The jobs report just came out, and it was exceptionally strong. This provided a tiny bit of relief to our beleaguered bullish friends, since the word on the street was that a sub 100k figure would make a bad situation even worse. I am highly confident that the new administration will point to “our recovering economy” with this number today several thousand times, particularly their hawt press secretary.
I read endlessly, and I was knocked off my feet when I read about how this new administration calculated the tariffs from other countries. I naively assumed that the tariff figures would be based on, ya know, tariffs, but how wrong I was…………
The first thing experts noted was that the second column in Trump’s chart was all wrong. Most of those so-called tariffs do not exist at the levels displayed. For example, as financial reporter James Surowiecki noted, South Korea does not charge us a 50 percent tariff, and the EU does not charge us a 39 percent tariff as the chart below claims.
So what gives? Where do these numbers come from? Different sources quickly calculated how they arrived at these incredible numbers. Surowiecki wrote,
They didn’t actually calculate tariff rates + non-tariff barriers, as they say they did. Instead, for every country, they just took our trade deficit with that country and divided it by the country’s exports to us.[Editor’s note: you………you’re kidding me, right?]
So, we have a $17.9 billion trade deficit with Indonesia. Its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us. What extraordinary nonsense this is.
It’s quite simple, they took the trade deficit the US has with each country and divided it by our imports from that country.
The chart below shows the predictions of this formula plotted against the actual new tariff rates.
Faced with these figures, the White House confirmed that the so-called “reciprocal tariffs” were really just half the current trade imbalance. Said one Trump aide,
“The numbers [for tariffs by country] have been calculated by the Council of Economic Advisers … based on the concept that the trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating,” a White House official said, calling it “the most fair thing in the world.”
It’s also the most insane way imaginable to address trade deficits. Basic principles of comparative advantage, taught in any introductory economics college course, assume that with some countries you will run a trade surplus and others a trade deficit. Countries that manufacture cheaper goods, for example, are likely to export more to you than they import. The advantage you gain from this is cheaper prices on basic consumer goods such as clothes and toys.
