February 15, 2025: The Trump Administration Fair and Reciprocal Tariff Plan – A Backdoor to a New Era of Free Trade Agreements with the United States

On Thursday February 13, the White House released the Presidential Memorandum “Reciprocal Trade and Tariffs”.  The Memorandum introduces the “Fair and Reciprocal Plan” (Plan) to impose “fair and reciprocal” tariffs on all countries that impose duties and other barriers on U.S. goods.

Under the Plan, the Administration will review all tariff and non-tariff barriers against US imports imposed by all US trading partners and propose measures to address such barriers. U.S. Commerce Secretary Howard Lutnick said the study could be completed as early April 1, 2025.

Non-tariff barriers are defined widely to include additional taxes, regulatory costs, subsidies, exchange rate manipulation and any other practice that in the judgement of the USTR imposes an unfair cost on US businesses and workers.

It appears that rather than negotiate separate and different reciprocal tariffs on every individual product with each trading partner, an average reciprocal tariff will be imposed on all products imported by the US if the trading partner imposes higher tariffs than the United States or is otherwise considered to impose trade barriers that disadvantage US traders.  Incidentally, this sweeps aside a major principle of post-War trade diplomacy – most-favored nation (MFN) status which provides for an importing country to apply its lowest tariff on a product to all imports of that product from any WTO member – unless a free trade agreement is in place between the trading partners.  The MFN principle has lowered trade barriers and increased trade over the past 80 years.

The new Administration Plan raises the question of whether trading partners can use the Fair and Reciprocal Plan to unilaterally eliminate their tariffs and any NTBs on imports from the United States obliging the Administration to reciprocate with zero tariffs on imports from that trading partner.  Could the Plan be a back door for countries to negotiate a free trade agreement on goods with the United States?

The simple average US import tariff across all potential imports was 2.77% in 2022.  Many countries impose higher average tariffs.  For example, the simple average tariff imposed on imports by India is 14.27%, China applies 6.54% and Brazil 12.45% according to 2022 data from the World Bank.  These countries will either have to reduce their tariffs on imports from the US or be subject to an equivalent reciprocal tariff on their exports to the US.

However, many countries have lower average tariffs than the United States.  For example, The European Union (1.97%), Japan (2.07%) and New Zealand (2.25%).  Would the Administration reduce its tariffs on imports from these countries, i.e. apply a negative reciprocal tariff? 

Furthermore, many countries have long sought to negotiate free trade agreements with the United States.  The United Kingdom has been particularly interested since Brexit. However, Congress has been reluctant to enter into new trade agreements over the past twenty years.  In keeping with the fair and reciprocal nature of the new plan, will the Administration eliminate tariffs on imports from a country if that country imposes no tariffs and other barriers on imports from the United States?