Grossman and Sykes on Reciprocity in U.S. Trade Relations
In a new paper entitled "Commandeering the Customs: An Economic and Legal Perspective on the President’s 'Emergency' Imposition of 'Reciprocal Tariffs'," professors Gene Grossman and Alan Sykes push back on the idea that there is a lack of reciprocity in U.S. trade relations:
B. The Purported Lack of Reciprocity in Bilateral Trade Relations
The President’s Executive order recites that “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 U.S. manufacturers to sell their products in foreign markets.” The Executive Order also states that “the trading relationship between the United States and its trading partners has become highly unbalanced, particularly in recent years.” On numerous occasions, the President has gone farther to suggest that our trading partners are “ripping us off.”
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The Executive Order purports to demonstrate an absence of reciprocity by pointing to tariff disparities on individual items, such as a lower tariff historically on automobile imports into the United States than on U.S. auto exports to Europe and certain other countries. These anecdotal comparisons are unhelpful, however, as one can readily find anecdotal examples where U.S. tariffs and trade restrictions are higher on individual items. U.S. sugar tariffs and quotas, for example, lead to sugar prices roughly twice as high as those on world markets, a situation that has persisted for many years. The United States has also long imposed a higher tariff on light duty trucks (25%) than trading partners, dating back to the “chicken war” of the 1960s that arose following European tariffs on U.S. chicken exports. ...
The Executive Order also points to the United States having lower “simple average tariff rates” than various trading partners. Average tariff rates, however, are potentially misleading as well. A “simple average” does not consider the commercial importance of the tariff – for example, a tariff might be high on a product that a country would not import to any extent even with a low tariff. Trade-weighted average tariff rates address this issue to a degree but can also mislead. A prohibitively high tariff that chokes off trade in a product will receive little or no weight in the average because the volume of trade is negligible due to the tariff. Even with these caveats, the differences in the average tariff rates across developed country trading partners tends to be small. WTO data on average applied tariff rates for 2024 indicate that the average rate for Australia was 2.4%, for Canada 3.81%, for Japan 3.9%, for the European Union 5.1%, and for the United States 3.4%.
Thus, we question whether persuasive evidence about any lack of reciprocity can be drawn from anecdotal tariff differences on individual products or average tariff computations. To the contrary, the concept of reciprocity has a different and storied meaning in the history of international trade negotiations. Following the U.S. Tariff Act of 1930 and the ensuing trade wars during the Great Depression, the U.S. Congress passed the Reciprocal Trade Agreements Act of 1934, authorizing the President to negotiate mutual tariff reduction agreements with foreign governments. The notion of reciprocity introduced by the 1934 Act later became central to multilateral trade negotiations under the auspices of GATT and its successor the WTO. From the outset of GATT, negotiators sought to exchange “reciprocal” tariff concessions, understanding “reciprocity” to refer to a balance of trade concessions that would allow each country to increase its aggregate exports to other GATT members by an amount approximately equal to the increase in its aggregate imports from those members.35 This approach allowed each member country to seek improved market access for its exports of greatest importance, whether economically or politically. Negotiators took this reciprocity norm seriously – the U.S. State Department, for example, made calculations during the rounds of tariff negotiations under GATT to confirm that aggregate U.S. exports could be expected to increase due to tariff cuts abroad by an extent roughly equal to the increase in U.S. imports expected to result from U.S. tariff cuts.36 At no point did reciprocity imply that each party would have identical tariff rates on individual goods. Likewise, reciprocity at no time was taken to mean that bilateral trade would balance or that bilateral trade opportunities would expand equally.37
The commitment to reciprocity throughout the history of multilateral negotiations is at odds with the claim that the trading relationship between the United States and its trading partners has “become highly unbalanced, particularly in recent years.” It instead points to the opposite proposition – any asymmetry in market access opportunities arose many years ago. Such asymmetries may have been preserved by trade negotiations grounded in the norm of reciprocity, but not exacerbated by them.
I would add two points in response to the Trump administration's statements about a "lack of reciprocity" in U.S. trade relations.
