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TABLE 3

Trade Deficit Reductions Under Alternative USRTA Scenarios

REDUCTION IN U.S. TRADE DEFICIT WITH WORLD

Scenario One: Scenario Two: Partner Countries U.S. Matches Partner Metric Match U.S. Tariff Rate Tariff Rates In Billions of Dollars $58.3 $63.6 As Percentage of 2018 Deficit 9.4% 10.2%

NOTE: USRTA—US. Reciprocal Trade Act.

SOURCE: White House Office of Trade and Manufacturing Policy, The United States Reciprocal Trade Act: Estimated Job & Trade Deficit Effects, May 2029, p. 18, https://www.wsj.com/public/resources/documents/RTAReport. pdf?mod=article_inline (accessed March 21, 2023).

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calculate the trade deficit reductions under Scenario One and Scenario Two, the analysis relied on the World Bank’s SMART tariff simulator. Table 3 provides the simulation results.

In Scenario One, if all 132 countries were to lower their higher nonreciprocal tariffs to U.S. levels, the overall U.S. trade deficit in goods would be reduced by $58.3 billion, or about 9.4 percent of that deficit. In contrast, in Scenario Two, if these countries were to refuse to reciprocate and the U.S. were to raise its tariffs to mirror those countries’ levels, the reduction in the U.S. trade deficit would be slightly larger: an estimated $63.6 billion, or 10.2 percent of the deficit. This suggests that implementing the USRTA would help to create between 350,000 and 380,000 jobs.

The slightly larger reduction in the trade deficit in Scenario Two as a result of the US. raising its tariffs to mirror those of its partners, as opposed to foreign countries lowering their tariffs to U.S. levels, may seem surprising to those who are steeped in Ricardian dogma and the textbook lessons of free trade. However, this result speaks to the fact that so many of America’s trading partners are applying significantly higher tariffs to thousands of American products.

Estimated Impacts on Key U.S. Bilateral Trade Deficits. If the USRTA were enacted, a President would likely have to prioritize which countries he should negotiate with first. One way to create such a priority list would be to choose those countries that have relatively large trade deficits with the U.S. and apply relatively high tariffs. This is illustrated in Figure 1, which maps bilateral trade deficits

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FIGURE 1

Mapping Bilateral Trade Deficits Against Tariff Differentials

® Largest bilateral trade deficit and/or largest tariff differential Second-to-largest bilateral trade deficit and/or second-to-largest bilateral tariff differential @ Smallest bilateral trade deficit and/or smallest tariff differential

AVERAGE MOST-FREE-NATION DIFFERENTIAL, SIMPLE MEAN 10%

Thailand Taiwan

6.00%

Vietnam

An

2.00%

0.00%

0 $50 $100 $150 $200 $250 $300 $350 $400 $450 BILATERAL TRADE DEFICIT, 2018, IN BILLIONS OF U.S. DOLLARS

SOURCE: White House Office of Trade and Manufacturing Policy, The United States Reciprocal Trade Act: Estimated Job & Trade Deficit Effects, May 2019, p. 20, https:/Awww.wsj.com/public/resources/documents/RTAReport.pdf? mod=article_inline (accessed March 21, 2023).

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against tariff differentials for eight major U.S. trading partners, which account for 47.6 percent of total U.S. trade and 88.6 percent of the U.S. trade deficit in goods.

Figure 1 shows that the USRTA priority list would include the countries in red—Communist China and India—along with trading partners in the yellow zone. This yellow zone includes the European Union, which features a very high deficit, along with Thailand, Taiwan, and Vietnam, which feature particularly high tariff differentials.

Table 4 estimates the improvement in the U.S. trade deficit under Scenario One, in which partner countries match the U.S. tariff rate under pressure from