On April 2, President Trump announced the implementation of a 10% tariff on all imported goods, along with “reciprocal tariffs” ranging from 17% to 49% on most countries as planned.
Following the announcement, the U.S. stock market plummeted by over 10% for two consecutive days, resulting in polarized international reactions. Some countries opted for implementing “zero tariffs” on U.S. products, while others retaliated with tariffs. There were also countries expressing willingness to negotiate with the United States.
Is the U.S. policy of “reciprocal tariffs” reasonable? To understand this, let’s take a look at the history of tariffs in the United States.
In the early stages of the country’s foundation, the U.S. adopted a higher tariff policy for about a century to protect the nascent domestic industry from being destroyed by industrialized European powers like Britain.
Notable examples include the “Report on Manufactures” in the 1790s and the Tariff Act of 1816, which increased import duties on manufactured goods. During this period, tariffs served not only as protective trade barriers but also as a major source of federal government revenue.
In the late 19th century to the early 20th century, as the industrialization process accelerated in the United States, the northern industrial states supported high tariffs to protect manufacturing industries, while the southern agricultural states favored low tariffs to promote exports and reduce the cost of imported goods.
The Smoot-Hawley Tariff Act of 1930 marked a peak in tariffs, triggering retaliatory tariffs internationally and causing a two-thirds decrease in U.S. trade, which opponents of tariffs blamed for exacerbating the Great Depression.
However, it’s important to note that the trade volume peaked in 1929 and hit its lowest point in 1932, coinciding with the onset of the Great Depression following the stock market crash in late October 1929. The implementation of the Smoot-Hawley Tariff Act was only signed into effect in June of the following year, with Canada being the first to retaliate starting from 1930.
The decrease in trade volume was attributed to the Great Depression rather than tariffs. Additionally, the impact of tariffs is more significant on net exporting countries; the U.S. was a net exporting country at the time, whereas China is a major exporter to the U.S. today.
Post World War II, the U.S. emerged as a global leader advocating for free trade to boost the global economy’s recovery and counter Soviet influence.
The 1947 General Agreement on Tariffs and Trade (GATT) aimed to reduce trade barriers through multilateral negotiations, with the U.S. taking the lead in gradually reducing reciprocal tariffs from pre-war high levels to single-digit percentages.
During the Cold War, the U.S. leveraged low tariff policies to foster unity among allies and promote economic integration in the Western world, a policy that continued beyond the Cold War era.
Representative measures of this period include the 1994 North American Free Trade Agreement (NAFTA) and the establishment of the World Trade Organization (WTO) in 1995, where the U.S. further lowered tariffs in exchange for market access and geopolitical advantages.
The trend of globalization benefitted U.S. businesses through cheaper imports of raw materials and consumer goods, further driving the continuation of low tariff policies.
Prior to the announcement of reciprocal tariffs, the average tariff rate on imported goods in the U.S. was around 2% to 3%, significantly below historical levels and lower than many other countries. Apart from specific targeted tariffs such as those on Chinese goods (since the 2018 trade war) and protective measures for certain industries like steel and aluminum.
The European Union imposes an average tariff of about 3.5% on U.S. goods, with significantly higher tariffs in certain sectors like auto tariffs at 10%, and some agricultural products facing tariffs exceeding 20%.
In contrast, the U.S. applies a 2.5% tariff on EU cars, lower tariffs on most industrial goods, and many goods enjoy duty-free status. Additionally, the EU levies a 20% value-added tax, which the U.S. views as an additional trade cost. China, on the other hand, imposes higher non-tariff costs.
As a consequence of being a global leader post-World War II, one of the costs the U.S. bears is the “unilateral low tariff” approach.
The economic revival of Europe and Japan, the economic rise of the Asian Tigers, and China’s economic development all hinge on exports to the U.S. The U.S.-led global free trade and modern globalization were almost perfectly synchronized, forming the foundational pillars of globalization.
The U.S. has profited significantly from this arrangement, yet today, the U.S. can no longer afford to be the world’s benefactor. With China and the EU being the second and third-largest economies respectively, what reason do they have to resist reasonable reciprocal tariffs?
As of March 6, 2025, the U.S. national debt stands at approximately $36 trillion, accounting for about 120% of its GDP, an absolutely “unsustainable” level by international financial standards.
An article by Axios online suggests that if Trump’s tariffs are right, one must believe his intuition is superior to that of his party over the past half-century and the judgment of economists who have extensively studied this issue.
