Economics, trade: Theoretical tariffs, part 1

Self-tutoring about theoretical tariff calculations and assumptions: the tutor mentions a formula.

The following is my understanding of the situation.

The Trump administration seems seldom short of ideas, whatever one might think of any particular one. An example is the calculation something like t=(x-m)/(εφm).

From what I’ve been able to piece together, in the calculation t=(x-m)/(εφm), t is not of the reciprocal tariffs, but instead of theoretical (or one might say modeled) tariffs that are supposedly affecting US exports. The parameter x is the value of US exports to that country, and m the value of US imports from that country.

ε and φ are a little more interesting, especially taken together. They’ve been set so that their product is -1; hence, the formula is effectively t=(x-m)/-m.

In the case of the European Union, this would mean t=((370-606)/-606) = 39%, which is the figure that seems to have been reported. In the case of Vietnam, it would mean t=((13.1-136.6)/-136.6) = 90%, which, again, seems to be the reported figure.

The reasoning behind the formula seems to be that if the US runs a trade deficit with a given country, it’s because of an effective tariff, defined or otherwise, charged on US exports to that country.

The proposed reciprocal tariff from the US seems to be, in most cases, about half of the effective tariff suggested by the calculation above.

I hope to discuss ε and φ in a future post.

Source:

ustr.gov

bbc.com