Summary:
Donald Trump’s tariff formula, initially ridiculed for targeting remote islands with penguin populations, also significantly impacts some of the world’s poorest countries. The calculation method involves taking the US trade deficit in goods with a country, dividing it by that country’s exports to the US, and then halving the result to determine a “reciprocal” tariff rate, with a minimum of 10%.
Impacted Countries
- Australia: Heard and McDonald Islands face a 10% tariff.
- Madagascar: Despite its poverty, with a GDP per capita of around $500, Madagascar receives a 47% tariff on exports to the US worth about $733 million (vainilla, metals, and clothing).
- Lesotho: Southern Africa’s country faces a 50% tariff.
- Cambodia: Southeast Asia’s Cambodia is hit with a 49% tariff.
Criticism and Confusion
The formula has been criticized for disproportionately affecting countries unable to absorb many US imports. The International Chamber of Commerce (ICC) calls it a “gross exaggeration,” with CEO John Denton noting the implausibility of Madagascar offsetting tariffs by purchasing luxury goods like Teslas.
Even rich countries have been confused. The European Union faces a 20% penalty, far higher than the average 5% global trade barrier. Stefano Berni, Grana Padano cheese producers’ consortium head in Italy, laments the disparity.
Methodology Critique
When questioned about his method, White House Press Secretary Kush Desai confirmed using literal calculations of both tariff and non-tariff barriers. However, international economists argue the terms cancel each other out, simplifying to a ratio of goods trade deficit over total goods exports.
Expert Opinions
- Mary Lovely, Peterson Institute Senior Fellow: “There’s no methodology. It’s like discovering you have cancer and the medication is based on your weight divided by your age.”
- Robert Kahn, Eurasia Group Director of Global Macroeconomics: The tariffs send a signal of retreat from US relations and alliances, shocking traditional allies.
- Stephen Adams, Former European Commission Aide & Global Counsel Consultant: The chosen methodology is mechanical, raising doubts about negotiation space in upcoming bilateral talks with the US.
