Is Reciprocity Dead?

Is reciprocity dead? President Trump’s announcement of a 25 percent global tariff on imports of automobiles and certain automobile parts is confusing.I have been a strong supporter of what I thought was his reciprocal trade policy. You tax us, we’ll tax you. But if you tax us less, we will drop our tariffs as well.Seems to me, that makes a lot of common sense, and is easily understood by most everyone.And, needless to say, Mr. Trump is a proven master negotiator, who is uniquely capable of using reciprocity to ultimately lower tariffs and trade barriers for Americans.But the global car tax is not reciprocity. Actually, the President invoked Section 232 of the Trade Expansion Act of 1962, which is a national security-related act.Now, I’m all for foreign automakers building more factories in America.I understand and support Mr. Trump’s longer-range effort to make America more of a manufacturing economy that would certainly boost the wages of blue-collar workers.The question is — how do you do it, in a way that people can understand?Economist Larry Lindsey writes that the Trump trade policy is now more lenient than reciprocal, and that’s what we can expect next Wednesday, April 2nd, which Mr. Trump calls Liberation Day.Here’s what the president said yesterday about being lenient, in response to a reporter asking: “You said this to be more lenient than reciprocal?”Mr. Trump replied: “I think they’ll be, yeah. I think if I was, if I did to them what they did to us, I think a lot of people would be very unhappy. Yeah, I think it’ll be much more lenient. I’m going to be much more lenient with regard to the tariffs that you’ll see on April 2nd. I’m going to be much more lenient than they were with us. I thought they were really bad with us. They’ve treated us badly.”The president is surely right that if foreign countries treat us so badly, the policy of reciprocal trade means we have to hit back by raising our tariff rates.But regarding the 25 percent tariff on autos, it seems like there’s no room for reciprocity.For example, there was a flurry of talk that the European Union was going to drop its car tariff to 2.5 percent from 12.5 percent, which had been our average car tariff.But, now, they’ll have to face a 25 percent tariff.Here in North America, the White House fact sheet states that importers of autos under USMCA will be given the opportunity to certify their American content, and systems will be implemented so that the 25 percent tariff will only apply to the value of their non-American content.And USMCA-compliant auto-parts will be left tariff-free until the U.S. Customs & Border Protection establishes a process to apply tariffs to their non-U.S. content.Though I could be wrong, it seems to me that both the sections on auto assembling and parts prematurely breaks up the whole USMCA trade agreement, which is not due to be reviewed until May of next year.In round numbers, it’s possible the global car tariff will bring in about $100 billion, depending on the elasticities of consumer demand. So maybe that will be used to pay for more tax cuts. That would be good.Meanwhile, the top domestic-content car manufacturer in the U.S. is Tesla, by far, with average U.S. domestic content of 81 percent.Number two is Honda, which in the past nearly ten years has gone to 63 percent from 50 percent.Ford and GM, on the other hand, have gone to 54 percent from 65 percent and 66 percent, respectively — a considerable drop.Stellantis has fallen even more, to 46 percent from 60 percent.So all these carmakers, except perhaps Tesla, have a tremendous amount of work to do if they’re going to pick up the slack, until foreign auto companies get with the program.My point is this: I’m all for reciprocity. I’m all for building up manufacturing. I’m not afraid of tariff diplomacy. Tax cuts and deregulation incentives to build and buy American are roughly $7 trillion — so let’s not obsess about the relatively much smaller tariffs.But, at the moment, the trade policy we’re seeing seems to be losing the simple, common-sense clarity of reciprocity.From Mr. Kudlow’s Broadcast on Fox Business News.

Is Reciprocity Dead?

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