Category: Uncategorized

President Trump’s Reciprocal Tariffs — and the Procurement Exception

President Trump has announced sweeping tariffs against most of the United States’ leading trading partners. Many nations have indicated that they will retaliate (see running updates compiled by the Global Trade Alert), and international trade flows may be severely disrupted.

The Procurement Exception

There is, however, an important tariff exception for federal procurement. When foreign goods are imported for sale to the U.S. government, if proper procedures are followed, the goods may be free from tariffs, per longstanding U.S. regulations. For information on U.S. agencies’ exemptions from tariffs in their procurements, see the analysis compiled here.

Were the Tariffs Properly Calculated?

Source: USTR

Were the U.S. tariffs improperly calculated? The U.S. Trade Representative (USTR) has published the formula (at left) used to calculate the tariffs announced on “Liberation Day,” April 2, 2025. (The vast popular importance of this formula was confirmed when it became the subject of a Saturday Night Live comedy sketch on April 5, 2025.) The formula, described in the box below, was used (according to the USTR) to calculate tariff rates at the rate necessary to “zero-out” persistent trade deficits.

The USTR calculated the tariff rates as follows, referencing the formula below: “Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies.”

A number of experts from around the world have criticized the formula and the values used in the formula:

  • As the graphic from USA Today/AFP below shows, because the Trump administration assumed the value of “ε” (the elasticity of imports with respect to import prices) was 4, and the value of “φ” (the passthrough of tariffs to consumer prices) was set at .25, the equation neutralized those elements — essentially leaving the equation one of dividing the trade balance (“x” (exports) minus “m” (imports) divided by “m” (imports)), and dividing the quotient by 2.
  • As CNN noted, quoting Mike O’Rourke from Jones Trading, “‘While these new tariff measures have been framed as “reciprocal” tariffs, it turns out the policy is actually one of surplus targeting [i.e., aiming to “zero out” trade deficits]. . . . ‘There does not appear to have been any tariffs used in the calculation of the rate. The Trump administration is specifically targeting nations with large trade surpluses with the United States relative to their exports to the United States.'”
  • Senior economists Kevin Corinth and Stan Veuger at the American Enterprise Institute offered the following example to explain how the Trump reciprocal tariffs were calculated: “As an example, if the US imports $100 million worth of goods and services while exporting $50 million to a country, then the Trump Administration alleges that country levies a 50 percent tariff on the United States (the difference between $100 million and $50 million, divided by $100 million). The ‘reciprocal’ tariff put into effect by President Trump . . . would be half of that, 25 percent.”
  • The AEI economists argued that the formula used by the Trump administration was incorrect in assuming that “φ” (the passthrough from tariffs to import prices) was .25. They noted that “the elasticity of import prices with respect to tariffs should be about one (actually 0.945), not 0.25 as the Trump Administration states.” The Trump administration officials’ mistake, the economists said, “is that they base the elasticity on the response of retail prices to tariffs, as opposed to import prices as they should have done. . . . It is inconsistent to multiply the elasticity of import demand with respect to import prices by the elasticity of retail prices with respect to tariffs.” If the tariff rates were corrected, the AEI economists wrote, the corrected rates (assuming the 10 percent floor imposed by President Trump) would (for example) top out at 13.2% for Lesotho (compared to the current top rate of 50%); the rate for China would drop from 34% (which triggered massive retaliation from China) to 10% (the lowest rate allowed by the Trump policy).

Could Tariffs Replace Income Taxes?

One of the open questions surrounding the Trump tariffs is whether tariffs, if raised high enough, could replace U.S. income taxes. Economists Simon Evenett and Marc-Andreas Muendler concluded the answer is no: “Until the late 19th century, states raised most of their government revenues from import tariffs. Could the practice work today? A side effect of taxes is that they discourage the economic activity that they are assessed on. Tariffs are taxes on imports and no different: they shrink trade. [In their study they] allow tariff revenues to change an economy’s savings and therefore the trade balance, as the U.S. administration intends. Then the displacement effect of import tariffs is so strong that tariff revenues cannot plausibly fund more than a few days of annual U.S. government spending.“

Tariffs on U.S. Services Exports

Another open issue is whether U.S. services — which normally enjoy a substantial trade surplus — might be subject to reciprocal and severe tariffs abroad. A study published by Simon Evenett and Fernando Martín Espejo shows that the U.S. Trade Representative’s formula for reciprocal tariffs, if turned about and applied by foreign nations to U.S. services exports, might result in much steeper tariffs against U.S.-based firms, if the practical barriers to imposing tariffs on services could be resolved.