However, there are two key errors in this statement. Firstly, if politicians and economists were right, the U.S. national debt wouldn’t have reached unsustainable levels today. Secondly, half a century is a long time, and circumstances inevitably change. Even if individuals were correct in the past, it doesn’t guarantee correctness today. Moreover, the majority of Trump’s intuitions have proven accurate.
In reality, the current model is unsustainable, necessitating a change regardless of who is in power.
In the short term, there is a need for both revenue generation and expenditure reduction. Musk’s government efficiency department focuses on the latter, while revenue generation involves domestic taxation or external tariffs, with Trump opting for tariffs.
This also represents a form of shock therapy; the alternative would be to continue the current policies until an economic collapse, which would bring mutual hardship. Trying to salvage the situation, although painful and potentially unsuccessful, is better than inaction, as at least it won’t make things worse.
Similar to the work of the government efficiency department, many government employees have lost their jobs, resulting in their families losing a significant source of income. Moreover, some have been mistakenly dismissed, as highlighted by the case where 20% of Health Department employees were wrongly laid off.
While it is ideal to avoid errors, in a large-scale reform, complete avoidance is nearly impossible. This is the necessary course of action that must be undertaken.
Moving away from globalization involves abandoning global agreements such as the World Trade Organization (WTO) and opting for bilateral negotiations and agreements, a strategy that Trump is currently pursuing.
The responses adopted by various countries essentially reflect their choices in aligning themselves within the future international order.
Countries like Argentina, Israel, Vietnam, and Taiwan have expressed willingness or engaged in zero-tariff negotiations with the U.S., while India, Mexico, Canada, Japan, South Korea, and the UK reportedly aim to reduce tariffs or even strive for zero tariffs through efforts and negotiations.
The White House has stated that over fifty countries have engaged in tariff negotiations with the U.S. Moderately positioned countries like Australia, New Zealand, and Singapore, while not aiming for zero tariffs, have expressed a non-retaliatory stance. On the other hand, the EU leans towards retaliatory tariffs against the U.S., but is still in the internal coordination and preparation phase. China has already imposed retaliatory tariffs effective from April 10 and sanctioned U.S. companies.
Currently, true allies are more inclined to reduce tariffs in exchange for the U.S. not increasing tariffs, all while maintaining strong allies.
Countries heavily reliant on the U.S. economically, such as Vietnam, have shown willingness to significantly lower tariffs on American goods, with Canada and Mexico indicating their willingness to adjust correspondingly if the U.S. withdraws tariffs. South Korea and Japan, whose automobiles and electronic products heavily rely on the U.S. market, may also take similar measures.
China, as the most significant adversary, has announced a reciprocal 54% tariff on all U.S. goods. Additionally, they have listed eleven U.S. firms as unreliable entities and the Customs Administration has suspended six American companies’ qualifications for exporting to China.
China’s Ministry of Commerce has initiated legal proceedings against the U.S. at the WTO over tariff hikes. As for the WTO lawsuit, the U.S. may disregard it as the WTO represents global international order, while Trump’s goal is to move away from globalization, making tariff hikes a tangible action to push bilateral negotiations. Therefore, it raises the question of why the WTO is needed.
Trump’s tariff imposition aligns with the long-term goal of protecting sensitive domestic industries and promoting the reshoring of manufacturing—both goals that do not require a political purpose and are primarily aimed at China. Given that China is the world’s factory, attracting the most manufacturing, the U.S. faces the most challenges in negotiating with China since their non-tariff barriers are also the highest. Initially, there was significant room for reduction, but rather than decrease, these barriers have increased, signaling China’s intent to escalate the trade war.
This alignment stems from China’s designed system, where the purpose of the reform and opening-up was to maintain the CCP’s ruling power, with the improvement of Chinese lives being a byproduct. Besides saving face, the CCP sees this as the ideal opportunity to confront and potentially surpass the U.S.
A significant event that might not be coincidental is the recent announcement by Klaus Schwab, founder and chairman of the World Economic Forum, to begin the process of stepping down as chairman. Although he relinquished his position as executive chairman last year, this complete departure is seen as the end of an era.
Globalization was once a grand feast, subject to historical evaluation for its pros and cons, yet every feast must come to an end eventually.
As U.S. government officials often say, “There’s a new sheriff in town.” The international order since the end of World War II will undergo a transformation, and rules will be rewritten, whether the world likes it or not.