Overview
On February 13, 2025, President Trump signed a memorandum to lay the groundwork for the negotiation of reciprocal trade terms with US trading partners, with the specific goal of reducing the US trade deficit (Reciprocal Trade Memo).
The Reciprocal Trade Memo was less dramatic than had been anticipated, as it does not immediately impose "reciprocal" tariffs. Instead, the Reciprocal Trade Memo only directs the US Department of Commerce (Commerce) and the Office of the United States Trade Representative (USTR) to conduct whatever investigations are required to address non-reciprocal trade arrangements, and report back to the President the results of their findings and their proposed remedies, which would likely include increased or new tariffs.
Thus, while the Reciprocal Trade Memo does not itself impose tariffs or other trade restrictive measures, it lays the groundwork for potential trade action against virtually every US trading partner, which could substantially alter the face of US economic, industrial, and international trade policy and global trading patterns.
Background on President Trump’s Push for Reciprocal Trade
The pursuit of fairness and reciprocity for US businesses and workers in the global trading system has been a consistent trade policy priority for President Trump and Peter Navarro, the President’s Senior Counselor for Trade and Manufacturing. Their concerns include large deficits in goods trade with major partners and differential tariff treatment of US exports. The President also argues that international institutions like the World Trade Organization and Organization for Economic Co-operation and Development have not adequately addressed market-distorting subsidies and extraterritorial regulations affecting US firms.
In line with this philosophy, on January 21, 2025, President Trump issued a Memorandum on [an] America First Trade Policy, and directed several agencies to undertake a comprehensive review of existing US trade policies. Importantly, while the America First Trade Policy Memo instructed agencies to undertake a review of unfair foreign trade and regulatory practices, it did not direct them to act. Rather, the agencies were generally instructed only to “recommend appropriate actions.” The America First Trade Policy directs agencies to submit their findings and recommendations to the President by April 1, 2025.
The Reciprocal Trade Memo takes the America First Trade Policy Memo one step further, by directing Commerce and USTR specifically to “initiate . . . all necessary actions to investigate the harm to the United States from any non-reciprocal trade arrangements adopted by any trading partners.” Once these investigations are complete, Commerce and USTR are then required to submit a report to the President detailing proposed remedies, including tariffs, to achieve reciprocal trade with each trading partner. All of these will come together into a “Fair and Reciprocal Plan” (Plan).
What Are “Non-Reciprocal Trade Arrangements”?
While the term “non-reciprocal trade arrangement” is not specifically defined, the America First Trade Policy Memo and the Reciprocal Trade Memo direct Commerce and USTR to focus on the following areas:
- Tariffs
- Section 2(a) of the Reciprocal Trade Memo directs a review of “tariffs imposed on United States products.”
- The President and administration officials have regularly pointed to generally high tariffs on US products imposed by India, Brazil, Argentina, Vietnam, Japan, South Korea, and the European Union. A fact sheet on the President’s “Fair and Reciprocal Plan” points to specific instances in which countries impose a higher tariff rate on US products than the US imposes on related imports. Tariff disparity will presumably be a key element of any future investigations conducted by Commerce and USTR.
- Taxes
- In Section 2(b) of the Reciprocal Trade Memo, the President directs Commerce and USTR to investigate unfair, discriminatory, or extraterritorial taxes imposed by US trading partners on US businesses, workers, and consumers. This includes a value-added tax (VAT), defined by the Reciprocal Trade Memo as “a consumption tax that is levied on the incremental increase in value of a good or service at each stage of the supply chain.”
- Nearly every country except the US uses a VAT. While the rate of VAT applied is the same across the entire jurisdiction, they can create additional compliance and logistics burdens for imported products.
- Nontariff Barriers and Burdensome Regulations
- Section 2(c) of the Reciprocal Trade Memo directs Commerce and USTR to identify “nontariff barriers or measures and unfair or harmful acts, polices, or practices, including subsidies, and burdensome regulatory requirements on United States business operating in other countries.”