On February 21, 2025, GW Law’s Government Procurement Law Program held a webinar on rising U.S. and EU protectionism, which discussed recent caselaw in the EU Court of Justice and the Trump tariffs.

Click for information on Trump tariffs and u.s. Procurement

EU Anti-Coercion Instrument: Impact on Public Procurement

In response to President Trump’s threats to impose severe, across-the-board tariffs on goods from the European Union (EU), EU policymakers have warned that the EU may respond by deploying its “trade bazooka,” the EU Anti-Coercion Instrument. This could have an important impact on U.S. vendors in EU public procurement markets.

The EU Anti-Coercion Instrument is an EU regulation, formally Regulation (EU) 2023/2675 of the European Parliament and of the Council of 22 November 2023 on the protection of the Union and its Member States from economic coercion by third countries, which provides the EU with a range of remedies to deploy in the face of international trade “coercion.”

The European Commission describes the Anti-Coercion Instrument “first and foremost” as “a deterrent against economic coercion.” Where “coercion” occurs, the tool provides EU policymakers with a “structure to respond in a well-calibrated way to stop the coercion,” through a “a wide range of possible countermeasures when a country refuses to remove the coercion.” Besides tariffs, those counter-measures can include “restrictions on access to . . . public procurement.” The Anti-Coercion Instrument “provides a legal framework for responding to coercion and sets down the means for the EU to investigate and take decisions.” It includes timeframes and procedures for stakeholders to work with the Commission before the EU launches countermeasures, and “provides a framework for the EU to request a third country to repair the injury caused by its economic coercion.”

Under the Anti-Coercion Instrument, “economic coercion” occurs when another country “applies or threatens to apply a . . . measure affecting trade or investment” in order stop or curb an action by the EU or a Member State, “thereby interfering in the legitimate sovereign choices of the Union or a Member State.” Before deploying the Instrument, the EU is to take into account the “intensity, severity, frequency, duration, breadth and magnitude” of the other nation’s measures, whether the other nation “is engaging in a pattern of interference seeking to prevent or obtain particular acts” from the EU, its Member States or another nation, whether the “coercive” nation’s measures encroach “upon an area of the Union’s or a Member State’s sovereignty,” and whether the “coercive” nation has failed to make good-faith efforts to resolve the matter. European leaders and economists have argued that the Trump administration’s attacks against the EU meet all of those triggers.

The Anti-Coercion Instrument includes, in Annex I, potential countermeasures which would impact public procurement. Those countermeasures could be deployed despite potential violations of “applicable international obligations concerning the right to participate in tender procedures in the area of public procurement” — in other words, even if by taking those measures the EU risked violating the World Trade Organization (WTO) Government Procurement Agreement, which opens the EU and U.S. public procurement markets. (The Anti-Coercion Instrument does not explicitly address the bilateral reciprocal defense procurement agreements which are vital to open defense markets between the United States and its NATO allies.)

The Anti-Coercion Instrument says that, with regard to public procurement, “goods, services or suppliers” from a targeted “coercive” nation can be excluded from public procurements in the European Union. Alternatively, bids (tenders) that include goods or services from “coercive” nations can also be excluded, or the scoring evaluation of those bids can be adjusted.

If the EU deploys the Anti-Coercion Instrument against U.S.-based vendors, goods and services in EU Member State procurements, the consequences could be severe. European Commission data show that U.S. vendors, goods and services enjoy a substantial share of the EU public procurement markets, directly and indirectly. The coming weeks will be critical as the EU decides whether to use the Anti-Coercion Instrument to respond aggressively to perceived “coercion” from the Trump administration.

For further information:

Trump and Tariffs — the Procurement Exception

ICAPP 2024 – Dublin

On November 10-12, 2024 academics and public procurement professionals from around the world gathered at Dublin City University for the inaugural International Conference for Advancing Public Procurement (ICAPP 2024), coordinated by colleagues from Florida Atlantic University and launched with the kind support of NIGP, The Institute for Public Procurement.

GW Law’s Christopher Yukins presented on issues of green procurement on the first day of the conference. The focus of this post is on several excellent presentations made during the second day, during the “legal issues” session chaired by Professor Tünde Tátrai of Corvinus University, Budapest.

Damages as a Legal Remedy in Bid Challenges (EU)

Alice Lea Nikolay, LL.M. of the University of Vienna (WU), from the Institute for Austrian and European Public Law, presented on “Damages as a Remedy –
Recent Developments and Future Perspectives.” She presented on damages that may be available in a bid challenge (a “bid protest” in the United States) under the European Union’s procurement directives, and suggested how damages may be dealt with in the future under the EU’s evolving procurement law.

