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U.S. President Donald Trump recently rolled out a bold “reciprocal tariff” policy, provoking discussions and concerns among economists and international trading partners about the methodology employed in determining the proposed tariff rates.
The new policy stipulates a 10% base tariff on imports from nearly all countries, but it applies significantly higher tariffs on specific nations, including China, Vietnam, and Taiwan. During a ceremony in the Rose Garden on Wednesday, Trump displayed a poster that illustrated what he claimed were the tariffs imposed on the U.S. by these countries, alongside the corresponding “discounted” tariffs the U.S. would impose as a countermeasure.
According to the administration, the reciprocal tariffs set forth are generally around half of what it asserts each country charges the U.S. For example, the poster indicates that a tariff of 67% is levied by China, which would trigger a 34% reciprocal tariff from the U.S.
However, the Cato Institute has published findings challenging these assertions. Their report presents trade-weighted average tariff rates from the World Trade Organization for 2023, the latest year for which complete data is available. According to Cato, the actual 2023 trade-weighted average tariff for China was only 3%. In addition, the administration claims that the European Union imposes a 39% tariff on U.S. goods, while Cato’s data reveals a more accurate figure of 2.7% for that year.
The discrepancies extend to India as well, with the Trump administration alleging a 52% tariff against U.S. imports; Cato’s analysis shows a more realistic average of 12% for 2023.
This week, social media users highlighted an unusual methodology used by the administration that appeared to involve dividing the trade deficit by imports from specific countries to produce these tariff rates. This approach raised eyebrows, as it implies that the U.S. considered the trade deficit in tangible goods but disregarded services, which are also a significant aspect of trade dynamics.
In a brief explanation, the Office of the U.S. Trade Representative outlined its rationale, stating that calculating the combined effects of tariffs, regulations, taxes, and other policies across countries “can be approximated by determining the tariff level needed to reduce bilateral trade deficits to zero.”
“If trade deficits persist due to tariff and non-tariff policies and underlying economic fundamentals, then the tariff rate needed to counteract these factors is deemed reciprocal and fair,” the USTR added in its announcement.
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