Hold on to your chair: Reciprocal tariffs formula revealed

Wait until you see how the Reciprocal Tariffs formula was calculated

I was reading some articles on how the so called reciprocal tariff rates were calculated and I almost fell off my chair. After you read the following strap yourself to your chair so you do not fall off as well after seeing a formula that has caused so much havoc.

The reciprocal tariffs formula. 

The formula is based on a simple calculation. Divide the U.S. trade deficit in goods by a country’s exports into the U.S. and present it in percentage terms. The next step is to divide that percentage in two to come up with the so called  reciprocal” tariff rate for that  country.  The minimum tariff for any country’s exports to the U.S. is 10%

For example, China was slapped with a 34% tariff  rate. It was calculated by dividing the 2024 U.S. trade deficit with China ($295 bln) by the total of Chinese goods imported into the U.S. ($440 bln) and then dividing that total by 2.

The calculation:

295/440 =0.67/2 =0.335 (rounded to 0.34  = 34%)

But this is just part of the story.as the Trump tariffs spared no prisoners.

Poor countries 

Take Madagascar, for example, one of the poorest nations in the world. Its GDP per household is just over $500. It exports vanilla, metals and clothing to the U.S. totaling $733  mln.  It got hit with a whopping reciprocal tariff rate of 47%.

This story has been repeated throughout the world, hitting rich and poor countries alike, the latter having little or no capability to import much from the U.S.

Rich countries 

Does this make dense?

But the formula is also sowing confusion among rich countries. For the European Union it has produced a punitive tariff of 20% – four times the 5% which the World Trade Organization calculates as the EU’s average tariff rate (Source Reuters).

I am sure rich countries are scratching their cumulative heads trying to figure out how to respond to tariffs calculated by a questionable formula  presented as one based on reciprocity.

Whatever the case, we were all expecting to see reciprocal tariffs being implemented and were blindsided by the punitive rates that seemed to have been pulled out of a hat.

You can see why I saif that I almost fell off my chair. i hope you held on tight to your chair after seeing a formula that looks like it was cooked in a lab rather than by some serious economists.

With that said, I have trouble believing this is end of the story but I must admit I am losing confidence. I will leave you with  a question I  asked in this article

What is the Trump reciprocal tariffs game plan?

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