1、 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules:Implications for Germany Lisandra Flach and Lisa Scheckenhofer Key Messages The average tariff gap for traded products between the US and the EU is around 0.5 percentage points,which is relatively low compared to other US trade partners.US

2、 tariff changes aimed at closing the tariff gap between the US and the EU could affect 53%of German exports to the US and 6%of German global exports.While a wide range of products would be affected,the tar-iff increase would remain relatively small for three quarters of traded products,as their tari

3、ff gaps are below 2.3 percentage points.Our simulations show that higher US“reciprocal”tariffs reduce German exports to the US between 2.4%and 3.0%and decrease value added by 0.02%.These small effects for Germany,compared to scenarios with a flat 20%increase in US tariffs,are mostly due to the relat

4、ively low tariff gap between the US and the EU.However,the opposite scenario arises if the EU negotiates“full recipro-cal tariffs”with the US implying that the US also lowers tariffs when its own are higher.In this case,German value added and welfare increase.71 2025 April Vol.9 P9#y1 US“Reciprocal”

5、Tariffs and the Erosion of Global Trade Rules 1 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules:Implications for Germany Lisandra Flach and Lisa Scheckenhofer*ifo Institute,Munich,April 2025 If implemented on April 2,the“Liberation Day”announced by US President Donald Trump would have pr

6、ofound implications for the global trading system.The proposed“reciprocal”tariffs would mirror,product by product,the tariffs imposed on US export-ers worldwide.By asserting the right to impose import tariffs on its partners without any constraint,the US,an important past advocate of multilateralism

7、,launches a frontal offensive against fundamental pillars of the nearly eighty-year-old rules-based multilateral system:non-discrimination and reciprocity.In this policy brief,we first analyze the sector-and product-level tariff gap between the EU and the US.We show that roughly half of the product

8、lines exported from the US to Germany were subject to a lower import tariff than the respective US import tariff.We then show that the average tariff gap between the US and the EU is around 0.5 percent-age points,which,compared to other US trade partners,is relatively low.Finally,we show that US tar

9、iff changes aimed at closing the tariff gap could potentially affect 53%of Germanys 2023 exports to the US,and overall,6%of Germanys global exports in 2023.In the second part of the policy brief,we conduct a counterfactual analysis using the ifo trade model to evaluate the effects of Trumps plans to

10、 introduce“reciprocal tariffs”.We simulate two main scenarios:(1)the US increases tariffs to close the tariff gap with its trade partners,and(2)trade partners retaliate by raising their tariffs to match US tariff levels where US tariffs are higher.In addition,we simulate alternative scenarios in whi

11、ch the US intention of“tariff reciprocity”is taken literally meaning the US increases tariffs against trade partners with higher tariffs but decreases tariffs when trade part-ners have lower import tariffs.Finally,we discuss alternative scenarios that allow for negotiations between the EU and the US

12、.*Lisandra Flach(flachifo.de),Lisa Scheckenhofer (scheckenhoferifo.de),ifo Institute,LMU Munich.2 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules Our results reveal negative effects on German exports and value added if Trump intro-duces“reciprocal”tariffs and/or if countries retaliate.Ho

13、wever,in our additional sce-narios that allow for negotiations between the US and the EU,the outcomes for the Ger-man economy are reversed,leading to positive value-added and welfare effects for Germany.Our results emphasize the detrimental effect of tariff escalations and the im-portant role of tra

14、de negotiations.Status Quo:WTO Rules-Based System The World Trade Organization(WTO)is based on the idea of non-discrimination.To maintain stability and predictability in global trade,tariffs are agreed upon to stay within fixed limits,ensuring that WTO members treat all trading partners equally.A fe

15、w exceptions apply,such as in the case of a free trade agreement between countries.This means that while different import tariffs can apply to different products,in the absence of free trade agreements,the same tariff rate must be applied to all imports of the same product,no matter where they are i

