Cnn
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The massive rates that President Donald Trump announced on Wednesday for dozens of business partners were presented as “reciprocal”, simply aiming at the rates that other countries are charging in the United States.
But the methodology behind the attempted rebalancing of Trump has nothing to do with the rate rate that foreign countries impose in the United States.
Rather, the Trump administration has a strongly simplified calculation that, according to him, has taken into account a wide range of questions such as Chinese investment, the handling of alleged currencies and the regulations of other countries. The calculation of the administration has divided the trade deficit of a country with the United States by its exports to the 1/2 country. That’s it.
The president essentially takes a hammer to address a litany of grievances, using the trade deficit that other countries have with the United States as a scapegoat. And the vague calculation could have major implications for countries in America depends on the goods – and the foreign companies that provide them.
“There does not seem to have been any prices used in calculating the rate,” said Mike O’Rourke, chief marketing strategist at Jones Trading, in a note to investors on Wednesday. “The Trump administration specifically targets countries with major trade surpluses with the United States compared to its exports to the United States.”
The real figures are probably closer to the “most favored average applied rate rate (MFN)”, which is essentially an import tax ceiling than more than 160 nations of the World Trade Organization have agreed to charge each other, although they can vary according to the sector. And for countries with trade agreements in place, there could be lower or rates without prices.
Trump has often said that his trade policy was rooted in a simple motto: “They charge us, we invoice them.” It turns out that it is not so simple.
“Many questions that the administration has underlined that concern them, do not really concern tariff rates,” said Sarah Bianchi, Stratège in chief of international political affairs and public policies of Evercore ISI Thursday.
MFN rate rates were born from negotiations between WTO members in the 1990s, when the organization was founded for the first time.
The MFN rate of the European Union is 5%, but the Trump administration said it looked more like 20% because “American exports suffer from unequal and inconsistent customs rules” in the monetary zone and because “EU level institutions do not provide transparency in decision -making,” said the office of the American commercial representative.
Meanwhile, Vietnam’s MFN rate rate is 9.4% from the latest 2023 data, but the Trump administration suppressed it up to 46% due to non -commercial barriers, according to a USTR office report published this week. Non -commercial obstacles may include import quotas and anti -dumping laws which aim to protect the national industries.
The highest sales manager of Vietnam called Trump’s new price on the “unfair” country on Thursday, pointing to the MFN rate.
India and China also have an obstacles without sample, noted Sung won Sohn, professor of finance and economy at the University of Loyola Marymount and chief economist of SS Economics. For example, India has health measures for agricultural imports and China has state subsidies promoting national companies, he wrote in comments published earlier this year.
But the “liberation day” was still not the right approach to combating non -tariff measures from other countries, said Joe Brusuelas, chief economist of the RSM market company, told CNN in an interview.
“If you look at the formula that the White House proposed for the way they established the new levels of price, they had nothing to do with non-pricing barriers,” he said, adding: “It seemed to me that it was an ad hoc effort to punish the countries because they had major trade sales with the United States.”
The fact that the United States’s bilateral trade balance manages with other countries, he said, is “simply a function of savings and expenses in the United States”.
During a call with journalists on Wednesday, a senior White House official qualified the national emergency deficits who must be sent to keep factories and jobs in the United States.
But is it a terrible thing that countries run such deficits with the United States? Not necessarily.
Many countries manage a trade deficit with the United States, according to commercial data. The United States cost $ 230 billion more imports than exports to the EU and nearly $ 300 billion more to China.
“When I go to the store and I buy grocery products with money, I manage a trade deficit with my grocery store, but does it mean that I am more badly? “These are goods that I want, and I do not need to provide a reciprocal good or service in return. It is not necessarily a good or a bad thing. It’s right. ”
However, the Trump administration said the prices aimed to repair trade deficits as a potential source of government revenue to repay the national debt and finance tax reductions. But it is a risky bet that could prove to be disastrous if the countries come together to retaliate.
“The most worrying problem is that these large growing rates encourage our business partners to retaliate against us,” said Dove.
If other countries renegotiate their own trade policies, the United States “could very quickly find itself in a situation where you have 25% of the world economy against the 75% others,” he said, “and I can tell you who will come there.”