Bid Challenges (Protests) in Croatia

Ema Menđušić Škugor, PhD, Co-Managing Partner of Divjak, Topić, Bahtijarević & Krka in Zagreb, Croatia, presented on “The Mess of Redress in the Croatian Public Procurement System.” She explained that the Croatian public procurement system is a complex one, even without considering the redress mechanisms available to its participants. But its redress segment remains a separate story. Several authorities are separately competent and offer varying degrees of protection. Some are widely used, in particular the appeals mechanism before the State Commission for Supervision of Public Procurement Procedures and the administrative dispute which can be initiated before the High Administrative Court. However, these mechanisms seemingly suffer from a continuous lack of governmental recognition regarding their practical significance – the administrative fees for initiating procedures before the State Commission are the highest in the country, while the High Administrative Court itself challenged the award of its exclusive competence in public procurement matters before the Croatian Constitutional Court. On the other hand, some mechanisms are (despite their importance) scarcely present on the market due to persistent lack of resources – this primarily concerns the ex-ante and ex-post inspection review procedure by the Ministry of Economy as the authority competent for overseeing the entire local public procurement system. In short, the environment denotes a concerning lack of consistency. Moreover, it lacks strategic, as well as expert vision and political will to, firstly, consider the public procurement system as a whole and, secondly, propose a redress system corresponding to its needs. Her slides, presented at the International Conference for Advancing Public Procurement (ICAPP) 2024, aim to shine a light on the current shortcomings of the redress system in Croatian public procurement legislation, with the purpose of opening up a discussion towards actions and solutions to overcome them.

Understanding Kolin and EU Protectionism

Marko Turudić, a professor in the University of Zagreb Faculty of Law, presented on “Exclusion of Third Country Economic Operators from EU Public Procurement — The Aftermath of the Kolin Judgement.” He led a spirited discussion of the Court of Justice for the European Union’s recent decision in Kolin, which (see post) may open the door to more aggressive protectionism in EU public procurement.

SERC-AIRC Research Council Meeting: Introductory Briefing

Chris Yukins prepared a recorded briefing for Stevens Institute of Technology’s Systems Engineering Research Center (SERC) – Acquisition Innovation Research Center (AIRC) Research Council Meeting on November 13, 2024. In the briefing, Professor Yukins reviewed some of the prior and pending AIRC projects (including on DoD bid protests and mandatory debarment) on which he has worked with David Drabkin, former Senior Procurement Executive (SPE) for the U.S. General Services Administration and chair of the Procurement Roundtable.

International Public Procurement Conference 9: Umm Al Quwain, UAE

Photo: Umm Al Quwain – Rainer Strehl

David Drabkin and Christopher Yukins presented on October 3, 2024 at the International Public Procurement Conference 9, a regular event which was held this year in the emirate of Umm Al Quwain in the United Arab Emirates. (Because of a surge in armed hostilities in the Gulf, they presented virtually.) Messrs. Drabkin and Yukins discussed the congressionally mandated reports they did on bid protests and mandatory debarment for labor violations, through Stevens Institute of Technology’s Acquisition Innovation Research Center; those studies, they explained, are examples of how, as the OECD has noted, public procurement can be seen more broadly as a form of risk management.

NASPO Law Institute – Framework Agreements – New Orleans

Gian Luigi Albano

Gian Luigi Albano of Italy’s centralized purchasing agency, CONSIP, joined Keith McCook (a senior procurement attorney in South Carolina government) and GW Law’s Christopher Yukins on November 10, 2023 to discuss the law-and-economics of framework agreements (which in the U.S. system are known as “indefinite-delivery/indefinite-quantity” contracts).

They spoke at the 10th anniversary meeting of the National Association of State Procurement Officials (NASPO) Law Institute in New Orleans. The Law Institute is a regular gathering of chief procurement officers (CPOs) and state public procurement attorneys from around the United States.

Program Slides

United Nations – Global Challenges & Next Steps in Procurement Law

Thursday, February 9, 2023 – 11 am-noon ET
GW Law School – 2000 H Street NW, WashINGTON – Room: Stuart HALL 101 (Also can be accessed at 2013 G Street)

Discovering the United Nations system. From addressing global challenges to next steps in procurement reform. A discussion with the Permanent Representative of Italy to the UN.

RSVP – Please contact Antoni Davis at antoni.davis@us.dlapiper.com with questions.

Program SlidesDownload