President Trump’s Tariff Formula Makes No Economic Sense. It’s Also Based on an Error.

President Trump on Wednesday announced tariffs on practically every foreign country (and some non-countries), ranging from a 10 percent minimum all the way up to 50 percent. The economic fallout has been dramatic, with the stock market losing nine percent of its value (based on the S&P 500 index at the time of writing) and forecasted probabilities of a recession rising.

President Trump described the tariffs as reciprocal, equal to half of the rate of tariffs and non-tariff trade barriers imposed by other countries. However, they are nothing of the sort. The tariff the United States is placing on other countries is equal to the US trade deficit divided by US imports from a given country, divided by two, or 10 percent, whichever rate is higher. So even if the United States has no trade deficit (or a trade surplus) with a country, they still receive a minimum tariff of 10 percent.

As an example, if the US imports $100 million worth of goods and services while exporting $50 million to a country, then the Trump Administration alleges that country levies a 50 percent tariff on the United States (the difference between $100 million and $50 million, divided by $100 million). The “reciprocal” tariff put into effect by President Trump on Wednesday would be half of that, 25 percent.

The formula for the tariffs, originally credited to the Council of Economic Advisers and published by the Office of the United States Trade Representative, does not make economic sense. The trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.

Read more here
https://www.aei.org/economics/president-trumps-tariff-formula-makes-no-economic-sense-its-also-based-on-an-error/

Article also includes the correct tariff rates.