The Childish Tariff Formula That Will Reshape the Global Economy

FreeinChrist · Apr 3, 2025

Opinion | The Childish Tariff Formula That Will Reshape the Global Economy

Trump said repeatedly that the tariffs are “reciprocal,” but that’s not true. The rates were calculated using a childish formula based on trade imbalances.

www.nytimes.com

Which country tops Trump’s cheating chart? Well, it turns out to be the tiny, landlocked southern African kingdom of Lesotho.

In 2023, Lesotho exported about $228 million worth of goods and services to the United States and imported just $7.33 million worth from the United States. To rectify this imbalance, which the Trump administration regards as an intolerable abuse of the American people, the president is imposing a 50 percent tax on future imports from Lesotho — the highest rate on any country.....

Lesotho is one of the poorest countries on Earth. Its 2.3 million citizens spend an average of only $3 on American goods and services each year not because they’re trying to cheat the United States but because they have very little money.

And what of the stuff that Americans buy from Lesotho? Diamonds top the list.

Poor Lesotho, with only 2.3. million people can't buy the amount of goods from America that comes close to what the US buys from Lesothos - with is epensive diamonds. They have no hope of buying more goods from the US because they are landlocked and poor.

One thing I see in the Trump administration - cruelty is the point. Meanness is the point.

FreeinChrist · Apr 3, 2025

So what formula did the Trump administration come up with for tariffs?

https://www.reuters.com/world/trumps-tariff-formula-confounds-world-punishes-poor-2025-04-03/

Ridiculed for imposing trade tariffs on frozen islands largely inhabited by penguins, Donald Trump's formula for calculating those levies has a serious side: it is also hitting some of the world's poorest nations hardest.

The math is simple: take the U.S. goods trade deficit with a country, divide it by that country's exports to the U.S. and turn it into a percentage figure; then cut that figure in half to produce the U.S. "reciprocal" tariff, with a floor of 10%....

But Madagascar - one of the poorest nations in the world with gross domestic product (GDP) per head of just over $500 - meanwhile faces a 47% tariff on the modest $733 million of exports of vanilla, metals and apparel that it did with the U.S. last year....

"There is really no methodology there," said Mary Lovely, Senior Fellow at the Peterson Institute. "It is like finding you have cancer and finding the medication is based on your weight divided by your age. The word 'reciprocal' is deeply misleading."

Robert Kahn, managing director, global macro for Eurasia Group consultancy, agreed that it produced "a lot of these kind of nonsense numbers that aren't material".

"It sends a signal ... that we are pulling back from our relationships and alliances with them and is a cold shower to a lot of our traditional allies," he told Reuters.

FreeinChrist · Apr 3, 2025

The math of the tariffs is explained better by the Wall Street Journal.

https://www.wsj.com/livecoverage/trump-tariffs-trade-war-stock-market-04-03-2025/card/math-behind-new-tariffs-points-to-trade-imbalance-as-key-issue-W4I7vbzaO5qFZS43hAjc

The White House’s new tariffs were pegged to amounts it said other countries impose on the U.S. In many cases, those amounts appear to match a basic formula: the size of a country's goods-trade imbalance with the U.S., divided by how much America imports from that nation.....

For example, Chinese tariffs against the U.S. were about 23% overall as of last month, according to the Peterson Institute for International Economics.

But dividing the U.S.'s 2024 goods-trade deficit with China, of some $295 billion, by the amount the U.S. imported from China results in the 67% tariff value presented by the White House.

$295bn ÷ $439bn=67%

Aryeh Jay · Apr 3, 2025

FreeinChrist said:
Opinion | The Childish Tariff Formula That Will Reshape the Global Economy

Trump said repeatedly that the tariffs are “reciprocal,” but that’s not true. The rates were calculated using a childish formula based on trade imbalances.

www.nytimes.com

Which country tops Trump’s cheating chart? Well, it turns out to be the tiny, landlocked southern African kingdom of Lesotho.

In 2023, Lesotho exported about $228 million worth of goods and services to the United States and imported just $7.33 million worth from the United States. To rectify this imbalance, which the Trump administration regards as an intolerable abuse of the American people, the president is imposing a 50 percent tax on future imports from Lesotho — the highest rate on any country.....

Lesotho is one of the poorest countries on Earth. Its 2.3 million citizens spend an average of only $3 on American goods and services each year not because they’re trying to cheat the United States but because they have very little money.

And what of the stuff that Americans buy from Lesotho? Diamonds top the list.

Poor Lesotho, with only 2.3. million people can't buy the amount of goods from America that comes close to what the US buys from Lesothos - with is epensive diamonds. They have no hope of buying more goods from the US because they are landlocked and poor.

One thing I see in the Trump administration - cruelty is the point. Meanness is the point.

Checking the demographic of the people. Check
Checking their annual income. Check
Checking the hole meter to see where the country falls. Check.

Well, I have checked the data and see no reason why they should be given good treatment.

