Why economists are horrified by Trump's pricing mathematics

When President Donald Trump initially announced his new prices in February, he proposed them as a fair and reciprocal plan on trade. And it was therefore assumed that these reciprocal prices, as they have known, would be equal to the taxes that foreign countries have established against American goods.

In fact, the prices unveiled on Trumps on April 2 the liberation day were slightly more complicated and for some economists, more disturbing.

Trump first slapped a coverage rate of 10% on all imports in the United States, including uninhabited islands, such as the Heard and McDonald Islands, and on places with which the United States manages a surplus, like the United Kingdom

To all foreign presidents, prime ministers, kings, queens, ambassadors and all the others who soon call to ask for exemptions from these prices, I say: putting an end to your own prices, place your obstacles, do not manipulate your currencies, said that Trump said by speaking of the slowdown of the White House.

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In addition to this reference charge of 10%, Trump has maintained a cardboard graph and announced additional prices for some countries, calculated by prices billed in the United States.

The Trump administration ended up using a simple calculation: each trade deficit in the United States divided by its exports to the United States. The final reciprocal rate was then divided by 2, with a minimum of 10%.

Before the Trump administration confirms this method, the eminent economist James Surwiecki received attention for the reverse engineering of the price explanation on X.

Instead, for each country, they simply took our trade deficit with this country and divided it by exports from the country to us, the former financial columnist of the New Yorker published on X. What is extraordinary stupidity.

The United States office, the trade representative has confirmed Trump's tariff mathematics in an explanator, declaring: reciprocal prices are calculated as the rate of rate necessary to balance bilateral trade deficits between the United States and each of our business partners. To conceptualize the reciprocal rates, the rate rates that would lead the bilateral trade deficits to zero have been calculated.

Although the explanation uses Greek letters and formulas, Politico notes that it is essentially the same formula as Surowiecki has published.

Using this formula, the Trump administration has calculated extremely high rates for certain countries, including a new rate of 34% imposed on China, 46% for Vietnam and 20% for the European Union.

Felix TINTELNOT, associate professor of economics at the University of Duke, sees major problems with this calculation method that the trade deficit is normal and can change.

Let's say that the trade deficit in Vietnam is shrinking over the next year. Well, the rate rate should also change. But now, market players must plan how the trade deficit with individual countries will change, says Tintelnot. And it is not simple, because we change as many prices at the same time, and ultimately, the overall trade deficit of the United States is largely determined by other macro decisions, such as global savings and overall investment, which have nothing to do with rate rates.

He also underlines how for some countries, it doesn't matter that they really have prices on the United States, Israel has eliminated prices on American products on April 1, in preparation for Trumps prices, but has always been hit by a rate of 17% during the April 2 announcement.

The fact that the countries that charge zero prices in the United States have been struck by rates illustrated that these are not reciprocal rates in their true sense, says Tintelnot. It is perfectly normal in an integrated global economy for a bilateral trade deficit. A small introspection helps: you have a bilateral trade deficit with your grocery store, but a bilateral trade surplus with your employer. Why would you make a price on your local grocery store?

Brian Bethune, professor of economics at Boston College, argues that the Trump administration should never have calculated these prices for countries with economic rankings and so very different relations with the United States while using the same formula.

Treating all small developing countries in the same way as you treat the European Union which seems scandalous, says Bethune. Some of these countries with relatively small and more fragile savings can have a different approach to trade. This is the problem when you group them all together.

The new prices have raised fears of a renewal so that an American recession is on the horizon. Today, an immediate impact has been felt following the Liberation Day of Trumps. The US dollar fell to a six -month hollow against the Euro and Dow Jones plunged more than 1,500 points. Trump previously said that a certain pain could be encountered as a result of prices. Bethune predicts that the Trump administration is preparing people for a recession which is, in its professional, inevitable opinion.

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