On February 13, 2025, the White House issued a memorandum introducing a “Fair and Reciprocal Plan” (Plan) aimed at addressing the large and persistent trade deficits the U.S. has with its major trading partners. The Plan includes new “reciprocal” trade actions (both tariffs and non-tariff measures) against U.S. trading partners around the globe that engage in trade practices deemed to be unfair or that result in imbalances. The stated goal of the Plan is to determine the “equivalent” of a reciprocal tariff with foreign trading partners by examining foreign duty rates on U.S. goods and “non-reciprocal” trade relationships with all U.S. trading partners.
The Plan’s approach will be comprehensive in scope and will cover:
- Tariffs imposed on U.S. products (by tariff code under the Harmonized Commodity & Description Coding System (HS));
- Unfair, discriminatory, or extraterritorial taxes imposed by trading partners on U.S. businesses, workers, and consumers, including digital services taxes and VAT;
- Costs to U.S. businesses, workers, and consumers arising from nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies (and import bans, license requirements, or quotas), and burdensome regulatory requirements on U.S. businesses operating in other countries;
- Policies and practices that cause exchange rates to deviate from their market value to the detriment of Americans, as well as wage suppression and other mercantilist policies that make U.S. businesses and workers less competitive; and
- Any other practice that, in the judgment of the United States Trade Representative, in consultation with the Secretary of the Treasury, the Secretary of Commerce, and the Senior Counselor to the President for Trade and Manufacturing, imposes an unfair limitation on market access or structural impediment to fair competition with the U.S. market economy.
In addition to the above factors to be considered in calculating reciprocal tariffs for each U.S. trade partner, the Plan allows the U.S. to factor “in losses as a result of measures that disadvantage the United States as applied, regardless of what they are called or whether they are written or unwritten.” Essentially, the U.S. can increase the “equivalent” reciprocal tariff for any trade practice by a foreign trading partner that it deems to operate counter to U.S. national interests, however the U.S. wishes to define those interests.
What Are Reciprocal Tariffs?
The memorandum introduces the concept of reciprocal tariffs as a key component of the Plan. A Fact Sheet accompanying the announcement cites measures and policies of countries that are considered “non-reciprocal.”
The beginning of the “reciprocal tariff” calculation starts with a fact-intensive inquiry: for each tariff code under the HS (which covers 5,000 tariff descriptions at the international level), does a foreign country impose a higher duty rate than the U.S. imposes on the same product’s HS code when imported into the U.S.? For instance, motor vehicles classified under HS Heading 8703 attract a 2.5% ad valorem duty rate when imported into the U.S. from all countries (absent a free trade agreement claim). However, when motor vehicles are imported into the EU under the same HS code, they attract a 10% normal duty rate (unless a free trade claim is made). Thus, in theory, the first step would be to impose a 10% U.S. Customs duty on all imports of motor vehicles from any of the 27 EU member states.
However, the thrust of the Plan is designed to match or counterbalance the trade barriers imposed by other countries on U.S. goods. This approach aims to create a level playing field by considering not only existing foreign tariff rates but – as noted above - additional factors such as wage suppression, exchange rate management, non-tariff barriers, and VAT.
The Plan defines non-tariff barriers 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.
Following the initial stage of the Plan, which involves analyzing foreign tariffs and other trade barriers, the U.S. will determine reciprocal tariffs equal to the tariff and non-tariff trade barriers placed on the U.S. and potentially apply those reciprocal tariffs on trading partners on a country-by-country basis. The goal is to bring U.S. trade barriers in line with each individual trade partner.
Key Actions and Considerations
The U.S. Department of Commerce and the Office of the U.S. Trade Representative will lead efforts to calculate equivalent reciprocal tariffs for each U.S. trading partner. This will involve a detailed examination of tariffs and other taxes, wage suppression, exchange rate management, and other policies. The U.S. plans to announce reciprocal tariffs that will not necessarily match foreign tariff rates but will consider a broader range of economic factors.
The memorandum outlines a timeline for action, with results due by April 1 in conjunction with the other reports mandated by the Executive Order of January 20 (America First Trade Policy). Commerce Secretary Howard Lutnick has indicated that the new reciprocal tariffs (on a country-by country basis) will be ready to be implemented as of April 2. The Director of the Office of Management and Budget tasked with assessing the fiscal impacts of these new tariffs will then prepare his report due within 180 days of the final tariff announcements.
Implications for U.S. Importers and Global Trade Partners
The introduction of reciprocal tariffs could lead to increased costs for U.S. importers, particularly those dealing with countries identified as having significant trade surpluses with the U.S. The focus on non-tariff barriers and VAT may also impact trade dynamics with regions such as the EU, which has been highlighted as a key target of the Plan.
Importers should prepare for potential changes in tariff structures and remain vigilant about updates from U.S. trade authorities. The Plan may also prompt negotiations with trading partners to address trade imbalances and reduce barriers.
How BDO Can Help
BDO’s Customs & International Trade Services team assists businesses in understanding the complexities of new trade policy. We also offer support in navigating trade regulations and managing global trade beyond the context of reciprocal tariffs. Our services cover a broad range of trade compliance, cost savings, and refund topics including compliance assessments, country of origin and tariff classification determination, customs valuation, foreign trade zones, duty drawback, and trade data analytics.
For more information on how BDO can support your business in light of this decision or for other topics in customs and trade, please contact your local BDO professional.
Please visit BDO’s International Tax Services page for more information on how BDO can help.