Comment by throwaway2037
12 days ago
That is correct. It was empircally proven here: https://www.ft.com/content/c4f9c7f6-0753-4458-840e-bcde1b74a...
To quote Alex Scaggs of FT:
Take the US’s goods trade deficit with any particular country, and divide it by the total amount of goods imported from that country. Cut that percentage in half, and there’s the US’s “reciprocal” tariff rate.
All countries tested against this theory are correct within 1-2 percent.
you can just read the methodology where they published it here: https://ustr.gov/issue-areas/reciprocal-tariff-calculations
Now somebody factor in Services and rerun the numbers.
This is interesting. I don't know the details of Trump's tariff policy, but if this is correct, it would follow that the policy should have some mechanism to reduce the tariffs as the trade imbalance is reduced.
Not sure why? It’s an irrational policy not based on any kind of sense. I don’t think I’d expect it to be logically consistent. Besides, what do you do with a country where US is a net exporter? Provide subsidies for imports?
It’s all drunk monkeys driving a train… there is no economic theory to expect consistency from.
Unless they think that because it came out of an Excel formula, there's a logic behind it - and honestly, I wouldn't be shocked if these folks have that insight.
> Besides, what do you do with a country where US is a net exporter? Provide subsidies for imports?
In this instance, I believe the thought pattern is: "we're being smart here".
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It’s not “irrational.” It’s crude, but it’s based on a logic that, on average, trade deficits should generally reduce to zero. And I strongly suspect this is about our large, diversified trade partners (EU, China) and is simply being imposed across the board for appearances.
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