Initial assumptions that an orthodox economic rationale might be used by the Trump White House when drawing up its ‘reciprocal’ tariffs have now been largely discarded.
The US president’s team hinted at this in February when it identified Value Added Tax (VAT) as an ‘unfair’ imposition on American imports to the European Union. This is despite the fact that VAT is applied to domestic products too.
How else to explain the 20 per cent “reciprocal” tariff he has imposed on imports from the European Union?
The average EU tariff rate on US imports is a small fraction of this – at about 3 per cent on average – despite Trump claiming that the EU charges 39 per cent on goods imported from the US. He said he was being “kind” by cutting the US “reciprocal” tariff in half.
It seems more likely the Trump team has looked at trade imbalances on goods, identified what it sees as the most egregious offenders and slapped big round percentage numbers on them.
US financial journalist and commentator James Surowiecki suggested that the Trump administration had used a crude metric to calculate the new tariffs.
“So we have a $17.9 billion trade deficit with Indonesia. It’s exports to us are $28 billion,” he posted on X, and then calculated that Trump set the tariff being applied by Indonesia as 64 per cent, or 17.9 divided by 28.
“What extraordinary nonsense this is,” Surowiecki said.
The White House pushed back on this, claiming that it calculated the tariff imposed on US products from countries based on tariff and non-tariff barriers.
The Financial Times said the same metric was used for Bangladesh’s 74 per cent “tariffs” on the US that “including currency manipulation and trade barriers”.
On the face of it, the 10 per cent applied to British imports into the US is equally baffling. The UK also applies VAT to US products at a similar rate to Europe, but it has been burdened with half the punishment.
Trump's 'complete nonsense' tariff puts the ball in EU's court
Cliff Taylor and Pat Leahy are with Hugh to discuss the tariffs announced yesterday by US president Donald Trump.
It seems more plausible that the rate for Britain was calculated with reference to the fact it doesn’t really have a trade imbalance with the US when it comes to goods – and this has lessened the blow.
The Office of United States Trade Representative has published a guide to how the rates were calculated.
The executive summary says: “Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and each of our trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing.”
Non-tariff barriers to US exports include regulations such as health and environmental rules, and VAT, or as the White House put it: “Environmental reviews, differences in consumption tax rates, compliance hurdles and costs.”
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Unnamed Trump advisers quoted in the US press overnight seem to confirm the overall approach.
One, mentioned in the New York Post, said the country-by-country rates were “based on the concept that the trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating”.
Trump’s “Liberation Day” suggests that, instead of a considered negotiation over actual tariff rates, Europe and Ireland face a knock-down, drag-out fight with the White House over perceived trading injustices.
Talk from Europe at the turn of the year about buying more US oil and gas and hints of a willingness to reduce tariffs on US cars have not softened Trump’s cough.
Supporters of Trump’s tariff policy claim he is attempting to engender “free and fair trade” with economic partners.
If the White House sticks to his guns over issues such as VAT and other “non-tariff” measures it may be more the case that it instead seeks a fundamental rebalancing of global trade.
The island of Ireland must again grapple with the prospect of disruptive tariff regimes. The difference in US tariffs on either side of the Irish Sea presents political and economic challenges.
Under the terms of the Windsor Framework Brexit agreement – while Northern Ireland remains essentially part of the European single market for goods – businesses can still ship their products to the US as UK exporters – thus falling under the 10 per cent UK tariff as opposed to the 20 per cent European one.
This has led some observers to suggest that, over the long-run, some businesses in the Republic could shift up the road for a more favourable rate. Bushmills Irish whiskey in Antrim, for example, gains a competitive edge over Cork’s Redbreast.
