Retaliatory Tariffs Could Cut US ITA Exports by $56 Billion

Bringing manufacturing back to the United States is the right goal for the Trump administration, but slapping indiscriminate tariffs on the world undermines that very mission. Countries will retaliate, hampering U.S. tech exporters, undermining U.S. competitiveness, and handing American firms’ hard-earned global market share to foreign rivals.

Once the market uncertainty from the initial tariff announcements fades, these measures will likely lead to some expansion of domestic production and an increase in U.S. foreign direct investment. However, the additional negative effects will likely undercut these objectives. American manufacturers that sell in global markets may reduce their U.S. exports due to the rise in input costs—and that does not account for foreign retaliatory tariffs. Foreign retaliation will reduce U.S. exports of many advanced goods.

ITIF modeled the impact of retaliatory tariffs on goods covered under the World Trade Organization’s Information Technology Agreement, an agreement to reciprocally eliminate tariffs for advanced manufactured goods, mostly information communication technology (ICT) products. Since the United States is one of 82 members of the WTO’s ITA, exports of these products are typically exempt from tariffs.

ITIF calculated three scenarios of tit-for-tat retaliation: “Liberation Day” tariffs, the 90-day pause of reciprocal tariffs announced a week later, and the exemption on 20 products announced a few days after that. We found that U.S. exports of goods covered under ITA would decline due to retaliation by $82 billion, $70 billion, or $56 billion, respectively. These losses represent 18 to 27 percent of total U.S. exports of ITA products, shrinking American technology firms competing in global markets, where they would likely lose more global sales than their foreign competitors.

ITIF’s calculation utilizes 2023 import data from the Atlas of Economic Complexity, ITIF’s model for estimating the tariff-informed demand elasticity of ITA products, and the White House’s official announcements. The list of goods used to simulate retaliation is based on ITA’s products, including the products of its first expansion (ITA-2) and the proposed second expansions (ITA-3). The evaluation excludes Canada and Mexico, whose tariffs are being negotiated under the USMCA, as well as four sanctioned economies not covered by the Liberation Day tariffs: Belarus, Cuba, North Korea, and Russia.

Table 1 summarizes the findings, reflecting a potential decrease in American ITA exports by at least $56 billion. And while China would account for nearly 19 percent of ITA export losses in the “Liberation Day” scenario, the impact of the 125 percent tariffs on China, announced during the 90-day pause, would increase this share to 50 percent, which rebalances the losses. These tariffs on China would effectively end most American exports of ITA products there, serving as a de facto export control on China on virtually everything.

Table 1. Potential losses of American exports of ITA products ($ billions)

The president’s exemption of 20 electronic products from reciprocal tariffs and the 10 percent blanket tariffs announced on April 11 will not sufficiently mitigate ITA export losses. Moreover, these exemptions may be reversed at any time. Indeed, the administration has already indicated that additional tariffs on semiconductors and other electronic products are forthcoming as part of a Section 232 investigation.

Per ITIF’s model, the top 10 products most affected products in the “Liberation Day” retaliation scenario, presented in figure 1, account for 36 percent of the total estimated loss in exports. Some of these products could not be affected by retaliation, as they are part of the 20-product exemption, such as those related to semiconductor manufacturing equipment. However, exports of high-tech products such as integrated circuits and satellites (included in “other large aircrafts”) will face a reduced demand from retaliation regardless of the circumstances. Even without counting China, blanket tariffs would reduce ITA exports by $28 billion.

Figure 1. Projected reduction of U.S. ITA product exports due to retaliatory tariffs ($ billions)

While tariffs on shoes might lead to more new shoe production in America, tariffs on ITA products could very well decrease their production in the United States. While not all non-U.S. revenues are exposed to retaliation since some American ITA exporters have operations abroad, the United States alone is an insufficient market for them. These companies are likely to expand their overseas operations to escape from the retaliatory tariffs, and that could come at the expense of U.S. domestic production.

American ITA exporters are also likely to lose out to foreign competitors in global sales. For example, some of these firms are the world’s largest ICT producers, highly integrated with the global market. None of the main ICT producers derive most of their revenues from the United States. For example, 47 percent of NVIDIA’s revenues come from America, 34 percent for Advanced Micro Devices, 25 percent for Intel, Broadcom, and Qualcomm, and only 19 percent for Texas Instruments. This means that foreign retaliation would lead to a much greater loss of sales for them than for their foreign competitors, including in China. American competitors abroad, including those in China, the European Union (EU), Korea, Japan, and Taiwan, will still get to export tariff-free as these countries are signatories of ITA, meaning that U.S. firms’ sales abroad will be the only ones to fall unless they shift significant production offshore.

While China will be hurt by a de facto export ban under Trump’s tariffs in the near-to medium term, this will end up benefiting it and hurting the United States. This will cede the Chinese technology market to growing Chinese firms who will use that expansion to ultimately challenge, and possibly defeat, U.S. technology leaders. It was likely that China would replace all foreign tech firms in China, as that is the goal of the Chinese Communist Party (CCP), but the United States is shooting itself in the foot by accelerating that process.

President Trump still has an opportunity to prevent serious harm to American ITA exporters. The announced 90-day pause on liberation day tariffs is an opportunity to resolve the trade barriers other nations have put in place, reducing both tariffs and behind-the-border measures, especially those that target U.S. advanced technology companies. For example, the Trump administration should insist that these nations, excluding China, immediately institute zero tariffs on ITA products. For China, the President could impose modest tariffs that gradually and predictably increase annually to encourage a process by which U.S. technology companies producing in China for foreign markets move their production to other nations facing no U.S. tariffs, especially India and perhaps other developing markets.