The Gutter Math Behind Trump’s Tariff Formula

Suppose your doctor suddenly insisted that you needed to follow a strict diet and exercise regimen. He said he realized you had a serious problem when he divided your height by your birthday and it came out way too high. You would probably decide that you need a new doctor.

That is basically the story of President Donald Trump’s new round of import taxes (tariffs) on our trading partners. Trump somehow decided that trade was bankrupting the country, even though we were creating jobs rapidly, the economy was growing at a strong pace, and inflation was slowing to normal rates when he took office.

Trump’s response is to give the country the most massive tax increase in its history, possibly exceeding $1 trillion on an annual basis, which comes to $7,000 per household. And this tax hike will primarily hit moderate- and middle-income families. Trump’s taxes go easy on the rich, who spend a smaller share of their income on imported goods.

There was much that Trump said in his Rose Garden address that made little sense. He repeated his bizarre claim that the United States had its greatest period of prosperity in the 1890s. This was a time when workers put in seven days a week, unions were largely illegal, and life expectancy was less than 50.

He then attributed the Great Depression to the income tax, and had it continuing after World War II and President Franklin D. Roosevelt’s death. In Trump’s telling of history, the post-war Golden Age from 1945 to 1973 did not exist. This was a period when the economy was growing rapidly, the gains from growth were broadly shared, and the top income tax rate was between 70 percent and 90 percent.

Trump’s account of the present was no more based in reality than his history of the United States. He told us that our trading partners and closest allies were all ripping us off.

Canada is one of the prime villains in Trump’s story. This is based on its trade surplus with the United States, which Trump insists is $200 billion a year. In reality, Canada’s trade surplus is roughly $60 billion, and that is due to the oil we import from there. Without our oil imports, we would have a trade surplus with Canada.

Ironically, Trump encouraged us to import more oil from Canada in his first term in office. Apparently, he has now decided that they are ripping us off by selling us the oil he wanted us to buy.

The fact that Trump’s aides have been unable to get him to correct his imaginary Canada trade surplus number is a clear warning that Trump’s big tariffs are not grounded in reality. There are certainly issues that can be raised about trade, and our policies have often not benefited the country’s workers.

The rapid expansion of trade with China and other developing countries in the first decade of this century cost us millions of manufacturing jobs. It also devastated manufacturing unions. As a result, the unionization rate in manufacturing is now barely higher than in the rest of the private sector. The historical wage premium paid in manufacturing has largely disappeared.

But it is a huge and absurd jump from this fact to Trump’s claim that all of our trading partners are ripping us off. In fact, in the course of his rambling address, Trump gave a great example of how trade was benefitting the country.

An outbreak of Avian flu sent egg prices soaring when Trump first took office. In response to the record high prices, Trump’s agriculture secretary negotiated huge purchases of eggs from South Korea and Turkey, making our trade deficits with both countries larger. Nonetheless, Trump boasted about how his administration had brought egg prices down.

It was this sort of warped thinking that is the basis for the massive tax that Trump is imposing on the goods we import from our trading partners. Incredibly, it turns out that the tax rates Trump put in place, from 10 percent on goods from the United Kingdom to 49 percent on Cambodia, which were ostensibly “reciprocal” tariffs, bear no relationship whatsoever to the tariffs or trade barriers these countries place on our exports.

Instead, Trump’s team calculated our trade deficit with each country and divided it by their exports to the United States. Trump decided that this figure was equal to that country’s tariff on goods imported from the U.S.

Trump’s method of calculating tariffs is comparable to the doctor who assesses your proper weight by dividing your height by your birthday. Any doctor who would do this is clearly batshit crazy, and unfortunately so is our president. And apparently none of his economic advisers has the courage or integrity to set him straight or to resign.