16、mported from(“Most-Favoured-Nation principle”).Furthermore,tariffs are embedded in WTO law and were the outcome of the Uruguay Round of multilateral negotiations,with reciprocity at its core.This principle means that if one country reduced tariffs on its imports,other countries would aim at making s

17、imi-lar concessions.It is referred to as the ideal of mutual adjustments in trade policy that leads to changes in the volume of each countrys imports that are of equal value to changes in the volume of its exports(Bagwell and Staiger,2002).Thus,negotiated con-cessions extending beyond tariffs can be

18、 seen as reciprocated when they result in equivalent changes in bilateral trade flows.For example,in return for lower US import tariffs on agriculture and textiles,countries made key concessions in areas where the US had strong interests,particularly intellectual property,where stronger global pro-t

19、ection with stricter patent and copyright enforcement got negotiated benefiting US in-dustries such as pharmaceuticals.In contrast,the US administrations understanding of reciprocity takes a different approach.Besides defining reciprocity beyond tariffs(such as including value-added taxes and other

20、extraterritorial taxes applied by trade partners),1 the current US administrations approach to reciprocity considers any prod-uct-level tariff gap between the US and its trade partners a reflection of non-reciprocity.The resulting threat of unilaterally raising US import tariffs applied differential

21、ly across products and trading partners to match those faced by US exporters would consequentially conflict with both the WTOs principle of non-discrimination and the broader concept of reciprocity in multilateral trade negotiations.1 See:White House(2025).Reciprocal trade and tariffs.The White Hous

22、e.https:/www.whitehouse.gov/arti-cles/2025/02/reciprocal-trade-and-tariffs/US“Reciprocal”Tariffs and the Erosion of Global Trade Rules 3 Tariff Data and Descriptives Our analysis of US and EU tariffs at the HS-6-digit2 product level reveals that positive tariff gaps(EUUS tariff)are less widespread t

23、han often claimed to be the case.In fact,roughly 50%of product lines that were imported by Germany from the US in 2023 have an import tariff in place that is lower than the respective US import tariff.Overall,across all products that have been traded between the US and EU in 2023,the unweighted av-e

24、rage tariff gap is with around 0.5 percentage points slightly positive(EU:3.9%vs.US:3.4%).This gap increases to approximately 0.9 percentage points when considering products that are not effectively traded(EU:4.2%vs.US:3.3%).3 Given that 59 of the US trade partners maintain average import tariff gap

25、s with the US of 5 percentage point or more-including a 9.8 percentage point gap with India and a 9.5 percentage point gap with Kenya-the gap in EU-US tariff protection can be considered as relatively low(Evenett,2025).Figure 1:Average US-EU Import Tariff Differences across sectors(in%)Figure 1 prov

26、ides a detailed comparison of EU and US product-level import tariffs vis-vis each other,categorized by sectors(LHS)and subsectors(RHS)used in WTO trade negotiations(MTN classification).On average,across nine of twelve sectors shown in 2 The Harmonized System(HS)codes are a globally standardized clas

27、sification system for traded goods,developed by the World Customs Organization(WCO),consisting of a six-digit code structure.3 If we focus solely on products with a positive tariff gap,where the US tariff is lower than the EU tariff,and disregard the other half of the products,a tariff gap of 3 perc

28、entage point would emerge(EU:5.4%vs.US:2.4%).4 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules Figure 1,only about 35%of products in each sector have a positive tariff gap(EUUS tariff).Three sectors(textiles,petroleum and clothing)have even a negative average tariff gap(EUUS tariff),thre

29、e quarters have a tariff gap of less than 3.9 percentage points.This suggests that while a subset of products faces notable differences,potentially making them more vulnerable to policy changes such as the introduction of“reciprocal”tariffs,most tariff gaps are relatively small.Further,the prevalent

30、 positive tariff gap(EUUS tariff)for some of these sectors,like electrical machinery and electronic equipment,masks some important heterogeneity across product groups.While for domestic appliances the tariff gap is at 1.3 percentage points,the EU like the US has no tariffs implemented on semiconduct

