Trump's reciprocal tariffs will overturn decades of trade policy
[April 01, 2025] By
PAUL WISEMAN and CHRISTOPHER RUGABER
WASHINGTON (AP) — President Donald Trump is taking a blowtorch to the
rules that have governed world trade for decades. The “reciprocal’’
tariffs that he is expected to announce Wednesday are likely to create
chaos for global businesses and conflict with America’s allies and
adversaries alike.
Since the 1960s, tariffs — or import taxes — have emerged from
negotiations between dozens of countries. Trump wants to seize the
process.
“Obviously, it disrupts the way that things have been done for a very
long time,’’ said Richard Mojica, a trade attorney at Miller &
Chevalier. “Trump is throwing that out the window ... Clearly this is
ripping up trade. There are going to have to be adjustments all over the
place.’’
Pointing to America’s massive and persistent trade deficits – not since
1975 has the U.S. sold the rest of the world more than it’s bought --
Trump charges that the playing field is tilted against U.S. companies. A
big reason for that, he and his advisers say, is because other countries
usually tax American exports at a higher rate than America taxes theirs.
Trump has a fix: He’s raising U.S. tariffs to match what other countries
charge.
And he's expected to roll out his reciprocal tariffs — possibly along
with unknown details about other import taxes — on Wednesday April 2.
He's taken to calling the date "Liberation Day'' because his
protectionist policies aim to free the U.S. economy from dependence on
foreign goods.
The president is an unabashed tariff supporter. He used them liberally
in his first term and is deploying them even more aggressively in his
second. Since returning to the White House, he has slapped 20% tariffs
on China, unveiled a 25% tax on imported cars and trucks set to take
effect Thursday, effectively raised U.S. taxes on foreign steel and
aluminum and imposed levies on some goods from Canada and Mexico, which
he may expand this week.
Economists don't share Trump's enthusiasm for tariffs. They're a tax on
importers that usually get passed on to consumers. But it's possible
that Trump's reciprocal tariff threat could bring other countries to the
table and get them to lower their own import taxes.
“It could be win-win,” said Christine McDaniel, a former U.S. trade
official now at George Mason University’s Mercatus Center. “It’s in
other countries’ interests to reduce those tariffs.”
She noted that India has already cut tariffs on items from motorcycles
to luxury cars and agreed to ramp up purchases of U.S. energy.
What are reciprocal tariffs and how do they work?
They sound simple: The United States would raise its tariff on foreign
goods to match what other countries impose on U.S. products.
“If they charge us, we charge them,’’ the president said in February.
“If they’re at 25, we’re at 25. If they’re at 10, we’re at 10. And if
they’re much higher than 25, that’s what we are too.’’
But the White House didn’t reveal many details. It has directed Commerce
Secretary Howard Lutnick to deliver a report this week about how the new
tariffs would actually work.
Among the outstanding questions, noted Antonio Rivera, a partner at
ArentFox Schiff and a former attorney with U.S. Customs and Border
Protection, is whether the U.S. is going to look at the thousands of
items in the tariff code – from motorcycles to mangos -- and try to
level the tariff rates out one by one, country by country. Or whether it
will look more broadly at each country’s average tariff and how it
compares to America. Or something else entirely.
“It’s just a very, very chaotic environment,” said Stephen Lamar,
president and CEO of the American Apparel & Footwear Association. “It’s
hard to plan in any sort of long-term, sustainable way.’’
How did tariffs get so lopsided?
America’s tariffs are generally lower than those of its trading
partners. After World War II, the United States pushed for other
countries to lower trade barriers and tariffs, seeing free trade as a
way to promote peace, prosperity and American exports around the world.
And it mostly practiced what it preached, generally keeping its own
tariffs low and giving American consumers access to inexpensive foreign
goods.
Trump has broken with the old free trade consensus, saying unfair
foreign competition has hurt American manufacturers and devastated
factory towns in the American heartland. During his first term, he
slapped tariffs on foreign steel, aluminum, washing machines, solar
panels and almost everything from China. Democratic President Joe Biden
largely continued Trump’s protectionist policies.
