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Former US President Donald Trump initiated a 10% levy on goods arriving from the majority of nations into the United States, applying even steeper charges to countries he labeled “worst offenders.” This policy shift raised questions about the methodology employed to determine these tariffs – essentially taxes on imports. BBC Verify investigated the underlying calculations to understand how these figures were derived.
Decoding the Tariff Calculations
Initially, when Mr. Trump unveiled a large visual aid illustrating the tariffs in the White House Rose Garden, observers assumed the rates stemmed from a combination of pre-existing tariffs and other obstacles to trade, such as regulatory frameworks.
Subsequently, the White House released what appeared to be a complex mathematical formula.
However, the actual calculation was surprisingly straightforward. It involved taking the US goods trade deficit with a specific country, dividing it by the total value of goods imported from that nation, and then halving the resulting number.
A trade deficit arises when a country purchases (imports) more tangible goods from abroad than it sells (exports).
For instance, the US imports a greater value of goods from China than it exports, resulting in a goods deficit of $295 billion. The total value of goods imported from China amounts to $440 billion.
Dividing $295 billion by $440 billion yields approximately 67%. Halving this figure and rounding upwards results in the 34% tariff imposed on China.
Similarly, applying the White House’s formula to trade with the EU resulted in a 20% tariff.
Reciprocity of Trump’s Import Taxes
Numerous commentators have noted the lack of true reciprocity in these tariffs.
A reciprocal approach would typically involve basing new tariffs on the existing tariffs and non-tariff barriers (like regulations that increase expenses) already levied by other countries on US goods.
However, the official methodology document released by the White House clarifies that such reciprocal calculations were not conducted for all nations subjected to these tariffs.
Instead, the tariff rate was calculated to theoretically eliminate the US goods trade deficit with each respective country.
Notably, Trump deviated from this formula when imposing tariffs on countries with whom the US does not have a goods trade deficit, meaning they purchase more US goods than they sell to the US.
For example, the US does not currently experience a goods trade deficit with the UK. Despite this, the UK was subjected to a 10% tariff.
In total, over 100 countries fall under this new tariff structure.
Wider Economic Implications of Tariffs
Mr. Trump articulated his belief that the US was disadvantaged in global commerce. He contended that foreign nations were flooding US markets with inexpensive goods, harming American businesses and resulting in job losses. Simultaneously, he argued these nations erected barriers that diminished the competitiveness of US products internationally.
Therefore, by implementing tariffs to redress trade deficits, Trump aimed to revitalize American manufacturing and safeguard jobs.
However, the crucial question remains whether this new tariff system will yield the intended outcomes.
BBC Verify consulted with several economists. The overwhelming consensus is that while these tariffs might lessen bilateral goods deficits between the US and specific nations, they are unlikely to decrease the overall US trade deficit with the rest of the world.
“Indeed, these measures will likely reduce bilateral trade deficits between the US and these impacted countries. However, numerous broader consequences beyond this simple calculation will undoubtedly emerge,” stated Professor Jonathan Portes of King’s College London.
This is primarily because the US’s existing overall deficit is not solely attributable to trade barriers. It is also a consequence of the fundamental workings of the US economy.
A key factor is that Americans tend to spend and invest more than they earn. This discrepancy necessitates the US purchasing more goods from global markets than it sells. Consequently, this pattern suggests the US may sustain a trade deficit despite escalating tariffs with its international trading partners.
Furthermore, trade deficits can arise from various legitimate economic factors, independent of tariffs. For example, importing food items that are more efficiently or affordably produced given other countries’ climates.
Thomas Sampson from the London School of Economics commented: “The formula appears to be reverse-engineered to legitimize imposing tariffs on nations with whom the US has a trade deficit. There is no sound economic justification for this approach, and it will likely impose significant costs on the global economy.”