Again dispensing with the niceties of congressional consent, President Trump invoked emergency powers and levied a 10% tariff on imports from all countries effective April 5th. April 9th will see "individualized reciprocal higher tariffs'" on countries with which the United States has the largest trade deficits (Annex I).
"Adusted reciprocal tariffs" have been calculated for the country's largest trading partners; those with the greatest trade surpluses appear to have drawn the higher rates.
Tariff rates range from textile and footwear powerhouses Vietnam - 46% and Bangladesh - 37, to China - 34%, Switzerland -32%, Taiwan -32%, India - 27%, South Korea - 31, Malaysia - 24%, Japan -24%, European Union - 20%
Australia, Singapore and the UK drew the baseline tariff of 10%
The February 20% tariffs on China and the 13% already in place mean that the effective tax rate on purchases from our third largest trading partner could be 67%. Imports from Russia, mostly potash and platinum, are duty free.
In a web post titled "Reciprocal Tariff Calculations," the Office of the US Trade Representative presented one swell looking piece of typographic notation, Greek letters and all, as the "Basic Approach" used to calculate the reciprocal tariffs.
Regardless of political bias, much of Washington enjoys the fruits of a liberal education, meaning the above is jibberish, even when explained as "Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices," (hint: in this formula they cancel each other out).
In simple English, a tariff equal (in percentage terms) to the country’s trade surplus with the US will eliminate that surplus. We could've got that from Chat GPT.
The Financial Times quotes a British Econometrician saying the use of economic formulas merely gave the USTR document “a sense of being linked to economic theory”, but it was in fact divorced from the reality of trade economics.
Nobel Prize winning trade economist Paul Krugman had choicer words for the faux academic approach.
"This is a much bigger shock to the economy than the infamous Smoot-Hawley tariff of 1930, especially when you bear in mind that international trade is about three times as important now as it was then," he writes.
"The size of the tariffs, however, wasn’t the only shocking thing about the Rose Garden announcement. Arguably what we learned about how the Trump team arrived at those tariff rates — the sheer malignant stupidity of the whole thing — was even worse.
"There’s so much wrong with this approach that it’s hard to know where to start. But one easy thing to point out is that the Trump calculation only considers trade in goods, while ignoring trade in services. This is a big omission."
"That USTR note, in particular, reads like something written by a student who hasn’t done the reading and is trying to bullshit their way through an exam," Krugman writes. "Who makes policy this way?"
Krugman's longtime collaborator and former Chief Economist of the World Bank Maurice Obstfeld notes in a Petersen Institude podcast, "theory tells us that when a country imposes a broad-based tariff that its currency will appreciate in principle"
"if the US were to go into recession because of contractionary effects from all of these announcements, the Fed would cut interest rates, and the dollar would fall. And if people anticipate that, then the dollar will fall immediately."
As the President seeks to make his first-term tax cuts permanent, the potential revenues of the measures can be expected to play a role in the justification.
Some goods will not be subject to the Reciprocal Tariff. These include: (Annex II)
U.S.-originating content (≥20%) is exempted from the additional duties, and CBP may enforce “privileged foreign status” for goods in foreign trade zones.
De minimis treatment remains for low-value shipments under 1321(a)(2)(A)-(B); 1321(a)(2)(C) remains temporarily in force pending further administrative action. De minimis for China and Hong Kong is suspended (see below).
For Canada and Mexico, the existing fentanyl/migration IEEPA orders remain in effect, and are unaffected by this order. This means USMCA compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff.
In the event the existing fentanyl/migration IEEPA orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12% reciprocal tariff.
The White House also announced the ending of duty-free de minimis treatment for covered goods from the People’s Republic of China (PRC) and Hong Kong starting May 2, 2025 at 12:01 a.m. EDT. A decision on shipments Macau has been deferred 90 days.
China will impose a 34% tariff on all imports from the US starting April 10, as well as suspending chicken, sorghum and bone meal imports. President Trump responded in all caps, saying "CHINA PLAYED IT WRONG, THEY PANICKED - THE ONE THING THEY CANNOT AFFORD TO DO!" He then extended the Tik-Tok deadline another 75 days.
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