Tariffs are in the news after US Pres Donald Trump complained that his country was “being taken advantage of” by other countries that imposed high tariffs on imports of American-made goods, and on April 2, he imposed “reciprocal tariffs” against these countries’ exports to America. A tariff is a tax imposed by one country on the goods and services imported from another country, and would be paid to the government by the importer, who would then typically pass it on to his customers. The increased price of the imported goods would typically lead to lower sales.
The tariff on Guyanese goods entering the USA is now a whopping 38%. One would have expected that the “reciprocal tax” imposed by the US would have been an average of, or in some way related to, the tariffs imposed by Guyana or any other country on imports from the USA. However, what was evidently done was to take the value of the total imports from a country to the US, subtract from it the total exports from the US to that country, and express the ratio as a percentage. In our case this was 78% – meaning that Guyana’s imports from the US was only 78% of our exports to it. The US has now arbitrarily imposed half of that percentage trade deficit – 38% – as a tariff on our exports to the US.
The calculation assumes that the trade deficit is entirely due to tariffs imposed by the exporting country – which is not necessarily the case. It could be due to a host of factors, such as lower prices due to labour and other costs; or to better quality of the products etc. Further, in our case, the excess of our exports over our imports with the US is primarily due to petroleum being shipped by Exxon and Hess to their refineries in the US. Of US$3.37 billion total “Exports to United States in 2024”, $3.18 billion was petroleum products. And since we only receive 14.5% of the profits from those sales, it is doubly unsuitable for determining any trade imbalance much less “reciprocal” tariff. The unkindest cut is that “petroleum products” are exempted from the US tariff – so the price to the American consumer is not raised, but still contributes to our 38% “reciprocal” tariff.
The US gripe, of course, is its overwhelming trade deficit with its archrival China for its hold on remaining Number One in the world. Since returning to power in January, Trump had already levied two tranches of 10% additional duties on all Chinese imports, which the White House said was necessary to stem the flow of illicit fentanyl from that country to the US. Combined with pre-existing tariffs, that means Chinese goods arriving in the US would be effectively subject to tariffs of well over 54%. Leading to a certain trade war, China on Friday announced that it would impose 34% reciprocal tariffs on all imports from the United States from April 10.
Now, since 1995, the imposition of tariffs has been governed by WTO guidelines. Under these, member nations commit to “tariff bindings”, which set maximum tariff levels that cannot be exceeded unless renegotiated. For the US, the average bound tariff for all goods is 3.4 percent. These commitments, outlined in each country’s Schedule of Concessions, ensure stability and predictability in trade.
Countries impose tariffs on imports for several reasons – to raise revenues, to influence the exporting country, or to protect competitive advantages. In the case of China, the last two are arguable; but with our exports to the US, none of these really apply, since, for geopolitical and even domestic reasons, we’re already supportive of the US as a “friend”. Secondly, oil, bauxite and gold, which are our major exports, are all exempted. Our Government has already announced that it would be explaining these and other points to the US Government.
China and other countries, such as Australia, have announced that they would resort to the WTO.