31、ors and electronic components,allowing US firms non-tariff-restricted access to the EU member states markets.In contrast,three sectorstransport equip-ment,agriculture,and chemicalsstand out as relatively more restrictive on the EU-side.In each of these sectors more than 65%of all products have highe

32、r EU than US tariffs,with average tariff gaps ranging from 1.9 to 3.4 percentage points.These three sectors contribute strongly to the small but positive overall tariff gap(EUUS tariff).Considering the varying importance of the US market for different products,it becomes evident that the proposed US

33、 tariff changes could heavily disrupt the export activities of German firms.Exports of products with a higher EU tariff relative to the US made up 53%of Germanys 2023 exports to the US.Notably,product exports to the US with a positive tariff gap(EUUS tariff)accounted for 6%of Germanys total global e

34、xports in 2023,underscoring the substantial challenges this policy could pose for Germanys po-sition as a leading export nation.In contrast,US exports to Germany of products with a negative(EUUS tariff)tariff gap constituted only 0.3%of global US exports in 2023.This suggests that the EUs potential

35、for effective retaliation using the same strategy as the US remains relatively limited.Simulation of Trumps“Reciprocal”Tariffs and Global Tariff Retaliation In the following analysis,we employ the ifo Trade Model,which is a quantitative trade model based on Caliendo and Parro(2015).4 International l

36、inkages are captured 4 Caliendo and Parro(2015)develop a multi-sector version of the Ricardian trade model by Eaton and Kortum(2002)with input-output linkages.US“Reciprocal”Tariffs and the Erosion of Global Trade Rules 5 through input-output relationships,with the model incorporating both tariff and

37、 non-tariff trade barriers.The model covers 141 countries and 65 economic sectors,account-ing for over 90%of global value added.It is parameterized through econometric esti-mations resulting from theoretical equilibrium conditions,allowing us to simulate gen-eral equilibrium effects of various trade

38、 policy scenarios.It allows us to identify the long-term level effects of the“reciprocal”tariff increases threatened by the US.We therefore gain insights into the potential response of trade flows,trade volumes,sec-toral value added as well as on real gross domestic product and gross household in-co

39、me.5 The analysis with a general equilibrium model includes not only direct exports but also trade along the value chain as well as possible trade diversion effects to other target markets in response to these higher US tariffs.In this way,it offers a comprehen-sive picture of a new long-term global

40、 economic equilibrium.In all policy scenarios,we use Feodora Tetis Global Tariff Database(v_beta1-2024-12)from Teti(2024)to retrieve tariff information at the HS-6-digit product level and to com-pute tariff differences of the US with all its trade partners.We supplement the dataset with tariff data

41、from Global Trade Alert(2025)to account for changes until 2022.We then aggregate the product-level tariff differences to the GTAP 65 sectors,weighing them by the products respective country-specific import share within each GTAP sec-tor.This allows us to simulate the following two main scenarios:Sce

42、nario 1:“Trump reciprocal tariffs”The US increases tariffs on imports to match the exact amount imposed by its trade partners.In this scenario,the US increases tariffs on products where its trade partner has higher tariffs but does not decrease its own tariffs in case of a negative tariff gap(non-US

43、US tariff).6 Scenario 2:“Escalation:Trump reciprocal tariffs with retaliation”In this scenario,if the US increases tariffs on imports to match those imposed by its trade partners(“reciprocal tariffs”),we assume that the trade partners retaliate by also increasing tariffs on US products that have hig

44、her tariffs(“es-calation scenario”).5 All data required for the simulation(e.g.,international value-added linkages)comes from the global input-output da-tabase,GTAP 10.As the model accurately represents global value chains and country-specific parameters at the sectoral level(e.g.,sectoral productiv

45、ity),the adjustments caused by a tariff increase can be appropriately approximated.The technical details are described in several studies by the ifo Institute(see e.g.,Aichele et al.2016;Baur et al.2025).6 A scenario that accounts for full symmetry and full reciprocity is discussed later(see scenari

