I didn’t watch the ~~speech~~ tirade by “US President” Donald Trump* last night in which he unveiled his new tariff plan, but people have been talking about this all day so I couldn’t resist a quick comment. There’s a lot I don’t know about economics and trade policy but one thing I do know is that the trad-weighted average tariff on goods from the USA entering the EU is about 3%, not the 39% that Trump alleged. I did therefore wonder where he got this number and all his other “reciprocal tariffs” from. Fortunately a little digging around revealed the answer.

On the left you see part of the chart showing tariffs country-by-country and the second is an extract from the published methodology which would be hilarious were the consequences not so serious.

part of the list of “reciprocal tariffs”The magic formula

You will see that the second column on the chart is headed “Tariffs charged on the USA”, with 39% listed for the European Union. This number is calculated using the “formula” on the right which has absolutely nothing to do with tariffs charged. Moreover, the denominator contains the product εφ with the values ε=4 and φ=0.25 given in the text so εφ = 1. The expert mathematician who derived this formulae seems to have missed the fact that ε is not less than zero (first sentence) if it is equal to 4, but we’ll let that pass. In fact I can’t be bothered to point out the other errors because no matter how egregious they are, there is no chance of Trumpty Dumpty reversing his decisions anyway.

To sum up, the notional tariff in column 2 is just the difference between imports and exports (the country’s trade surplus) divided by imports. The numbers in the third column of the chart on the left are just half those in the second column (give or take rounding errors and the fact that there is a minimum of 10%). China faces huge tariffs because it has a large trade surplus with the USA. The EU’s 20% tariff is nothing to do with the tariffs it charges but is due to the fact that it has a trade surplus with the USA; the UK has a lower tariff rate than the EU because it has a smaller trade surplus with the USA than the EU. That’s it.

I heard a Trump-supporting numpty attempting to justify the calculation shown in the chart on the grounds that it is really an “unfairness index”, it apparently being unfair and worthy of punishment if a country sells more to the USA than the USA sells to it. Following this line of reasoning, I have decided that all shops are unfair because I always buy more from them than they buy from me.

P.S. I was thinking that in future retaliation I should boycott goods from the USA but this would be an empty gesture because I don’t really buy any anyway. Looking up top imports from the USA to Ireland I find, for example, Bourbon (which I never buy because it is undrinkable) and confectionery (which I don’t buy because I don’t have a sweet tooth). Then I found peanuts, which I do buy occasionally, and will not buy in future. However in the grand scheme of world trade, peanuts are small potatoes.

*I apologize for forgetting to mention that Donald Trump is a convicted felon.

#China #ConvictedFelonDonaldTrump #DonaldTrump