The US has launched an assault against the rules-based global trade order by announcing reciprocal tariffs to balance American trade deficits with its trade partners. The announcement made on Wednesday (April 2), framed as “liberation day”, claims to address a “national emergency” caused by a large and persistent trade deficit resulting from a lack of reciprocity in trade relationships.
Under this plan, the US will implement a 10% tariff on all countries starting April 5. Moreover, individualised reciprocal tariff rates will be imposed on countries with whom the US has the largest trade deficits, effective April 9. India, which falls into this latter category, must pay a 27% tariff or more to access the American market, although some products may be exempt from the new tariff rate. This situation is likely to significantly impact India’s exports and global trade. Through these announcements, the US is coercing other countries, including India, to lower their tariff rates on American products. While some may succumb to American pressure, others might take retaliatory measures, triggering a full-fledged trade war.
This US announcement can be characterised as an audacious attempt to rewrite global trade rules unilaterally. While reciprocity is a fundamental principle of international trade, its interpretation has changed over time. The Trump administration views reciprocity in a narrow sense, with its fetish on a formal mathematical equivalence between the tariff rates of the US and its trading partners. This approach primarily reflects how trade was organised bilaterally before establishing the multilateral trading system.
After World War II, a new global trading order was established. It saw the adoption of the General Agreement on Tariffs and Trade (GATT) in 1948 and the creation of the World Trade Organization (WTO) in 1995. Multilateralism led to a change in international trade practices towards what is referred to as diffuse reciprocity. Diffuse reciprocity does not require a formal numerical equivalence in tariffs. Instead, equivalence relies on countries maintaining their trade relations on a non-discriminatory basis within a multilateral framework. This principle of non-discrimination is formalised in Article I of the GATT through the unconditional Most Favoured Nation (MFN) provision. According to the MFN provision, all WTO member countries, including the US, must extend any trade preferences granted to one country to all other member countries immediately and unconditionally.
Starting April 9, the US will violate Article I of the GATT by implementing individualised reciprocal tariffs. For instance, while the US will impose an 18% tariff on product X from the Philippines, Indian exporters of the same product will face a 27% tariff. This approach also breaches the US’s bound tariff commitments under Article II of GATT. At the WTO, all member countries have pledged not to levy tariffs on products that exceed the rates they have agreed to. Implementing country-specific tariff rates that have not been multilaterally agreed upon goes against this legal commitment. While a WTO member country can unilaterally modify its tariff commitments under Article XXVIII of the GATT, this change requires negotiating compensation with the countries most affected by the tariff adjustment. The US clearly has not adopted this route to modify its tariff rates.
The insistence on strict reciprocity in trade, based on a tit-for-tat approach, undermines the principle of special and differential treatment (S&DT) in the WTO. S&DT, a key WTO legal principle, acknowledges that developing and least developed countries have different economic needs, allowing them to provide less than full reciprocity in tariff obligations to developed nations.
The actions of the US are illegal, even outside the framework of WTO law. International lawyer Marko Milanovic argues that these actions violate the principle of non-intervention under customary international law. The matter of tariff rates falls within a State’s reserved domain, meaning that a country has the right to impose tariff rates that align with its developmental needs, provided these rates conform to its commitments at the WTO. While the US criticism of India’s high tariff rates may not interfere in India’s internal affairs, using coercive measures — such as adopting or threatening to adopt actions not supported by WTO law — till New Delhi yields to Washington’s demands clearly violates the principle of non-intervention.
The US appears to be providing a legal justification for its reciprocal tariffs by claiming they are necessary to protect American national security. While countries can legally deviate from their WTO obligations for national security reasons by invoking Article XXI of the GATT, imposing higher unilateral tariffs on the entire world in the name of national security is unlikely to pass muster.
The Trump administration wants to unilaterally topple the balance of trade concessions that countries agreed to during the establishment of the WTO. The grand bargain was based on allowing developing countries to set higher tariff rates than developed nations in exchange for their acceptance of obligations regarding trade in services and intellectual property. In 2001, WTO member countries launched a new round of trade negotiations to re-balance these concessions, which came an almighty cropper. It may be time to revive this multilateral initiative to thwart American unilateralism.
Some commentators in India seem pleased with the US’s reciprocal tariffs, thinking they would force India to lower its high tariff rates. While India’s tariffs may be high, they are legal. Reducing them should come from a genuine belief that it would benefit the Indian economy, not through coercion. It’s crucial to uphold international law against such pressure, even if realists dismiss its importance. In a power-driven international landscape, those with less power should at least have the law on their side to negotiate effectively. It’s time for India and other countries to assiduously defend the rule-based global trade order from the American onslaught.
Prabhash Ranjan is professor, Jindal Global Law School, O P Jindal Global University. The views expressed are personal
