President Trump and his trade team have been pointing to April 2 as the big day for his reciprocal tariffs. At this point, I have lots of questions, but few answers, about what to expect from all this. Here are some of my questions:
- Which statutes will they use as the basis for the tariffs? Clark Packard and Scott Lincicome of Cato describe the main possibilities here: IEEPA, Section 232, Section 301, Section 338, and Section 122.
- When exactly will the tariffs be imposed? IEEPA tariffs can come pretty quickly, while tariffs under certain other statutes could require a longer process (although some tariffs might be imposed under already completed processes). To what extent will the April 2 announcement be used as the basis for a negotiation rather than the immediate imposition of tariffs?
- What methodology will they use for the calculation of a reciprocal tariff rate to be applied to each trading partner? Coming up with a credible methodology is going to be a big challenge.
- Will the reciprocal tariffs include a sectoral component? It seems clear that tariffs are coming on autos and various other sectors, but is that part of the reciprocal tariff package, or will it be separate?
- Which countries will be hit the hardest? Treasury Secretary Scott Bessent recently referred to the "Dirty 15," meaning the countries that have the highest tariffs/barriers and large trade imbalances with the U.S.
- Which governments will retaliate and in what amounts? The reaction by other governments will depend on their domestic politics as well as their strategizing about how to get to the best outcome. Will any of the retaliation go beyond tariffs, and do creative things such as weakening intellectual property protections? And will products/services from Elon Musk and other Trump allies be targeted?
- Will any countries make concessions in the hopes of being subject to lower U.S. tariffs? If so, how meaningful will these concessions be in terms of actual value to U.S. companies? Will they be designed to look meaningful without actually doing much, or will there be real opportunities for U.S. exporters?
- Will these concessions be carried out through formal trade deals? If so, what will these deals look like? Will there be an enforcement mechanism?
- Will the reciprocal tariffs get tied in with non-trade issues such as security? For example, will foreign defense spending be brought into the mix? Of course, part of the foreign defense spending issue is trade related, as a lot of foreign defense spending involves buying from U.S. companies. Thus, foreign defense spending could either be brought in as a concession (through buying more U.S. products) or retaliation (through buying less). Also on defense spending, will the U.S. authorize the sale of military technology that it had not previously allowed, as part of broader deals with specific countries? And will certain countries shift away from reliance on U.S. military equipment, due to concerns about the direction of U.S. foreign and trade policy?
- Will there be lawsuits in U.S. courts against the reciprocal tariffs? If the calculation methodology looks arbitrary, that could be an important part of any legal challenge.
- Will the targeted countries file WTO/FTA complaints? Of course, the U.S. can appeal any adverse WTO panel report into the void, but governments may see value in bringing a WTO case for various reasons. And some of the affected countries have FTAs with the U.S., so they have that as an alternative as well.
- Will affected countries step up their efforts to negotiate deeper trade deals with each other?
- How will the stock market react? And what will be the broader impact on the U.S. economy? And how will Trump react to the stock market reaction and to the impact on the economy? It feels like the Trump administration has been testing the waters with its tariffs, seeing how the market and the economy react to its initial moves. My best guess is there are limits to what the administration can tolerate in terms of a negative economic reaction, and if things get too bad they may pull back a bit, but we'll see.
