How Bizarre Tariff Math Affects Us

After much internet speculation, the White House confirmed the math behind U.S. President Donald Trump's reciprocal tariffs. Andrew Chang, in the above video breaks down the formula used to determine what each of the 180 countries owes, and explains why the math is misleading.

Trumps rationale is he wants every country in the world to buy more from the U.S. than the U.S. buys from them. He wants the U.S. to be a "seller" and other countries to be "buyers" of U.S. products.  That would eliminate the U.S. trade deficit, although in reality it would be impossible for this to happen. If counties don't buy more from the U.S. than they sell to the U.S, they are punished with a tariff tax.

How did Donald Trump Get The Tariff Numbers?

  
President Trump's administration used a specific formula to calculate the "reciprocal" tariffs announced on April 2nd. While the administration presented a complex calculation (watch the video to see how they played with a tricky formula to make it look scientific,) economists suggest it actually a simple calculation using the following steps:

1. Determine the Trade Deficit: The formula starts with the U.S. goods trade deficit with a specific country. This is calculated by subtracting the value of U.S. exports to that country from the value of U.S. imports from that country.

2. Divide by Imports: The trade deficit is then divided by the total value of U.S. imports from that same country.

3. Convert to Percentage: The result of the division is converted into a percentage.

4. "Discount" by Half: The resulting percentage is then divided in half, which Trump called a "discount".

5. Floor of 10%: The final tariff rate was set with a floor of 10%, meaning that even if the calculation resulted in a lower percentage, the tariff rate would be set at 10%. (All the "ten percent" countries actually bought more from the U.S. than the U.S. bought from them, the result being the U.S. businesses beginning today paying a 10% tariff to import from them anyway.)

Let's say the U.S. has a $100 billion trade deficit with a country and the U.S. imports $200 billion worth of goods from that country.

$100 billion (deficit) / $200 billion (imports) = 0.5 or 50%.

50% / 2 (discount) = 25%.

The resulting "reciprocal" tariff rate for this country would be 25%.

The tariff calculations were primarily based on existing trade balances using data from the US Census Bureau. Economists have criticized this formula for not fully considering various trade and economic factors, focusing solely on the trade deficit as the driver for tariffs.

The result seems to be a very chaotic situation for all consumers, businesses, and governments around the world. The stock markets around the world have fallen as a result of the bizarre tariffs set by Donald Trump.