Bradskii · Apr 4, 2025

They're making it up as they go. I'm no financial wizzkid (my wife will attest to that), but even I can see how idiotic it is. From here: https://www.reuters.com/markets/global-markets-pix-2025-04-03/

'The Nasdaq Composite Index led declines on Wall Street, ending the day down 5.97% in its biggest daily fall since March 2020, while the S&P 500 and Dow Jones Industrial Average posted their biggest daily percentage declines since June 2020.

Shares of Apple fell 9.2%, hit by the tariffs on China, the base for much of its manufacturing.
Amazon.com dropped 9%
Microsoft fell 2.4%
Nvidia declined 7.8%.
The S&P 500 technology index fell 6.9%.
The S&P 500 energy sector sank 7.5%, with oil prices falling more than 6% on the day.
The CBOE Volatility index, known as Wall Street's fear gauge, rose to 30.02, its highest closing level since August 5, 2024.
The Dow fell 1,679.39 points, or 3.98%
The S&P 500 dropped 274.45 points, or 4.84%
The Nasdaq Composite sank 1,050.44 points, or 5.97%

These numbers are very bad indeed. It couldn't be worse if it had been planned.

Pommer · Apr 4, 2025

FreeinChrist said:
Opinion | The Childish Tariff Formula That Will Reshape the Global Economy

Trump said repeatedly that the tariffs are “reciprocal,” but that’s not true. The rates were calculated using a childish formula based on trade imbalances.

www.nytimes.com

Which country tops Trump’s cheating chart? Well, it turns out to be the tiny, landlocked southern African kingdom of Lesotho.

In 2023, Lesotho exported about $228 million worth of goods and services to the United States and imported just $7.33 million worth from the United States. To rectify this imbalance, which the Trump administration regards as an intolerable abuse of the American people, the president is imposing a 50 percent tax on future imports from Lesotho — the highest rate on any country.....

Lesotho is one of the poorest countries on Earth. Its 2.3 million citizens spend an average of only $3 on American goods and services each year not because they’re trying to cheat the United States but because they have very little money.

And what of the stuff that Americans buy from Lesotho? Diamonds top the list.

Poor Lesotho, with only 2.3. million people can't buy the amount of goods from America that comes close to what the US buys from Lesothos - with is epensive diamonds. They have no hope of buying more goods from the US because they are landlocked and poor.

One thing I see in the Trump administration - cruelty is the point. Meanness is the point.

These free-loading Lesothos aren’t getting a “free-ride” anymore and they can pony-up more of that $866/yr* they make on a per capita basis, if they want our goods!

Seriously though, how “rich” do we really need to be?

*this assume the Lesothos care enough about what Donald Trump does and issues retaliatory tariffs, but why would they hurt their own people, economically?

Pommer · Apr 4, 2025

Bradskii said:
They're making it up as they go. I'm no financial wizzkid (my wife will attest to that), but even I can see how idiotic it is. From here: https://www.reuters.com/markets/global-markets-pix-2025-04-03/

'The Nasdaq Composite Index led declines on Wall Street, ending the day down 5.97% in its biggest daily fall since March 2020, while the S&P 500 and Dow Jones Industrial Average posted their biggest daily percentage declines since June 2020.

Shares of Apple fell 9.2%, hit by the tariffs on China, the base for much of its manufacturing.
Amazon.com dropped 9%
Microsoft fell 2.4%
Nvidia declined 7.8%.
The S&P 500 technology index fell 6.9%.
The S&P 500 energy sector sank 7.5%, with oil prices falling more than 6% on the day.
The CBOE Volatility index, known as Wall Street's fear gauge, rose to 30.02, its highest closing level since August 5, 2024.
The Dow fell 1,679.39 points, or 3.98%
The S&P 500 dropped 274.45 points, or 4.84%
The Nasdaq Composite sank 1,050.44 points, or 5.97%

These numbers are very bad indeed. It couldn't be worse if it had been planned.

Trump doesn’t bluff.
often enough.

FireDragon76 · Apr 4, 2025

There's a saying: never attribute to malice what can't be attributed to ignorance.

Apparrently, Trump just doesn't understand how the economics of trade works, and how a trade deficit isn't inherently unfair. Perhaps numeracy isn't one of his strong suits, after all, he couldn't even make money owning a casino.

Perpetual Student · Apr 4, 2025

FreeinChrist said:
One thing I see in the Trump administration - cruelty is the point. Meanness is the point.

No, no,no, no. You got that wrong. Bringing Lesotho to its knees will finally Make America Great Again.

Pommer · Apr 4, 2025

FireDragon76 said:
There's a saying: never attribute to malice what can't be attributed to ignorance.

Apparrently, Trump just doesn't understand how the economics of trade works, and how a trade deficit isn't inherently unfair. But then, this a guy who couldn't even make money owning a casino. Perhaps numeracy isn't one of his strong suits, after all, he couldn't even make money owning a casino.

Owing money is a guarantee that you’ll need even more money in the future.
Somehow this is now viewed as “success”.

