Reciprocity for me, not you

The Reciprocal Trade Act, Pitcairn Mysteries, FDI fragmentation, ACCTS and repealing PNTR

Donald Trump is the gift that keeps on giving for those of us (me, Alan Beattie, Politico, Bloomberg) with regular trade newsletters to write.

While I’ve written extensively about Trump’s plans to impose a universal tariff on all imports into the US, I don’t think I’ve said anything about one of his other trade wheezes: the Reciprocal Trade Act (RTA).

This is in part because I think it is less likely to happen.

In this week’s FT Trade Secrets, Alan provides a useful assessment of why introducing the RTA will be difficult:

Reciprocal Trade Act Rating: Moderate to hard (depending on how comprehensive Trump wanted it)

The RTA would match each trading partner’s tariffs with US ones. As its name suggests, Trump seems to want this to be an actual act of Congress rather than just making it up as he goes along with unilateral tariffs. It harks back to the Reciprocal Trade Agreements Act of 1934, which (ironically) allowed Franklin Roosevelt to negotiate down the high Smoot-Hawley tariffs imposed in 1930. The RTA would still be a total violation of WTO most-favoured-nation status and would involve gigantic amounts of technical work if he were to do it on all imports from all trading partners. But he would be very unlikely to get that through Congress: as I’ve noted before, it would open up some rather sensitive bits of US agriculture, such as cane sugar and dairy, to some nasty competition. Selecting particular products and partners — in fact, using unilateral tariffs to force reciprocal change — would be considerably easier.

Buuuuut, it would be kinda fun if he did do it.

There is, and hear me out, a world in which the RTA ends up being massively trade liberalising. It could also make opening up the US market for your exporters a lot easier because you wouldn’t have to deal with USTR, who are famously difficult to negotiate with.

For example, let’s say you are a UK firm that is very good at making the light trucks that Americans love so much.

As per the so-called chicken tax (if unfamiliar, read the Wikipedia article), exports of these light trucks are currently hit with a 25 per cent tariff. Following the introduction of the Reciprocal Trade Act, this will instantly drop to 10 per cent — the UK’s equivalent tariff rate — right, RIGHT? What a result.

If you’re particularly savvy, you could lobby the UK government to reduce its own tariff on light trucks to zero. This could be on an MFN (applies to everyone) basis, but it doesn’t necessarily need to be because … who cares about the rules anymore. An even bigger RESULT.

The problem with this theory is it is, of course, absolutely not what will actually happen. Rather, while the US would lift its tariff to match a third country’s higher tariff, if the same third country has a lower tariff … well, good for them, nothing to see here.

Anyhow, a man can dream.

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Problems with Pitcairn

Last week, in the context of discussing my new MAGA Index, I made an offhand comment about the weird export profile of the Pitcairn Islands, which, according to OEC, likes to sell insulated wire to the US:

Pitcairn Islands-United States Trade: In 2022, Pitcairn Islands exported $502k to United States. The main products that Pitcairn Islands exported to United Stateswere Insulated Wire ($347k), Low-voltage Protection Equipment ($88k), and Silicone ($37.4k). Over the past 8 years the exports of Pitcairn Islands to United States have increased at an annualized rate of 70.3%,  from $35.1k in 2014 to $502k in 2022.

This seems particularly implausible given the population of Pitcairn is currently, according to Google, 35 people. Unless they are all spending all of their time making insulated wire, low-voltage protection equipment and silicone in a secret lair the world is otherwise unaware of this just doesn’t really add up.

So, what’s going on?

The good people of Bluesky started digging for more information, and we now have a theory.

This company, Lanxi Jiaoying Trading Co.,Ltd, based in Ningbo China, inexplicably has products called “Pitcairn Island wifi antennas”, “Pitcairn Island 4G antennas” and “Pitcairn Island GPS antennas”:

Why do they have products called this? Who knows. But it seems possible that for some reason or other these products have been misclassified as being from the Pitcairn Islands when being exported to the US, rather than from China.

On the one hand, this means Pitcairn tumbles down my MAGA index rankings, which means Trump will leave them alone. On the other, it also means it probably doesn’t have a secret antenna making factory. Which would have been fun.

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Trade Twitter Bluesky

Given I mentioned Bluesky above, trade twitter has pretty much fully migrated. If interested, I created a tentative starter pack here.

Please don’t shout at me if you are not on it. I (probably) didn’t deliberately forget to put you on there.

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Chart of the week

With thanks to Duncan Weldon for flagging, a new CEPR paper attempts to create a new index to measure geopolitical fragmentation in global greenfield foreign direct investment.

Perhaps unsurprisingly, in recent years geopolitical fragmentation has increased: