November 10, 2017 9:48AM

The Trouble with Trump’s Tariff Reciprocity

President Trump's favored catchphrase when speaking about trade policy is that it must be "free, fair, and reciprocal." His penchant for such language has certainly been on display during his current trip to Asia, where in Japan alone Trump used some variation of it on at least three separate occasions.

Conducting a joint press conference with Prime Minister Abe, Trump professed a particular affinity for the reciprocal aspect of this formulation:

[F]rankly, I like reciprocal the best of the group. Because when you explain to somebody that you're going to charge tariffs in order to equalize, or you're going to do other things—some people that don't get it, they don't like to hear that. But when you say it's going to be reciprocal—that we're going to charge the same as they're charging us—the people that don't want a 5 percent or a 10 percent tariff say, oh, reciprocal is fair—and that could be 100 percent. So it's much more understandable when you talk about reciprocal.

Trump also noted that this prized reciprocity does not exist in the U.S.-Japan trade relationship, telling a group of U.S. and Japanese business leaders that "We want free and reciprocal trade, but right now our trade with Japan is not free and it's not reciprocal."

On the surface, Trump's comments may appear to be commonsensical and correct. Indeed, ideal tariff levels between two countries are a reciprocal zero. It is also accurate that the United States and Japan do not enjoy reciprocal trade in the context of tariffs. A deeper examination of the subject, however, reveals that the president gets more wrong than he gets right. 

Let's first note that while President Trump often frames the reciprocity argument as one in which the United States is the aggrieved party charging lower tariffs while its trading partners opt for higher ones, the opposite is also frequently the case.

The U.S.-Japan trading relationship is a useful example. Perusing the two countries' HTS codes, one can see that the United States charges tariffs on a number of goods produced by Japan including a 2.5% duty on automobiles, a 25% tariff on trucks, and 14% tariff on imports of railway passenger coaches. Japan, in contrast, charges no tariff at all for any of these products.  

Even where the two sides both extend duty-free treatment to the same product, this can simply mask underlying protectionism. Like Japan, the United States does not apply tariffs to imports of ships used for the transport of people and goods (HTS code 8901.90.00 for those who care to look it up). It does, however, have a law on the books called The Merchant Marine Act of 1920—more commonly known as the Jones Act—which mandates that any vessel used to transport goods or people between U.S. ports must be domestically built. While a ship can be purchased from Japan tariff-free, this protectionist law ensures that its usefulness will be greatly diminished. 

None of this is to suggest that the United States is always the villain and never the victim. Japan is notoriously protectionist in the area of agricultural products, which is particularly costly to an agricultural powerhouse such as the United States. Japanese tariffs on beef, for example, are typically 38.5%—and currently 50% due to the imposition of a "safeguard" measure to give the country's beef producers additional protection—while the U.S. rate is a comparatively low 4%. Oranges, meanwhile, incur a Japanese duty ranging from 16-32% depending on the time of year they are imported, while 100 kilograms of the fruit imported into the United States will face a tariff bill of just $1.90. Fish, mostly duty-free in the United States, typically face duties of 3.5% and higher in Japan.

Under a tariff regime based on perfect reciprocity, the United States would impose tariffs on such food products to match those of Japan. But other than raising the cost to U.S. consumers of Wagyu beef or Japanese fish (Americans do not consume Japanese citrus products in any significant quantity), what would this accomplish? Japan's high food tariffs reflect the influence of the country's powerful farm lobby (sounds familiar!), and the prospect of diminished exports to the U.S. is unlikely to dissuade those in Japan's agricultural sector from their protectionist stance. The likely result would be the status quo by Japan, but with American consumers facing elevated prices and reduced choice and American businesses confronted with increased input costs, thus reducing their competitiveness. Copying a trading partner's misguided approach is not a sensible policy.

Rather than hewing to a blind insistence on tariff reciprocity which holds U.S. businesses and consumers hostage to decisions made in foreign capitals, the Trump administration should push for the conclusion of trade agreements which reduce tariffs and other forms of trade barriers by both the United States and its trading partners to the greatest extent possible. This, not simplistic sloganeering, represents the best path towards freer and expanded trade.