When President Trump imposed massive tariffs on countries across the world, the stock market fell by more than 12%. In response, Vietnam and Cambodia offered to get rid of their modest tariffs if President Trump will drop the huge tariffs he recently imposed on them. But Trump hasn’t accepted their offer, at least not yet. Trump likes tariffs, and wants countries to not just get rid of their tariffs, but also buy as much of our products as we buy of theirs (even if we need their products more than they need ours).
In addition, Trump wants Europe to pay America reparations for “past” and “present” American trade deficits with Europe.
Bloomberg News reports on this in the news story “Trump Digs In On Tariffs, Says Deals Hinge on Even Trade Balance”:
President Donald Trump gave no indication he’s preparing to claw back the tariff barrage that has wiped trillions in value from US equities….Trump said any deal to trim tariffs with affected nations must lead to the elimination of the US trade deficit….Trump said he’d spoken with several unidentified world leaders [who had offered to lower or eliminate tariffs on American products]….“They’re dying to make a deal and I said, ‘We’re not going to have deficits with your country.’ We’re not going to do that, because to me a deficit is a loss. We’re going to have surpluses or, at worst, we’re going to be breaking even,” he said.
Trump also took aim at Europe, going so far as to say he wants not only parity in trade but reparations.
“We put a big tariff on Europe. They are coming to the table, they want to talk, but there’s no talk unless they pay us a lot of money on a yearly basis, number one for present but also for past,” he said.
Obviously, Europe isn’t going to agree to pay America reparations in exchange for Trump dropping the tariffs he imposed on European nations. Instead, it is likely to retaliate by raising its tariffs on American products, which will wipe out many jobs in America’s export sector.
The Europeans don’t see themselves as being in the wrong. Trump imposed a tariff of 31% or 32% on Switzerland, even though it “had eliminated industrial tariffs recently on all imports, including American goods,” reports the New York Times. So the Europeans think America is mistreating them, rather than vice versa.
Moreover, Europe hasn’t grown rich at America’s expense. Over the last 35 years, America has grown much wealthier than Europe, with a faster growing economy and a much higher per capita income. America has grown much faster than Europe since trade liberalization provisions such as the Uruguay Round that made it easier for Europe to trade with the U.S. American manufacturing output has grown by over 50 percent in real terms since 1991, and America has more auto factories now than it did a decade ago.
Although Trump wants Europe to compensate America for our trade deficit with it, he hasn’t offered to compensate nations that America has a trade surplus with, like Australia, the United Kingdom, or the Netherlands. Those countries all buy more products from us than we buy from them, and thus run trade deficits with America. Yet Trump imposed a 20% tariff on the Netherlands, and a 10% tariff on Australia and the United Kingdom. Australia and the United Kingdom have fewer trade barriers than the United States, especially Australia, which has some of the lowest tariffs on Earth.
Trump has imposed much bigger tariffs on most countries than they impose on us. As journalist Josh Barro points out, “The tariffs are not reciprocal — the ‘reciprocal’ rates are based on trade deficits, not tariffs (or non-tariff trade barriers), *and* then tariffs are even imposed on countries with which we have a trade surplus. News outlets should not accept the ‘reciprocal’ branding.”
Uninformed people think Trump imposed tariffs only half as big as other countries imposed on us. That’s because they didn’t read the fine print of the table Trump displayed, which makes clear that Trump’s tariffs didn’t even purport to be based on just the tariffs other countries charged us, but rather purported to include “currency manipulation and trade barriers.”
As the conservative-leaning Tax Foundation explains, Trump’s tariffs were not “reciprocal” at all:
However, despite the characterization of the tariffs as “reciprocal,” and despite the accompanying graphics referring to foreign “tariffs charged to the USA including currency manipulation and trade barriers,” the White House did not actually measure tariffs, currency manipulation, or trade barrier policies employed by other countries. Instead, it drew its estimates from something else entirely: bilateral trade deficits in goods.
