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Is Strict Reciprocity Required for Fair Trade?

Posted by on Thursday, March 14, 2019 in Articles, Vol. 52 No. 1, Volume 52, Volumes.

AuthorsDaniel C.K. Chow & Ian Sheldon

PDF: Is Strict Reciprocity Required for Fair Trade?

 

Abstract

     The administration of Donald J. Trump has repeatedly claimed that reciprocity is required for “fair” trade. While this concept is not new in US political discourse, the Trump administration’s insistence that strict or absolute reciprocity is required goes beyond any claims made by previous US administrations. By strict reciprocity, the United States means that all trade volumes and terms and conditions of trade must be mirror images of each other. As the United States has a trade deficit with all of its largest trading partners, the Trump administration claims that this is evidence of unfairness in trade harming the United States. Since countries like China have tariff rates (25 percent) for a particular import, such as automobiles, that are significantly higher than US tariff rates (2.5 percent) for imported automobiles, this is also evidence of unfair trade that adds to the US trade deficit. Based on this lack of strict reciprocity, the United States claims that trade with many of its partners is unfair and has imposed punitive trade sanctions to correct the imbalance.

This Article demonstrates that not only is strict reciprocity impossible to achieve in practice, but it is based on a critical misunderstanding of elementary economic concepts. Since the Trump administration has not proven its case that the lack of strict reciprocity is evidence of unfair trade, the United States must either find an alternative justification or withdraw the sanctions.

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