Digging into the ‘insane’ formula the White House used to calculate its tariffs
The President of the United States Donald Trump stopped in the rosette of the White House on Wednesday brandishing a gigantic ranking of the countries that slapped with new “mutual” rates, which start at 10 % and become steep for countries with greater commercial deficits with the United States.
A column of numbers declared to show the value of foreign rates and “currency manipulation and commercial barriers” that other countries had already placed in the United States, while a second column listed the new rates from the United States
“They tear us out,” said Trump of the European Union. “Thirty -nine percent. We will charge them 20 %, and therefore we will essentially charge them half.”
But where do these numbers come from? And are the new rates calculated according to the commercial measures that other countries have implemented against the United States?
The short answer is no. The White House Information sheet Information on calculations reveals that the new tariffs of the Administration are entirely based on the elimination of commercial deficits.
The rates have been calculated using a formula that takes how much a certain country sells to the United States (exports), subtracts how much that country acquires from the United States (imports) to calculate the commercial deficit and therefore divides the commercial deficit with the total exports of that country in the United States, according to experts.
In the case of the European Union, the resulting number reached 0.389, or 39 %. This number, according to the White House, represents alleged unjust commercial practices.
It was therefore divided by half to produce the “discounted mutual” rate of the United States.
Not mutual rates
“This formula is crazy”, Dmitry Grozouubinski, a commercial consultant based in Geneva and author of Because politicians lie about trade … and what do you need to know about itHe told CBC News.
“What they are basically saying is … what we will do is assume that if you are selling much more to the United States than you are buying from the United States, you have to do something unfair,” he said.
The countries that acquire more American products than those who sell to the United States have not been saved. The rates, which affect more than 100 countries, are set at a 10 % base for countries such as the United Kingdom, which has a commercial surplus with the United States
Calling these “mutual” rates is not accurate, said Grozouubinski, since they are not connected to any rate placed by other countries.
“The best analogy I managed to find for all this is as if I reached the dangerous doors of the sky and St. Peter said:” I intend to evaluate if you have lived a fairly fair life to enter here. “And then everything he actually did was divided by your fines to accelerate parking fines to get to a percentage of justice”.
Cristtián Bravo, professor and president of the research in Canada of banking and insurance analyzes at Western University in London, in Ontario, said that the formula was “surprising” considering that the rates could overturn global trade.
“The fact that the formula that is used to determine these rates is not based on any type of economic knowledge really tells you that there is more than a rooted conviction in rates as a tool rather than a clear economic plan based on what we know about the economy,” he told CBC News.
The reasoning of the White House is that any commercial deficit is a sign that a country is in some way dealing unjustly the United States. But global trade is enormously complex and a unique approach for everyone cannot be applied when different countries have different resources and very different levels of wealth, experts say.
Lesoteho, a small African nation that is one of the poorest in the world, has been slapped with a 50 % rate by the Trump administration simply because the United States significantly acquire more from Lesotho than Lesotho can afford to buy from the United States because? Two of the greatest exports of Lesotho are jeans and diamonds.
When countries are unique suppliers of products that another country needs, a commercial deficit is not always a bad thing, said Bravo.
For example, if another country cultivates a fruit, such as bananas, which does not grow in your country and you want your citizens to buy cheap bananas, you would like to delete commercial barriers that would have raised the price, he said.
“But this formula does exactly the opposite,” said Bravo. “Applying this at the country level, some countries [that] Assets that the United States that the United States cannot provide are affected by a huge tax are actually providing.
“This is basically a 10 % [minimum] Tax on everything that the United States cannot produce internally, with the hope that a lot of things will be produced internally. And the reality is that many of the things they simply cannot, or will take decades to adapt. “
“False tariff rates” and poor mathematics
After the economists and the public in general noticed that the column “tariff rates” on Trump’s graph did not seem to combine any fee known by other countries, the true nature of the calculations was quickly engineered in reverse, with the financial writer James Surowiecki who shared the details in One post on X on Wednesday.
After explaining that the “fake tariff rates” were only commercial deficits divided by exports, the deputy press secretary of the White House Kush Desai replied with a denial.
“No, we literally calculated the tariff and non -tariff barriers”, he he wroteSharing a complicated mathematical formula. But once the Greek symbols were removed, it outlined the same thing that Surowiecki had described.
Canada may have avoided some of the rates imposed by Donald Trump to other commercial partners, but the country was still in the mind of the President of the United States during his speech on global rates. CBC’s control team examines Trump’s statements on Canada.
In reality there were two other parameters in the Trump formula, but although they made the formula visually more complex, these figures had no impact on the overall calculation. These parameters – the elasticity of the prices of the import demand and the elasticity of import prices compared to the rates – were set to values that meant that they actually deleted each other, Bloomberg observed.
“If you look at the formula, it is literally a variable divided by another variable, Times 0.5. You could write this on the back of a cragker … it seems that they were just trying to hide the fact that they did it in the most reductive and lazy way,” said Grezoubinski.
“This was so lazy and amateur that I would not have very confidence that people at the helm of the American economy are dealing with governance with the gravity he deserves,” he said. “But with implications that come across hundreds of billions.”