Specifically, the White House documents appear to allege the “tariffs charged to the USA” are the greater of two different quantities: (a) 10 percent, and (b) the 2024 US trade deficit in goods with a given country, divided by the total quantity of US imports from that country.
The fact that America runs a trade deficit with a country is not proof that it has trade barriers against our products. Instead, we may just need its products more than it needs ours. As economist Alan Cole explains,
in many cases, it wouldn’t make sense for the United States’ bilateral trade balance with another country to be equal. Take Madagascar and Australia, for example. The U.S. runs a trade deficit in goods with Madagascar—meaning we import more from the African nation than we export to it—but a surplus with Australia. The Trump approach is designed to address the “problem” above by putting very high, 47 percent tariffs on goods from Madagascar, but a minimum rate, 10 percent, on goods from Australia.
But neither of these bilateral relationships presents a problem for the United States. Madagascar is a low-income country with an extraordinarily strong ability to produce vanilla beans. Americans enjoy the vanilla beans, but we do not benefit much from selling our various wares to low-income people from the African island nation. It makes sense for us to lean toward net imports in our interactions with the Madagascans.
Australia, by contrast, is a high-income country, and its exports include a lot of metals. Americans benefit from selling goods and services like aircraft or streaming video subscriptions to wealthy Australian consumers, but don’t have much need for Australian metals. Australia is far away, metals are very heavy, and we’re pretty good at mining metals of our own. It makes sense for us to lean toward net exports in our interactions with the Australians.
Trade deficits aren’t necessarily harmful even at the aggregate level. In recent decades, the U.S. has run trade deficits primarily because foreigners have been eager to sell us goods to get access to valuable U.S. financial assets like stocks and bonds. With our enviable array of valuable public companies, the U.S. is a fantastic place to invest. Or at least it was, prior to the opening bell on Wall Street on Thursday. The wreckage before us—trillions in market capitalization destroyed, thousands of dollars in tax hikes for the average family—is a terrible sacrifice we are making, all in order to solve a non-problem.
Trump’s tariffs imposed on China are more justifiable than the tariffs he imposed on other nations, but even the tariffs on China are risky and might backfire, by triggering retaliatory tariffs that will wipe out jobs in America’s export sector. “Retaliating against the U.S., China said Friday it will place a 34% tariff on imports of all U.S. products starting April 10. Beijing in March also started charging a 15% tax on American farm products, including chicken, pork and soy beans.”
To foreigners, it looks hypocritical for America to impose tariffs on other countries that have non-tariff trade barriers, when America also has non-tariff trade barriers of its own — something Trump’s “reciprocal” tariffs ignore.
As economist Simon Lester points out, “A surprisingly large group of people seems to have bought into the notion that other countries have high tariffs while the US doesn’t, so for that group let me point you to the 744.81% tariffs we imposed on Slovenian mattresses last year.”
The tariffs Simon Lester is referring to aren’t formally called “tariffs,” they are called “anti-dumping duties.” The U.S. tariff rates you see on the Trump administration’s tables don’t include these anti-dumping duties. Some anti-dumping duties are justified, but others target foreign manufacturers that didn’t do anything objectively wrong but just engaged in normal economically rational behavior. For example, domestic manufacturers regularly sell below cost when getting rid of a money-losing product (they sell above variable cost, but below total cost factoring in fixed costs), but a foreign manufacturer that does that is slammed with anti-dumping duties under U.S. law. Moreover, domestic manufacturers regularly sell a product for less in one place than another where there is more demand, but if a foreign manufacturer sells for less in one country than another where there is more demand, it gets hit with anti-dumping duties.
To the extent that Trump’s tariffs apply to raw materials and inputs manufacturers need, they will wipe out jobs even if they don’t trigger retaliation from foreign nations. In the first Trump administration, tariffs on steel and aluminum “resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production,” by increasing their “costs of inputs” that made their products less competitive. That big job loss was much larger than the 1,000 jobs gained in the U.S. steel industry due to the tariffs.
