By Derrick Max,
No one can say we weren’t warned. During his debate with then Vice President Kamala Harris, President Donald Trump clearly stated, “other countries are going to finally, after 75 years, pay us back for all that we’ve done for the world, and the tariff will be substantial…” Promises made, promises kept. Unfortunately.
I don’t think, however, that anyone could have imagined that “substantial” tariffs would include a baseline 10% tariff on all imported goods, and higher, individualized reciprocal tariffs on countries identified as having the largest trade deficits with the United States. Beyond these broad measures, specific sectors are also targeted, including a 25% tariff on all imported automobiles and auto parts. The tariffs also eliminate previous exemptions to the existing 25% tariffs on steel and aluminum imports, which have been in place for some time.
The scale of these tariffs is actually beyond “substantial,” reaching levels not observed since World War II. The magnitude of the Trump Tariffs is the equivalent of bringing a bazooka to a pillow fight.
President Trump’s flag-adorned Rose Garden ceremony included a “reciprocal tariff” chart that gave the false impression that tariffs were far higher than they actually are, that the United States is on the losing end of most existing tariffs, and that the new “reciprocal tariffs” would only be half of what our trading partners are charging us.
But the tariff column on the President’s chart was completely disconnected from any actual tariff. It was really a number derived by taking the difference between imports and exports with each country, divided by that country’s exports to the US, then attributing that deficit entirely to tariffs and other protectionism. That ratio was then divided in half to produce what the administration calls a “discounted reciprocal tariff.” In other words, any country with whom we have a trade deficit is assumed to have used higher tariffs to gain that advantage and would be punished with a “reciprocal tariff” equal to a rate of half of their trade deficit — an amount that is multiple times higher than their tariffs on our goods.
The truth is, however, most deficits are caused by a country having a comparative advantage (and in some cases an absolute advantage) in producing a specific product that makes it more efficient to import than to produce, while freeing up labor and capital in our market to make other goods and services that we can either consume or export. This is the “economics 101” of all voluntary trade which applies equally to trade between nations.
