Economic theories are generally symmetrical. If more of X causes more of Y, then less of X causes less of Y. Thus I was confused by a recent story in Bloomberg:
Trump has gravitated toward the reciprocal tariff plan as a key part of his push to raise US levies overall. Trump has said it would apply to nations who generally have a higher average tariff rate than the US, which would raise its own tariff to match them.
“If they charge us, we charge them,” he said Sunday while speaking with reporters and confirming he planned to announce this week.
I am skeptical of the idea that reciprocal tariffs are a good idea in general. But if they are, I cannot imagine why they would be a good idea for trade with countries that have higher tariffs than the US, but not for trade with countries with lower tariffs than the US. Can someone explain this to me?
Let’s say I’m wrong and that reciprocal tariffs are a good idea. The argument would presumably be that this tool would encourage our trading partners to reduce their tariff rates on US exports. But if so, that argument is equally applicable to countries with lower tariffs than the US. Indeed if the policy were 100% effective, it could encourage countries to reduce their tariffs on US exports to zero, but only if induced to do so by the expectation that the US would follow suit.
On a related note, Elon Musk recently met with Indian Prime Minister Modi, and it was reported that he pressed India to reduce tariffs on Teslas and provide a license to Skylink. Trump was asked if Musk was acting as a US government official or as a private businessman. Trump indicated the latter.
Do you believe that Modi was likely to have assumed that the world’s richest man, who happens to be the second most powerful person in the Trump administration, was acting in a purely private capacity? If you were Modi, would that have been your assumption?
There has never been a complete separation of business and government in the US. But it’s also true that the two have never before been so deeply interrelated.