The IbanezerScrooge · Apr 4, 2025

And this administration headed by the convicted felon STILL doesn't understand how tariffs work. Like at all. He still talks about bringing money into the country from tariffs, which isn't what's happening. It's just transferring money from the domestic private sector to the government. i.e. A TAX. It's just a tax increase on Americans, the largest in history.

essentialsaltes · Apr 4, 2025

This is literally the formula from the Trump Administration. And by all accounts, the greek letters were childishly set to (negative) unity. So it's (exports to-imports from)/imports and then divided by 2 for good luck.

For a company that buys nothing from us, then the formula is imports/imports = 1 or 100%. Cut that in half is 50%, so that's why the new tariffs max out close to 50%.

Note that this calculation has nothing to do with tariffs. Just trade imbalance.

Aryeh Jay · Apr 4, 2025

The IbanezerScrooge said:
And this administration headed by the convicted felon STILL doesn't understand how tariffs work. Like at all. He still talks about bringing money into the country from tariffs, which isn't what's happening. It's just transferring money from the domestic private sector to the government. i.e. A TAX. It's just a tax increase on Americans, the largest in history.

Sooo, money is being made by the tariffs.

FreeinChrist · Apr 4, 2025

Pommer said:
These free-loading Lesothos aren’t getting a “free-ride” anymore and they can pony-up more of that $866/yr* they make on a per capita basis, if they want our goods!

Seriously though, how “rich” do we really need to be?

*this assume the Lesothos care enough about what Donald Trump does and issues retaliatory tariffs, but why would they hurt their own people, economically?

The tariffs just mean that Americans will have to pay more for their diamonds, as the one who import them in have to pay the tariff.

I don't buy diamonds. My diamond ring was first worn by my great, great aunt Rose, and then by my grandmother, who had it reset. Grandma gave it to me.

I don't understand the tariff on most all countries, but to put them on such a poor country and on inhabited islands is crazy.

iluvatar5150 · Apr 4, 2025

FreeinChrist said:
Opinion | The Childish Tariff Formula That Will Reshape the Global Economy

Trump said repeatedly that the tariffs are “reciprocal,” but that’s not true. The rates were calculated using a childish formula based on trade imbalances.

www.nytimes.com

Which country tops Trump’s cheating chart? Well, it turns out to be the tiny, landlocked southern African kingdom of Lesotho.

In 2023, Lesotho exported about $228 million worth of goods and services to the United States and imported just $7.33 million worth from the United States. To rectify this imbalance, which the Trump administration regards as an intolerable abuse of the American people, the president is imposing a 50 percent tax on future imports from Lesotho — the highest rate on any country.....

Lesotho is one of the poorest countries on Earth. Its 2.3 million citizens spend an average of only $3 on American goods and services each year not because they’re trying to cheat the United States but because they have very little money.

And what of the stuff that Americans buy from Lesotho? Diamonds top the list.

Poor Lesotho, with only 2.3. million people can't buy the amount of goods from America that comes close to what the US buys from Lesothos - with is epensive diamonds. They have no hope of buying more goods from the US because they are landlocked and poor.

One thing I see in the Trump administration - cruelty is the point. Meanness is the point.

That's what they get for being born into poop-hole countries. Perhaps they should have made better choices about which parents to be born to.

essentialsaltes · Apr 7, 2025

The tariffs that led to the biggest stock-market drop since COVID may have been the result of an error

That’s the argument coming from the American Enterprise Institute, a think tank in Washington that espouses conservative views, which looked into the mathematical formula published by the U.S. Trade Representative to calculate reciprocal tariffs.

The problem is the White House used 0.25 as the elasticity of import prices. Per the research paper the USTR cited in the tariff determination, the elasticity is actually closer to 1, or 0.945 to be precise. The AEI authors say the White House may have used the elasticity of retail prices instead of import prices.

Pommer · Apr 7, 2025

essentialsaltes said:
The tariffs that led to the biggest stock-market drop since COVID may have been the result of an error
That’s the argument coming from the American Enterprise Institute, a think tank in Washington that espouses conservative views, which looked into the mathematical formula published by the U.S. Trade Representative to calculate reciprocal tariffs.

The problem is the White House used 0.25 as the elasticity of import prices. Per the research paper the USTR cited in the tariff determination, the elasticity is actually closer to 1, or 0.945 to be precise. The AEI authors say the White House may have used the elasticity of retail prices instead of import prices.

View attachment 363247

Now, our view is that the formula the administration relied on has no foundation in either economic theory or trade law. But if we are going to pretend that it is a sound basis for US trade policy, we should at least be allowed to expect that the relevant White House officials do their calculations carefully. Hopefully they will correct their mistake soon: the resulting trade liberalization would provide a much-needed boost to the economy and may yet help us stave off a recession.

The Childish Tariff Formula That Will Reshape the Global Economy

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The tariffs that led to the biggest stock-market drop since COVID may have been the result of an error​

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The tariffs that led to the biggest stock-market drop since COVID may have been the result of an error​

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