Trump's "reciprocal tariff" calculation


The essence of Trump tariff calculation: for a given country, it is the value that would bring the US trade deficit with this country to zero.

In theory (according to the equation), the tariffs for countries with which the US has trade surpluses (e.g., Netherlands, UK, Australis...) should be negative. However, Trump puts a floor for the reciprocal tariffs: 10%. He also puts a ceiling: 99%. For example, the US tariff for Vietnam needs to be 90.4% to balance the trade according to their calculation. Out of kindness and generosity, Trump imposes a 46% tariff (about half of 90.4%) on Vietnam.

xi (exports to Vietnam) = $13.1B
mi (imports from Vietnam) = $136.6B
ε (elasticity of imports) = -4
φ (passthrough from tariffs to import prices) = 0.25


Trump's tariff calculation has little to do with conventional tariffs. Vietnam's tariffs on US goods are 9.4% on average. This number is not even included in the calculation. 

Ideally, Trump should use a different term for the perceived tariff, then spin it to convert it to a reciprocal tariff.

Just for fun, let us use the Trump tariff equation to calculate the reciprocal tariff that Australia should impose on US goods to balance its trade with the US (i.e., eliminate the trade deficit with the US).


xi (exports to the US) = $16.7B
mi (imports from the US) = $34.6B
ε (elasticity of imports) = -4
φ (passthrough from tariffs to import prices) = 0.25

The US' effective tariff on Australian goods is 52%. Australia could follow Trump by imposing a 26% tariff (half of the "reciprocal tariff") on US goods out of generosity and kindness.



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