Last week, US President Donald Trump signed a memo directing his economic staff to develop reciprocal tariffs on the country’s trading partners to protect American businesses and boost manufacturing.
- The reciprocal tariffs seek to match higher tariffs imposed by other countries on US goods, along with non-tariff barriers and taxes such as value-added taxes (VAT).
- While the tariffs will not take effect immediately, economists and politicians cautioned of the crippling effects the tariffs could have on the economies involved.
- President Trump emphasised that the plan would address the long standing unfair trade practices holding that lack of reciprocity contributed to the persistent annual trade deficit.
“On Trade, I have decided, for purposes of Fairness, that I will charge a Reciprocal Tariff meaning, whatever Countries charge the United States of America, we will charge them – No more, no less,” Trump said on Thursday.
Among the top US trading partners in 2024, Mexico, China and Canada topped the list, followed by Germany, Japan, Vietnam, South Korea, Taiwan, Ireland and India.
“For many years, the U.S. has been treated unfairly by other Countries, both friend and foe,” Trump said on X (formerly Twitter). “This System will immediately bring Fairness and Prosperity back into the previously complex and unfair System of Trade.”
The process will take months to complete and will be led by the Secretary of State, Commerce, the Treasury, and US Trade Representative.
Will the new tariff policy affect Kenya?
While Kenya is not a major U.S. trade partner in global terms, it is the second-largest beneficiary of African Growth Opportunity Act (AGOA) by value of eligible U.S. imports, excluding crude oil.
Enacted in 2000, AGOA is a US trade law which currently provides 32 African countries with duty-free access to the U.S. market for over 1,800 products. It is set to expire in September and although it has bipartisan support in Congress, it is unclear whether Trump will support its extension.
AGOA does not carry an obligation of reciprocity, which President Trump may not view as favourable as he seeks to revive production in the country. For example, he contends that VAT systems, implemented by 175 countries including Kenya (16%), create an uneven playing field in global trade.
These systems tax imports while exempting exports, which he argues puts U.S. products at a disadvantage in international markets. In Europe, VAT rates vary by country, but on average are about 21.5% – far higher than state sales taxes in the United States, which averaged 6.6% in 2023.