The White House has cited several examples of especially lopsided
tariffs: Brazil taxes ethanol imports, including America’s, at 18%, but
the U.S. tariff on ethanol is just 2.5%. Likewise, India taxes foreign
motorcycles at 100%, America just 2.4%.
[to top of second column] |
Vehicles are seen at the Mercedes-Benz Vehicle Preparation Center at
the Port of Baltimore, where new Mercedes-Benz vehicle imports are
processed before distribution to dealerships, Thursday, March 27,
2025, in Baltimore. (AP Photo/Stephanie Scarbrough)
 Does this mean the U.S. been
taken advantage of?
The higher foreign tariffs that Trump complains about weren’t
sneakily adopted by foreign countries. The United States agreed to
them after years of complex negotiations known as the Uruguay Round,
which ended in a trade pact involving 123 countries.
As part of the deal, the countries could set their
own tariffs on different products – but under the “most favored
nation’’ approach, they couldn’t charge one country more than they
charged another. So the high tariffs Trump complains about aren’t
aimed at the United States alone. They hit everybody.
Trump’s grievances against U.S. trading partners also come at an odd
time. The United States, running on strong consumer spending and
healthy improvements in productivity, is outperforming the world’s
other advanced economies. The U.S. economy grew nearly 9% from just
before COVID-19 hit through the middle of last year — compared with
just 5.5% for Canada and just 1.9% for the European Union. Germany's
economy shrank 2% during that time.
Trump’s plan goes beyond foreign countries’ tariffs
Not satisfied with scrambling the tariff code, Trump is also going
after other foreign practices he sees as unfair barriers to American
exports. These include subsidies that give homegrown producers an
advantage over U.S. exports; ostensible health rules that are used
to keep out foreign products; and loose regulations that encourage
the theft of trade secrets and other intellectual property.
Figuring out an import tax that offsets the damage from those
practices will add another level of complexity to Trump’s reciprocal
tariff scheme.
The Trump team is also picking a fight with the European Union and
other trading partners over so-called value-added taxes. Known as
VATs, these levies are essentially a sales tax on products that are
consumed within a country’s borders. Trump and his advisers consider
VATs a tariff because they apply to U.S. exports.
Yet most economists disagree, for a simple reason: VATs are applied
to domestic and imported products alike, so they don't specifically
target foreign goods and haven't traditionally been seen as a trade
barrier.
And there’s a bigger problem: VATs are huge revenue raisers for
European governments. “There is no way most countries can negotiate
over their VAT ... as it is a critical part of their revenue base,’’
Brad Setser, senior fellow at the Council on Foreign Relations,
posted on X.
Paul Ashworth, chief North America economist for Capital Economics,
says that the top 15 countries that export to the U.S. have average
VATs topping 14%, as well as duties of 6%. That would mean U.S.
retaliatory tariffs could reach 20% — much higher than Trump's
campaign proposal of universal 10% duties.
Tariffs and the trade deficit
Trump and some of his advisers argue that steeper tariffs would help
reverse the United States' long-standing trade deficits.
But tariffs haven't proven successful at narrowing the trade gap:
Despite the Trump-Biden import taxes, the deficit rose last year to
$918 billion, second-highest on record.
The deficit, economists say, is a result of the unique features of
the U.S. economy. Because the federal government runs a huge
deficit, and American consumers like to spend so much, U.S.
consumption and investment far outpaces savings. As a result, a
chunk of that demand goes to overseas goods and services.
The U.S. covers the cost of the trade gap by essentially borrowing
from overseas, in part by selling treasury securities and other
assets.
“The trade deficit is really a macroeconomic imbalance," said
Kimberly Clausing, a UCLA economist and former Treasury official.
“It comes from this lack of desire to save and this lack of desire
to tax. Until you fix those things, we’ll run a trade imbalance.”
_____
AP Retail Writer Anne D'Innocenzio in New York contributed to this
story.
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