MSC Research
Reciprocal Tariffs
How Global Markets are Shaken under Trump’s Administration
What is Tariff?
Tariff is a type of tax imposed by the government (of a particular country) on imported goods. Calculation methods of tariffs include the calculation according to the value of goods (ad valorem), the number of units of goods imported (specific tariffs) or a combination of both methods called compound tariff.
What is the Purpose of Tariffs?
Other than the tariffs being the government’s source of revenue, tariffs are principally aimed to protect domestically-produced goods because of the price advantage, as opposed to similar imported goods on which tariffs are levied.
Who Pays the Tariffs?
Importers of goods pay the tariffs collected by the customs authority of that particular country. The added cost of the imported goods is usually added to the prices of the imported products offered to consumers. Therefore, it can be said that, among other players, the consumers will eventually bear the costs of tariffs.
What Are Reciprocal Tariffs?
Reciprocal tariffs are taxes levied on imported goods, imposed by the government of a country in response to similar tariff rates imposed by its trading-partner countries.
The Executive Orders Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits[1], dated 2 April 2025 were issued to impose reciprocal tariffs for goods imported from the U.S. trading partners. In the Executive Orders, President Trump claims that the evident trade deficits, investigated under his administration, have prevented the ability to scale domestic manufacturing capacity, among other things. The Executives Orders go on the say that the trade deficits are caused substantially by a lack of ‘reciprocity’ in the U.S. bilateral trade relationships, hence the emergency to impose the said reciprocal tariffs on its trading partners.
What Will be the Effects of the Reciprocal Tariffs?
On the US
U.S. importers will bear the increased tariffs, which are likely to be passed on to its local consumers by increasing prices on imported goods.
U.S. reciprocal tariffs aim to enhance U.S. local manufacturers’ capacity; create jobs as well as strengthen national security. The White House’ website released a fact sheet on the national emergency to impose reciprocal tariffs stating that from 1997 to 2024, the U.S. lost around 5 million manufacturing jobs and experienced one of the largest drops in manufacturing employment in history and that President Trump recognized that increasing domestic manufacturing is critical to U.S. national security[2].
The question, therefore, would be whether the U.S. is ready to fully rely on its local content to produce goods in an economically-sound manner or whether efficient resources can be managed by local manufacturers without being dependent on imports. Without economical production of goods from the U.S. local content, increased cost on production will be borne eventually by the local consumers. Lack of which, as well as the reciprocal tariffs will end up affecting the consumers’ living standards.
On Global Exporters
Since the U.S. is a major importer of goods from around the world, foreign exporters rely on the U.S. market for their growth. Increased costs on imports may discourage U.S. importers, hence the decrease on imports from other countries. This will result in a significant increase in the cost of doing business with the U.S., hence a possible stagnation of global trade.
Aside from the foreign exporters losing its competitive edge due to the reciprocal tariffs, countermeasures are being prepared to retaliate against the U.S. reciprocal tariffs, one of which being countries imposing matching tariffs for products imported from the U.S.[3].
On Thailand
The U.S. is Thailand’s major trading partner, where in 2024 the U.S. goods trade deficit with Thailand was $45.6 billion[4]. Reciprocal tariffs on imports of goods originated in Thailand is 36% (The rate was changed back and forth between 37% and 36% in a matter of days after the Executive Orders were issued.). As of today, no definitive countermeasures have been adopted by Thailand, and Thai exporters shall monitor closely whether there will be any changes or exemptions they can utilize for their benefits, as well as whether Thailand will officially adopt any countermeasures that can ease Thai exporters’ burden during this trade war.
Footnote
[1] https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/
[2] https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/
[3] https://www.pm.gc.ca/en/news/news-releases/2025/04/03/canada-announces-new-countermeasures-response-tariffs-from-united-states and https://www.bangkokpost.com/business/general/2997522/this-is-how-asia-pacific-is-responding-to-us-reciprocal-tariffs
[4] https://ustr.gov/countries-regions/southeast-asia-pacific/thailand#:~:text=Thailand%20Trade%20Summary,(%247%20billion)%20from%202023.
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