46、o 3).6 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules The Impact of Trumps“Reciprocal”Tariffs on German Exports and Value Added Figure 2 depicts the trade effects for Germany if the US increases tariffs on products where its tariffs are lower than those of its trade partners.Scenario 1

47、presents the re-sults for Trumps“reciprocal”tariffs,while Scenario 2 incorporates retaliation by trade partners(“Trump Reciprocal Tariffs with Retaliation”).In both scenarios,total German exports decline,primarily due to a decrease in exports to the US but also accompanied by a drop in exports to th

48、e rest of the world(excluding the EU and the US).Exports to the US decreased by 2.4%in Scenario 1,and 3%in Scenario 2.These effects are notably smaller when compared to a scenario in which the US would impose flat 20%tariffs on imports from all trade partners and 60%on Chinese products,as shown in B

49、aur et al.(2024).In such a scenario,German exports to the US would fall by roughly 15%.Two additional points are worth highlighting.First,German exports to the EU increase due to trade diversion,but they decrease to other key markets such as Mexico and China.As a result,total German exports decline

50、by 0.3%in both Scenario 1 and Scenario 2,suggesting that the gains in market share within the EU cannot offset losses else-where.These effects are notably smaller than the-1.8%total export decline shown in Baur et al(2024).Second,further analysis reveals that while German exports to China decrease u

51、nder Scenarios 1 and 2,Chinese exports to Germany increase.Whereas the first result(decrease in German exports to China)is driven by a loss of competitiveness in Chinese exports,as China faces welfare losses,the second result(increase in Chinese exports to Germany)is mostly driven by Chinese trade d

52、iversion away from the US-in Scenario 1,Chinese exports to the US fall by 3.4%and increase to the rest of the world.Figure 2:Change in German Exports by destination across scenarios(in%)US“Reciprocal”Tariffs and the Erosion of Global Trade Rules 7 Overall,Scenarios 1 and 2 lead to similar results fo

53、r German exports.As highlighted ear-lier in this policy brief,the tariff gap between the EU and the US is relatively small,mean-ing that retaliatory tariffs do not substantially raise EU tariffs against the US.However,this picture differs for other US trade partners.For countries with a larger tarif

54、f gap,both Trumps“reciprocal”tariffs(Scenario 1)and the respective retaliatory tariffs(Sce-nario 2)result in significantly greater losses than those observed for Germany.For in-stance,India faces a total value-added loss of around 0.12%and a manufacturing loss of 1.0%,which is approximately five tim

55、es greater than the loss incurred by Germany.Figure 3 shows the change in value added across sectors in Germany under Scenarios 1 and 2.It is unsurprising that agriculture&mining experiences the largest percentage loss in German value added in response to Trumps“reciprocal”tariffs.Due to the rela-ti

56、vely high import tariffs imposed by the EU in this sector,Trumps“reciprocal”tariffs which would match EU tariff levels diminish the sectors competitiveness,leading to value added losses.In addition,the manufacturing sector is also negatively impacted in both scenarios.The losses in this sector stem

57、not only from reduced exports to the US but also from a decline in German exports to other key trade partners:Countries with a larger tariff gap with the US experience greater losses,which further weakens their competitiveness and reduces their demand for German products.Finally,the small in-crease

58、in value added in services(0.03%)shown in Figure 3 is primarily driven by busi-ness and financial services,as well as communication and education services.These gains offset losses in other service sectors,such as trade services and warehousing,which are closely linked to trade in goods and therefor

59、e experience the largest losses.Figure 3:Change in German Sectoral Value Added across scenarios(in%)8 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules A closer look at the German manufacturing sectors in Figure 4 reveals significant heter-ogeneity across industries.Sectors with a higher a

