How to swerve Donald Trump’s tariffs

“Nobody is getting off the hook for unfair trade balances,” insists Donald Trump. The exemptions and exclusions to the tariffs he has imposed on imports to America would suggest otherwise. His “reciprocal” tariffs announced on April 2nd included a 37-page annexe with exemptions for $644bn-worth of American imports, about a fifth of the total. On April 11th another 20 products were exempted, including smartphones and computers.

These weren’t the first exclusions. Some types of steel and aluminium are exempt. So too are products imported across northern and southern borders that comply with the United States-Mexico-Canada Agreement (usmca), a free-trade deal signed in 2020. If Mr Trump intends the exemptions to leave him room to negotiate, he has lots of leeway.

All this could change rapidly, of course. Mr Trump has already ordered an investigation into the supply chain for copper, which is also currently free from tariffs. As well as probes into pharmaceuticals and semiconductors on April 15th he added one into critical minerals. But for now another u-turn, Mr Trump’s 90-day pause on the high levels of tariffs threatened on “Liberation Day”, as well as the thicket of exemptions lessens the blow for countries and companies.

Levies are currently set at a blanket 10%, down from rates set as high as 49% on Cambodia and 46% on Vietnam. With the latest exemptions, the effective rate on Vietnamese goods will fall to about 7% as close to a third of its exports to America, largely technology products, are exempt.

Others stand to gain relief, too. South Africa was initially hit with duties at 30%, but because over a third of its exports to America include untariffed metals such as gold, platinum and palladium, that will lower the overall rate. Even for Chinese goods the eye-watering 145% tariff will in effect be closer to 106%, because currently duty-free smartphones and computers make up about a quarter of America’s imports. As a result of the latest exemptions, the overall effective tariff rate on American imports is now 22%. That is much higher than it has been in decades, but is at least below the 27% at the height of Mr Trump’s threatened rates.

Can American businesses wriggle out of these levies? Some will have the scope to do so. For industrial companies, raw materials can make up as much as 50% of costs. Relief for basic chemicals and their derivatives, as well as silicon and rubber, is a help. Several of the ingredients in pharmaceuticals and chemicals are also used in foodmaking, an industry that accounted for about a third of America’s manufacturing output last year.

Moreover, if more than a fifth of a product is made in America, tariffs apply only to the value of its foreign-made content. That could be a considerable concession. According to a report from the Commerce Department in 2023, about half the content by value of goods sold in America is made there. Besides the latest exemptions, remnants of previous tariff-exclusion programmes are in force, affecting such things as crabmeat, animal-feeding machinery and some electric motors.

Another way to get around tariffs is to evade them. Goods can be shipped through third countries to disguise their provenance, or their value might be under-reported to incur lower duties. And then there is the tried-and-tested route of currying favour with Mr Trump by lobbying and funnelling money to political campaigns. Expect businesses to do all they can to seek relief. ■

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