What is a ‘reciprocal tax’ and why is WH talking about it?

What is a ‘reciprocal tax’ and why is WH talking about it?
Dominic Aratari/CNNMoney

At an event announcing an infrastructure plan Monday, the White House said it plans to soon unveil a “reciprocal tax” on goods imported to the United States from other nations.

A reciprocal tax is charged on an import from another country that charges the U.S. a similar amount to export an American product into its market. It acts essentially as a tariff.

“Some of them are so-called allies, but they’re not allies on trade,” said President Donald Trump, naming Mexico, Canada, China, Japan and South Korea.

A senior administration official at the White House said nothing formal was in the works, and that the president was reiterating his long-held sentiment about fair trade.

In January, the administration announced tariffs on washing machines and solar panels — a move that mostly affects Mexico, China and South Korea.

The White House also began investigating the alleged theft of U.S. intellectual property by China last year, and it has slapped tariffs on Canada and other countries for imports. The U.S. is also renegotiating a trade pact with South Korea.

More key decisions are coming soon. The administration may soon impose tariffs on steel and aluminum after the Commerce Department concluded two separate investigations into whether imports of the commodities risk U.S. national security. The recommendations of those reports are not yet public.

The president’s comments echoed remarks he made on the campaign trail. Back then, he threatened to impose a 35% tax on imports from Mexico and a 45% tax on Chinese exports to the United States. So far, those sweeping tariffs have not come to fruition.

“A 10% tax on imports is akin to a 10% additional tax on your Walmart checkout,” says Christine McDaniel, a research fellow at the Mercatus Center in Washington and a former trade economist at the White House under President George W. Bush. “This tax will make our imports more expensive and reduce competition … it will make their cost of doing business go up.”