60、verage tariff gap-indicating larger US tariff increases-tend to experience greater losses in terms of value added.Motor vehicles and parts suffer the most substantial decline,with motor vehicles facing an average tariff gap of 2.2 percentage points,more than four times the average EU-US tariff gap.7

61、 A similar pattern emerges in the transport equipment sector,where a steep drop in value added aligns with an average tariff gap of 3.7 percentage points for bicy-cles,motorcycles,and other transport equipment,and 4.4 percentage points for air-craft.Figure 4:Changes in German Sectoral Value Added Ma

62、nufacturing industries in detail 7 This analysis,however,does not account for the additional 25%tariffs on autos and parts announced by the US ad-ministration on March 26,2025:https:/www.whitehouse.gov/fact-sheets/2025/03/fact-sheet-president-donald-j-trump-adjusts-imports-of-automobiles-and-automob

63、ile-parts-into-the-united-states/US“Reciprocal”Tariffs and the Erosion of Global Trade Rules 9 Simulation of Three“Full Reciprocity”Scenarios The Scenarios 1 and 2 discussed above assume that the US raises tariffs when trade partners have higher tariffs levels.However,if reciprocity were applied lit

64、erally,the US would also lower its tariffs when they exceed those of its trade partners resulting in full tariff symmetry.Below,we explore this scenario along with additional negotiation possibilities for the EU.We simulate the economic and trade impact for Germany of three additional trade pol-icy

65、scenarios:Scenario 3:“Trump reciprocal tariffs with full reciprocity”In this scenario,we take reciprocity literally,meaning that the US increases tar-iffs when those imposed by the partner are higher but decreases them when US tariffs are higher.Scenario 3a:“Trump reciprocal tariffs with full recipr

66、ocity only for EU”In this scenario,the US enforces reciprocal tariffs with“full reciprocity”only on the EU.The US increases tariffs when those imposed by the partner are higher but decreases tariffs against the EU when US tariffs are higher.Scenario 3b:“De-escalation:US&EU decrease tariffs for full

67、reciprocity”In this scenario,the US implements“reciprocal”tariffs with“full reciprocity”,but the EU and the US agree to reduce tariffs to match the amount imposed by the other.The US decreases tariffs if the EUs tariffs are lower,and the EU re-duces tariffs if the USs tariffs are lower.The Impact of

68、“Full Reciprocity”Scenarios on German Exports and Sectoral Value Added Figure 5 illustrates the effects of the three“full reciprocity”scenarios on German ex-ports and value added.Although the likelihood of the US reducing tariffs seems low,it is important to consider the implications of the announce

69、d“reciprocal”tariff policy if the current US administration were to take their interpretation of reciprocity literally.The results for Scenario 3 closely resemble those of a scenario with“reciprocal”tariff and global retaliation(Scenario 2),primarily because the tariff gap between the EU and the US

70、is relatively small compared to the USs tariff gap with other trade partners.Hence,“full reciprocity”does not provide significant additional gains for Germany in 10 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules terms of exports and sectoral value added.However,other countries,such as C

71、hina,could benefit substantially,ultimately leading to a relative deterioration in trade con-ditions for Germany and the EU.This scenario highlights the importance of the principle of non-discrimination in trade policy.If the US were to lower tariffs for all trade partners in cases where its own tar

72、iffs are higher-aligning them with each partners product-specific tariff levels-Germany would face much tougher competition in the US market.In Scenarios 3a and 3b,we consider the possibility of negotiations between the US and the EU.As shown in Figure 5,if these negotiations were successful,Germany

73、 could see positive effects on value-added and welfare.In Scenario 3a,“full reciprocity”is achieved exclusively between the EU and the US,leading to an increase in German value added and welfare,although total exports decrease.8 In Scenario 3b,a“de-escalation”agreement with“full reciprocity”is reach

74、ed,where both the US and the EU reduce their tariffs to fully close the tariff gap.This scenario results in both positive trade and value-added effects for Germany,along with an increase in welfare.These are the only sce-narios where Germany would manage to avoid incurring losses in total value adde

