs by the US?

There is no doubt that the imposition of tariffs by the US will reduce demand for Bangladeshi exports. Since readymade garments (RMG) are Bangladesh's major export product, it is appropriate to review the rates of reciprocal tariffs to be imposed on the main RMG competitors in the US market.

Among the top 10 largest RMG-exporting countries to the US, only Vietnam and Cambodia will face higher reciprocal tariffs than Bangladesh. These two countries are major competitors of Bangladesh in the global market, and Bangladesh will gain preference over them.

Since China is already subject to high tariffs in the US, it is unlikely to pose an additional threat to Bangladesh's RMG exports.

However, India, Indonesia, and Pakistan will gain preference over Bangladesh in the US market due to lower reciprocal tariffs.

Mexico and Honduras are likely to be the major beneficiaries in RMG exports to the US, as Honduras will be subject only to the 10 percent baseline tariff, and Mexico will not face any reciprocal tariffs.

Another issue that may arise in domestic policy discussions is whether it is possible to engage in dialogue with US authorities to reduce or eliminate the reciprocal tariffs for Bangladesh.

The Executive Order states that if a trading partner takes significant steps to remedy non-reciprocal trade arrangements and aligns sufficiently with the United States on economic and national security matters, the reciprocal tariff may be modified by reducing or limiting the duties imposed.

It is evident from the formula used to estimate reciprocal tariffs that the only practical option for Bangladesh is to increase imports from the US, as the formula considers only the trade deficit.

Other criteria mentioned in the order appear to play a limited role.

The writer is a former member of Bangladesh Trade and Tariff Commission.