On April 2, 2025, President Donald Trump announced reciprocal tariffs on all countries across the globe. The tariffs start with a baseline of 10%, meaning that is the lowest rate that any country can achieve under the new reciprocal tariff structure. In addition to the baseline, higher reciprocal tariffs have been charged on most countries. The administration for the time being has allowed a few carveouts for sectors such as pharmaceuticals and semiconductors, but overall, these tariffs have surprised market participants to the high side of what was expected, with the global average rate in the range of 18.3% to 23% depending on how sectoral exemptions are handled.
Risks to the Tariff Outlook
The intention of these tariffs has not been clearly articulated. Are they to be tools to bring manufacturing back to the U.S., increase U.S. exports, achieve other objectives or a combination of goals? Estimates of revenues from the reciprocal tariffs are in the range of $600 billion to $650 billion. So, are reciprocal tariffs to be understood primarily as a new revenue source for the government? Or are they primarily to serve as leverage to renegotiate bilateral trading deals with countries around the globe? These questions give rise to uncertainty around how long these tariffs will be in place. The longer they stand, the greater the risk to the global economy.
Few nations have been sitting idle in the face of these tariffs, and many have come out with retaliatory measures. In addition to what was outlined in my February paper, “Assessing Trump Trade Policy: A Year of Rolling Tariffs, Macro Unknowns and FX Volatility,” retaliatory measures have included:
- Canada on April 3 introduced 25% tariffs on U.S. vehicles and components deemed by Ottawa to be non-compliant with the Canada-United States-Mexico Agreement (CUSMA) while earmarking all tariff revenue to support Canadian auto workers. This targets politically sensitive U.S. industries in Republican-leaning states, mirroring strategies used in prior trade disputes.
- Beijing has mimicked the 34% U.S. reciprocal tariffs, imposing the same markup on American goods entering China. In addition, Beijing restricted exports of seven rare earth elements critical for advanced technologies, including samarium (used in aerospace/defense), gadolinium (MRI components), and terbium (electronics).
- The European Union (EU) has proposed a two-phase retaliatory strategy against U.S. tariffs, targeting $28 billion in American imports, with measures designed to pressure politically sensitive industries.
The response of the White House to these retaliatory measures remains to be seen. In his first term, President Trump reacted to China’s retaliatory tariffs by piling on more tariffs. When China imposed tariffs on U.S. products such as soybeans and agricultural products in 2018, the president doubled down on tariff threats, directing the U.S. trade representative to consider $100 billion in additional duties. The first Trump administration also pursued a tit-for-tat strategy, escalating tariffs on $34 billion worth of Chinese goods in July 2018 and later proposing 10% duties on $200 billion in additional goods. If President Trump were to take a similar approach today, such actions would worsen the outlook for global growth.
One potential bright spot, albeit likely temporary, is the carveout for certain sectors from the reciprocal tariffs, mainly pharmaceuticals, semiconductors, lumber and energy. Although this might appear to be a positive development, I think it’s likely that the White House will implement specific tariffs targeting these sectors later this year. This raises additional risks to the economic outlook as such sectoral tariffs would likely be additive to the reciprocal tariffs already announced.
Contours of the Reciprocal Tariffs Target the EU and Asia
Viewed by regions, a targeting of Asia and Europe compared to North and South America becomes clear. The larger Asian countries are on the receiving end of very high reciprocal tariff rates, with China at 34% (in addition to the 20% already in place, bringing the increase in tariff rates to 54% this year), Vietnam at 46%, Taiwan and Indonesia at 32%, South Korea at 25%, Japan at 24% and Malaysia at 24%, to name a few. Europe was hit with a 20% reciprocal tariff rate starting on April 9. By comparison, the South American countries Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Paraguay and Uruguay face the 10% baseline tariff. Canada and Mexico were left off the reciprocal tariff model, although they remain subject to the tariffs already in place.
In his first administration, President Trump took a very hawkish stance toward China, a posture he appears to be continuing today. Asia has grown in global importance in goods manufacturing, ranging from products at the low end of added value (e.g., textiles) to the high end (e.g., semiconductors). In a rare instance of bipartisanship, Washington views China not only as an economic threat but also as a national security concern. The strategy of harshly targeting Asia is likely part of the administration’s objective to contain China and not allow goods produced there to be re-exported via a regional neighbor into American markets. Prior to the start of Trump 2.0, the U.S. government had been focused on bringing manufacturing back to the States in a policy referred to as “near-shoring.” The regional contours of the reciprocal tariffs suggest that this policy might remain on the agenda.
To view DoubleLine's Take on the Reciprocal Tariffs in its entirety, including economic implications, please visit: https://doubleline.com/markets-insights/doublelines-take-on-the-reciprocal-tariffs/
Mr. Campbell joined DoubleLine in 2013. He is a Portfolio Manager for the DoubleLine Global Bond Strategy and is a permanent member of the Fixed Income Asset Allocation Committee. He covers developed markets, Central and Eastern Europe, the Middle East and Africa (CEEMEA) and China. Prior to DoubleLine, Mr. Campbell worked for Peridiem Global Investors as a Global Fixed Income Research Analyst and Portfolio Manager. Prior to that, he was with Nuveen Investment Management Co., first as a Quantitative Analyst in the Risk Management and Portfolio Construction Group, then as a Vice President in the Taxable Fixed Income Group. Mr. Campbell also worked at John Hancock Financial as an Investment Analyst. He holds a B.S. in Business Economics and International Business, as well as a B.A. in English, from Pennsylvania State University. Mr. Campbell holds an M.A. in Mathematics, with a focus on Mathematical Finance, from Boston University.
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