75、d,underscoring the critical importance of successful trade negotiations in limiting the po-tential negative impacts of the US“reciprocal”policy on the German economy.Figure 5:Changes in total German Exports and Value Added(in%)8 The decrease in exports,along with the increase in value added,can be e

76、xplained by the rise in domestic sales in Ger-many,which offsets the decline in exports.US“Reciprocal”Tariffs and the Erosion of Global Trade Rules 11 Conclusion and Policy Implications US President Donald Trump proposed implementing“reciprocal tariffs”,under which the US would raise import tariffs

77、to match those imposed by its trade partners,thereby further undermining the multilateral rules-based system.This policy brief examines the status quo of tariff gaps between the US and the EU and explores implications of this policy for the German economy,should it be implemented.Our analysis reveal

78、s that the average tariff gap between the US and the EU for traded products is approximately 0.5 percentage points,which is relatively modest compared to other US trade partners.However,US tariff adjustments aimed at narrowing this gap could impact 53%of Germanys exports to the US in 2023,representi

79、ng 6%of Ger-manys total global exports.While a broad range of products would be affected,three quarters would experience only modest tariff increases,as their tariff gaps remain be-low 2.3 percentage points.We then employ the ifo trade model along with updated global tariff data to assess the impact

80、 of US“reciprocal”tariffs on the German economy.Our findings indicate nega-tive effects on both German exports and value-added if President Trump introduces“re-ciprocal”tariffs,or/and if trade partners retaliate.German exports to the US decline by 2.4%to 3.0%,while total exports decrease by 0.3%.The

81、se relatively small effects for Germany,compared to a scenario involving a flat 20%increase in US tariffs on all its trade partners(as discussed in Baur et al.,2024),are primarily driven by the relatively low tariff gap between the US and the EU compared to wider gaps between the US and other trade

82、partners.However,the opposite result emerges in scenarios that account for EU-US negotiations.If the EU negotiates“full reciprocity”in tariffs with the US-where the US reduces tariffs when its tariffs are higher,or both parties agree to jointly lower tariffs to the bilateral minimum rate for each pr

83、oduct-Germanys value-added and welfare would increase.These findings underscore the pivotal role of trade negotiations,while once again plac-ing a strong emphasis on the detrimental effects of tariff escalations.12 US“Reciprocal”Tariffs and the Erosion of Global Trade Rules References Aichele,R.,Fel

84、bermayr,G.,&Heiland,I.(2016).Going deep:The trade and welfare effects of TTIP revised.ifo Working Paper No.219.Bagwell,K.,Staiger R.W.(2002),The Economics of the World Trading System,The MIT Press.Baur,A.,L.Flach and D.Hillrichs(2024),German-US Trade Relations before the Election:Implications of a T

85、rump Comeback,EconPol Forum 25(5),27-31.Baur,A.,Dorn,F.,Flach,L.,&Fuest,C.(2025).Geoeconomic fragmentation and the role of non-aligned countries.CRC Discussion Paper No.526.Caliendo,L.,&Parro,F.(2015).Estimates of the trade and welfare effects of NAFTA.The Review of Economic Studies,82(1),144.Eaton,

86、J.,&Kortum,S.(2002).Technology,geography,and trade.Econometrica,70(5),17411779.Evenett,S.J.(2025).Attracting the ire of the next US administration:A red flag analysis based on recent policy&market outcomes.Zeitgeist Series Briefing No.40.Global Trade Alert(2025).GTA database and trade policy analysi

87、s.Retrieved from https:/globaltradealert.org/.Teti,F.A.(2024).Missing tariffs.CESifo Working Papers No.11590.World Trade Organization.(2023).MTN categories:Product classification for WTO trade statistics and policy analysis.Economic Research and Statistics Division.Re-trieved from https:/ttd.wto.org/en/news-blog/mtn-categories-product-classifi-cation-for-wto-trade-statistics-and-policy-analysis.