First, U.S. trade negotiators have often focused on issues other than market access driven by tariff reductions. For example, in FTAs, they have pushed for rules on labor and the environment, on IP protection, and on foreign investment protection. This was a choice they made, presumably based in part on what they were hearing from interest groups. With this in mind, taking into account the full range of U.S. government demands in trade negotiations, and the international trade obligations that were the result of these negotiations, how do we determine if existing trade arrangements are "reciprocal"? It's a difficult question to evaluate, because it's hard to know how to quantify all of the varied substantive issues that are covered. How do you weigh a U.S. concession on steel tariffs against a Mexican commitment on labor rights? However you come out on that comparison, I don't see clear evidence that the overall balance of commitments under U.S. FTAs is anything other than roughly reciprocal.
The WTO is a little trickier, for two reasons: (1) It has TRIPS but not the other non-trade issues, and (2) the least developed countries do get broad exemptions. Nevertheless, TRIPS does count for a lot, and it's also worth noting that the WTO was where many of the non-tariff barrier rules – non-tariff barriers are also a big concern for the Trump administration – were developed.
Second, even the issue of tariffs is more complicated than it may appear at first glance. Grossman and Sykes make a few points in this regard, but I have another one to add: Focusing on the tariff rates in countries' schedules overlooks the tariffs not in those schedules, such as anti-dumping/countervailing duties. Since 1980 in the U.S., these have grown in importance. Doug Irwin has explained why:
Effective January 1, 1980, the Carter Administration shifted the LTFV determination to the Department of Commerce. With Congress’s consent, this shift took place in part because of the perceived indifference of Treasury to the plight of petitioning firms. As a report of the House Ways and Means Committee noted in 1979, “This Committee has long been dissatisfied with the administration of the antidumping and countervailing duty statutes by the Treasury Department . . . . Given Treasury’s performance over the past 10 years, many have questioned whether the dumping and countervail investigations and policy functions should remain in the Treasury Department.”10 In its report, the House (1979, pp. 6–7) committee noted (without specifically naming the Treasury Department) that “past deficient administration of these laws” were due to “low priority and inadequate staffing levels.” The committee noted that the shift “will give these functions high priority within a Department whose principle mission is trade. In the past agencies have arbitrarily set a course of administration of these statutes contrary to congressional intent.”11
Thus, changes in the legal provisions of the antidumping law and in the administrative enforcement of the law were designed to facilitate the filing of petitions and increase the probability of import duties as being the final outcome.
In terms of the quantitative rise in the use of anti-dumping after these legislative changes, Gary Horlick and Eleanor Shea have written:
the use of antidumping law in the United States increased significantly in the 1980s, with U.S. cases totalling three hundred and forty-six from 1980 to 1986, compared with one hundred and thirty-five from 1970 to 1976.
Along the same lines, this is from a Heritage Foundation paper (back when there were free traders at Heritage):
In 1980, there were only 83 outstanding U.S. antidumping orders on foreign imports. By 1990, outstanding antidumping orders had increased to 197. In that year, the U.S. government considered 27 dumping complaints, and almost 200 separate dumping orders were, in effect, imposing duties and higher prices on one or more products from 42 different countries. This was up from 84 orders on 23 countries in 1980. (From an unpublished forthcoming study by Keith Anderson, Senior Advisor to the Vice Chairman Anne Brunsdale, International Trade Commission, Washington, D.C.)
And here is something from a 2001 Federal Reserve Bank paper:
Investigations of anti-dumping and countervailing duties have seen remarkable growth in the last few decades. From 1916 to 1970, for example, there were almost 800 such cases in the United States, or about 15 a year, according to ITA figures. But they crept to an average of almost 23 per year in the 1970s, then skyrocketed to 60 cases a year in the 1980s. The pace then slowed to 50 initiations a year in the 1990s, due to a sharp drop in annual countervailing duty cases.
What all this means is that while ordinary U.S. tariffs are relatively low, AD/CV duties make up some of the difference and should be taken into account. (The example I like to cite is 744.81% anti-dumping duties on mattresses from Slovenia.) And while the U.S. is not alone as a user of these tariff tools (as many countries have increased their use of AD/CV duties over the years), I think it's fair to say the U.S. is still one of the leaders here. Thus, when thinking about whether the commitments in trade agreements are reciprocal, the use of AD/CV duties needs to be considered as well. (There are, of course, WTO rules constraining the use of these duties, but these rules haven't made much of a dent in the overall usage).