- As described in Section 4(b) of the Reciprocal Trade Memo, a nontariff barrier or measure is defined as “any government-imposed measure or policy or nonmonetary barrier that restricts, prevents, or impedes international trade in goods, including import policies, sanitary and phytosanitary measures, technical barriers to trade, government procurement, export subsidies, lack of intellectual property protection, digital trade barriers, and government-tolerated anticompetitive conduct of state-owned or private firms.”
- Exchange Rates
- Pursuant to Section 2(e) of the America First Trade Policy Memo, the Secretary of the Treasury must review and assess the policies and practices of major US trading partners with respect to the rate of exchange between their currencies and recommend appropriate measures to counter currency manipulation or misalignment that prevents effective balance of payments adjustments or that provides trading partners with an unfair competitive advantage in international trade. Additionally, the Secretary shall identify any countries that he believes should be designated as currency manipulators.
- Pursuant to Section 2(d) of the Reciprocal Trade Memo, the Secretary of Commerce and USTR are to examine policies and practices that cause exchange rates to deviate from their market value, to the detriment of Americans; wage suppression; and other “mercantilist policies” that make US businesses and workers less competitive.
Section 2(e) contains a catch-all provision that allows USTR, in consultation with the Secretary of the Treasury, the Secretary of Commerce, and the Senior Counselor to the President for Trade and Manufacturing, to review “any other practice” that imposes any unfair limitation on market access or any structural impediment to fair competition with the market economy of the United States.
Timing and Process
The Reciprocal Trade Memo does not lay out any specific timeframe for the development of the Plan it contemplates. But taken at face value, it would appear that investigating unfair foreign tariff rates, acts, policies, and practices within the scope of the Memo, and subsequently taking action against those US trading partners would likely take several months.
As noted above, the first step, under the America First Trade Policy, is for Commerce and USTR (among other agencies) to submit reports to the President with their various recommendations for action by April 1, 2025. After these reports are issued, pursuant to the Reciprocal Trade Memo, Commerce and the USTR – in consultation with other agencies – will then initiate “all necessary actions to investigate the harm to the United States from any non-reciprocal trade arrangements adopted by any trading partners” under the statutes they administer. The results of these investigations, and any potential remedies, will form the basis for the Plan contemplated by the Reciprocal Trade Memo.
The timing of the imposition of any remedies will depend in part on the statutory tool selected by Commerce and USTR. Some of the statutory provisions cited in the America First Trade Policy Memo, such as Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, would require the President and agencies to adhere to processes that could take months or over a year before an actionable determination was issued. Others, such as the International Emergency Economic Powers Act (IEEPA) and Section 338 only require a presidential declaration before tariffs are imposed.
Regardless of the statutory provision used, practical considerations could also hamper speedy action. The Administration is conducting negotiations with Canada, Mexico, and China over threatened and imposed tariffs regarding the national security risks posed by the influx of illegal aliens and illicit opioids and the expected imposition of steel and aluminum tariffs on March 12. Additionally, President Trump recently announced that additional, separate tariff actions are coming on semiconductors, pharmaceuticals, automobiles, steel, and aluminum. These actions, combined with the lack of confirmed senior appointees at many of these agencies and potential reductions in headcount due to Department of Government Efficiency-led personnel cutbacks, are severely straining bandwidth at these agencies and are likely to lead to slower action.
Next Steps and Implications
Given the wide-ranging scope of the reviews to be conducted under the America First Trade Policy Memo and Reciprocal Trade Memo, it is impossible to know precisely when the President will impose new tariffs to address the challenges described in either memo. Nevertheless, certain countries need to be concerned: those with high or growing bilateral trade deficits with the United States; those with persistent trade barriers identified in the National Trade Estimate; countries whose key exports are focused on critical US industries; and/or those with significant strategic and economic influence.
It remains to be seen whether US trading partners can engage in effective negotiations aimed at achieving reciprocity to the benefit of US economic interests. Threats of new tariffs have elicited a range of responses from US trading partners, which present both risks and opportunities for US exporters. Many countries are preparing to immediately retaliate while others are signaling their willingness to work with the Trump Administration on opening their markets and reducing trade barriers to preempt tariffs. At a minimum, foreign governments, foreign producers/exporters and US companies dependent on imports and exports must begin to assess their potential exposure to future trade action (including possible retaliatory action).
