By Alan Cole
Saturday, April 05, 2025
When rolling out its new round of tariffs earlier this
week, the Trump administration described the measures, ranging from 10 to 50
percent and assigned to nearly every U.S. trading partner, as “reciprocal.”
There’s just one problem with this notion of “reciprocity”: The administration intends
its tariffs to be actual charges levied on imports, but the so-called
tariffs it is responding to are computed from non-policy data, and in some
cases invented out of thin air.
No, the White House’s notion of
reciprocity has nothing to do with mirroring other countries’ actual
policies. The United States is not placing a 49 percent tariff on Cambodian
goods because Cambodia applies a 49 percent tax on goods imported from the
United States. Instead, the U.S. Trade Representative is simply
asserting, “if trade deficits are persistent because of tariff and
non-tariff policies and fundamentals, then the tariff rate consistent with
offsetting these policies and fundamentals is reciprocal and fair.” The new
policy, in other words, is imposing tariffs designed not to respond to specific
harms, but to equalize the bilateral trade balances with every country.
Responding to specific harms would be a valid goal:
Foreign countries do sometimes impose discriminatory taxes in their trading
relationships with the United States, such as “digital services taxes” aimed at
wealthy U.S. tech companies. A better Trump administration trade policy might
have focused
on these measures. But that’s not what’s happening here.
Rather, executive branch officials have accused every
listed country or territory of having at least 10 percent tariffs on the U.S.,
no matter what those countries’ trade policies are or what kind of trading
relationship we have with them. (This may be how a chain of barren Antarctic
islands populated by seals and penguins ended up unjustly
accused of trade violations.) Then further, they converted
bilateral trade deficits into synthetic “tariff rates” via a formula that
divides the difference between U.S. exports and imports with that country by
the total number of imports to create a sort of percentage that reflects a
balance of trade, not a tariff. Take the larger of those two numbers, and you
get the number featured in graphics distributed via
social media and shared by Trump himself in remarks
delivered from the Rose Garden: “Tariffs Charged to the USA Including
Currency Manipulation and Trade Barriers.” Neither option—the 10 percent nor
the trade balance percentage—is a measure of tariffs. (Per Washington Post
reporting,
the administration’s advisers did attempt to compute actual tariff policies by
other countries, but that analysis ended up unused in Trump’s tariff rollout.)
This calculated figure does not represent what the White
House says it does, and is even at odds with the documentation
on the U.S. trade representative’s website, which seems to acknowledge the
possibility that some trade deficits come from “fundamentals,” a term that
isn’t defined in the document but could conceivably mean “circumstances where a
trade imbalance is economically efficient.” (For example: below we will
consider a country whose agricultural climate is excellent for particular crops
the U.S. lacks, but whose consumer market is small.) Despite this concession
that trade deficits might reflect fundamentals, all trade deficits are still
assumed to need addressing with offsetting tariffs.
Given the haphazard way the Trump administration arrived
at its numbers, other countries have no way to cooperate, even if they wanted
to. Very friendly trading partners like Israel
and Vietnam
made efforts to show maximum openness to the U.S. this month by cutting some of
their few remaining tariffs, only to find themselves rendered guilty and
charged with tariffs anyway, forcing them to scramble
for additional solutions this week. Even knowing the formula behind the
Trump team’s calculations, immediate solutions are not obvious—because
bilateral trade “imbalances” are not a legitimate policy issue to be remedied.
For starters, trade balances between two countries aren’t
a real measure of economic substance. Trade data tells you little about where
goods truly originate or end up; import data showcases only the most recent
link in the supply chain, and export data showcases only the next one. For
example, many goods labeled as imports from Mexico or Canada include
supply-chain contributions from other countries, including the United States
itself, earlier in the industrial process.
And in many cases, it wouldn’t make sense for the United
States’ bilateral trade balance with another country to be equal. Take
Madagascar and Australia, for example. The U.S. runs a trade deficit in goods
with Madagascar—meaning we import more from the African nation than we export
to it—but a surplus with Australia. The Trump approach is designed to address
the “problem” above by putting very high, 47 percent tariffs on goods from
Madagascar, but a minimum rate, 10 percent, on goods from Australia.
But neither of these bilateral relationships presents a
problem for the United States. Madagascar is a low-income country with an
extraordinarily strong ability to produce vanilla beans. Americans enjoy the
vanilla beans, but we do not benefit much from selling our various wares to
low-income people from the African island nation. It makes sense for us to lean
toward net imports in our interactions with the Madagascans.
Australia, by contrast, is a high-income country, and its
exports include a lot of metals. Americans benefit from selling goods and
services like aircraft or streaming video subscriptions to wealthy Australian
consumers, but don’t have much need for Australian metals. Australia is far
away, metals are very heavy, and we’re pretty good at mining metals of our own.
It makes sense for us to lean toward net exports in our interactions with the
Australians.
Trade deficits aren’t necessarily harmful even at the
aggregate level. In recent decades, the U.S. has run trade deficits primarily
because foreigners have been eager to sell us goods to get access to valuable
U.S. financial assets like stocks and bonds. With our enviable array of
valuable public companies, the U.S. is a fantastic place to invest. Or at least
it was, prior to the opening bell on Wall Street on Thursday. The wreckage
before us—trillions
in market capitalization destroyed, thousands
of dollars in tax hikes for the average family—is a terrible sacrifice we
are making, all in order to solve a non-problem.
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