While a majority of countries are currently talking about reciprocal tariff after the announcement made by US President Donald Trump, one thing to be noted is that these reciprocal tariffs will be levied not just based on tariffs imposed by partner countries, but also the VAT, exchange rate deviation from market value and non-tariff barriers. 

The non-tariff barriers, unlike tariffs, are harder to quantify and they include import policies, sanitary and phytosanitary measures, technical barriers to trade, export subsidies, a lack of intellectual property protection, etc. According to a 2024 USTR report, China, India, Indonesia, the Philippines and Thailand have higher non-tariff barriers. A report by Nomura stated that per WTO’s Integrated Trade Intelligence Portal, China and India have the highest non-tariff barriers in Asia, with both countries using antidumping measures as a retaliatory tool. Nomura maintained that the developed Asian economies have also imposed non-tariff barriers via sanitary and phytosanitary measures and these countries include Japan, South Korea. Singapore, which runs a trade deficit with the US and has low trade and non-trade barriers, appears least at risk from a reciprocal tax, it said. 

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Unlike tariffs, the economic cost of non-tariff measures is much harder to quantify. Sonal Varma, Managing Director and Chief Economist (India and Asia ex-Japan), Nomura, said, “Determination of the reciprocal tariff was hard enough using just tariffs. Broadening of the criterion to include non-tariff barriers makes the process more complex and less transparent. It has also increased the likelihood of the reciprocal tax being imposed across a broader swath of emerging and developed Asian economies.”

Earlier this month, US President Trump signed a memorandum on a “Fair and Reciprocal Plan”, which calls for imposing a reciprocal tax on partner countries that follow unfair trading practices. This implies that the reciprocal tariffs will be levied not only on the basis of tariffs imposed by partner countries on the US, as was believed to be the case earlier. It will also consider other factors considered discriminatory, including value added taxes, deviations of exchange rates from market value, unfair limitations on market access and non-tariff barriers. 

What really comprises these non-tariff barriers?

Nomura explained, non-tariff barriers include import policies, sanitary and phytosanitary measures, technical barriers to trade, government procurement, export subsidies, lack of intellectual property protection, digital trade barriers, and government-tolerated anticompetitive conduct of state-owned or private firms. 

Which countries have higher non-tariff barriers to trade in Asia? 

According to the United States Trade Representative (USTR) based on its 2024 National Trade Estimate Report on Foreign Trade Barriers, here is a look at the key tariff and non-tariff barriers for Asian economies. “China and India announced the highest number of non-tariff barriers against the US, primarily using antidumping measures. Non-tariff measures against the US are also high for Japan, Australia, the Philippines, South Korea, which have primarily used sanitary and phytosanitary measures. Thailand, which has one of the higher effective tariff rates against the US in Asia, has lower non-tariff barriers against the US, as per this measure,” said Sonal Varma.

Here are some of the US concerns:

• China’s non-tariff barriers include the state-led, non-market trade regime; government support to certain industries; forced technology transfers; import ban on remanufactured products; and utilization of antidumping and countervailing duties as a retaliatory tool. 

• India’s barriers include quantitative import restrictions; medical device price controls; domestic agricultural subsidies; quality control orders for chemicals & other materials; and sanitary and phytosanitary barriers involving agricultural biotechnology.

• Indonesia: Numerous import licensing requirements; a lack of clarity around listing requirements for pharmaceutical products; import restrictions on feed corn; standards & testing requirements for imported consumer goods; mandatory halal certification. 

• Japan: Regulations around rice and wheat imports; a lack of access to Japan’s auto market for US firms due to the non-acceptance of the US Federal Motor Vehicle Safety Standards certification; measures relating to medical devices and pharmaceuticals. 

• The Philippines: Prohibits used motor vehicle imports; burdensome requirement to submit a utilization report concerning ingredients used in the manufacture of animal feed; requirements to obtain import permits, and cold chain regulations. 

• South Korea: Technical barriers to trade for chemicals and packaging materials; regulations & testing, which cause delays in product launches involving motor vehicles, pharmaceuticals and medical devices. 

• Thailand: Import restrictions on biofuels; import licensing requirements for many products; technical barriers to trade for personal computers and computer devices; investment barriers in the telecom sector.

To conclude…

Given the numerous tariff lines across products and across countries, determination of the reciprocal tariff was hard enough using this measure and it has become more difficult now considering the non-tariff barriers, along with other factors like the value added tax and currency manipulation.

Now, this, Sonal Varma added, will require many of these countries to negotiate a bilateral deal with the US, as India has just done.

Per the findings of the report, Nomura maintained that China stands out, and India also ranks high in having not just higher tariffs, but also non-tariff barriers in Asia. Both countries have used antidumping measures as a retaliatory tool.