President Donald Trump listens to a question from a reporter as Commerce Secretary nominee Howard Lutnick watches after Trump signed an executive order in the Oval Office of the White House, Thursday, Feb. 13, 2025, in Washington. (AP Photo/Ben Curtis)2025-02-14T23:00:59Z WASHINGTON (AP) President Donald Trump is taking a blowtorch to the rules that have governed world trade for decades. The reciprocal tariffs that he announced Thursday are likely to create chaos for global businesses and conflict with Americas 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 Americas massive and persistent trade deficits not since 1975 has the U.S. sold the rest of the world more than its 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: Hes raising U.S. tariffs to match what other countries charge. The president is an unabashed tariff supporter. He used them in his first term, and three weeks into his second he has already slapped 10% tariffs on China; effectively raised U.S. taxes on foreign steel and aluminum; and threatened, then delayed for 30 days, 25% taxes on goods from Canada and Mexico. Economists dont share Trumps enthusiasm for tariffs. Theyre a tax on importers that usually get passed on to consumers. But its possible that Trumps 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 Universitys Mercatus Center. Its 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 told reporters on Sunday. If theyre at 25, were at 25. If theyre at 10, were at 10. And if theyre much higher than 25, thats what we are too.But the White House didnt reveal many details. It has directed Commerce Secretary Howard Lutnick to deliver a report April 1 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 countrys average tariff and how it compares to America. Or something else entirely. Its just a very, very chaotic environment, said Stephen Lamar, president and CEO of the American Apparel & Footwear Association. Its hard to plan in any sort of long-term, sustainable way. How did tariffs get so lopsided?Americas 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 Trumps protectionist policies.The White House has cited several examples of especially lopsided tariffs: Brazil taxes ethanol imports, including Americas, at 18%, but the U.S. tariff on ethanol is just 2.5%. Likewise, India taxes foreign motorcycles at 100%, America just 2.4%. Does this mean the U.S. been taken advantage of? The higher foreign tariffs that Trump complains about werent 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 couldnt charge one country more than they charged another. So the high tariffs Trump complains about arent aimed at the United States alone. They hit everybody. Trumps 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 worlds 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. Germanys economy shrank 2% during that time. Trumps plan goes beyond foreign countries tariffsNot 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 Trumps 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 countrys 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 dont specifically target foreign goods and havent traditionally been seen as a trade barrier. And theres 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 Trumps campaign proposal of universal 10% duties. Tariffs and the trade deficitTrump and some of his advisers argue that steeper tariffs would help reverse the United States long-standing trade deficits. But tariffs havent 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, well run a trade imbalance._____AP Retail Writer Anne DInnocenzio in New York contributed to this story. CHRISTOPHER RUGABER Rugaber has covered the Federal Reserve and the U.S. economy for the AP for 16 years. He is a two-time finalist for the Gerald Loeb award for business reporting. twitter mailto