Reciprocal Tariff Calculations | Hacker News Reader

Reciprocal Tariff Calculations

ustr.gov

43 pointssilverkite62 comments

> Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing.

You know, I need to put a tariff on my local grocery store. They keep taking advantage of me by selling me food, when I export nothing to them!

> This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing

I love this sentence. It means literally nothing

A callback to these two books that must contain the sum of all human knowledge: https://i.imgur.com/wf53LHK.jpeg

The sentence as a whole is meaningful, which you can see by excluding 'to a combination of tariff and non-tariff':

> This calculation assumes that persistent trade deficits are due factors that prevent trade from balancing

The 'tariff and non-tariff' phrase is _technically_ superfluous but, subtextually, it implies there are such non-tariff reasons.

A persistent imbalance is due to factors that prevent balance? And those factors can be of type T or not of type T? That’s slightly tautological :)

Gotta love these two sentences in that article:

(when describing the model) Let ε<0 represent the elasticity of imports with respect to import prices...

(when implementing the model) The price elasticity of import demand, ε, was set at 4.

4 is less than 0, right? Right?!?

This reads like a student who has made a mistake on an Econ 101 homework — where we would have given them an X and told them to try again. Except this failing student has now just set US trade policy.

> models of international trade generally assume that trade will balance itself over time

Do they? How could trade deficit between US and a small country like Madagascar ever balance out to zero, and why is that desirable? This looks nonsensical to me.

As controversial as Larry Summers might be himself, he's got a good quote: "It’s now clear that the [...] Administration computed reciprocal tariffs without using tariff data. This is to economics what creationism is to biology, astrology is to astronomy, or RFK thought is to vaccine science."

We want to annex all of the vanilla beans. In return, they will import Disney cartoons about their own island.

Simple ones probably do. Because a small country has both less buyers and less sellers.

Consider the people of the world to be a graph. Each person is a vertex, between each pair of people is a directed edge indicating how much they bought/sold from the other person. Assume every edge is selected independently at random.

Consider a country to be a set of people. The average weight of the edges crossing in/out of the set (treating incoming edges as positive and outgoing edges as negative) will be zero no matter the size of the set.

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The bizarre part here is that they went from "models often assume this" to "it's something we should attempt to force to be true via taxes". Trying to force the world to fit your known to be incorrect model assumptions... doesn't make any sense as a policy.

Yes but in your example resources are not weighted. The US has far more natural resources than say, Chiquita.

Current account (export and import) deficits are offset by the capital account, which is trade in assets, including financial assets (or actual cash). The two balance each other out. You can run a deficit by borrowing or by selling assets, but you can’t do that forever.

I think the concept of a budget deficit and a trade deficit is being mixed up.

If you have a trade defect with everyone, like the US does, you have a current accounts deficit: https://www.investopedia.com/ask/answers/010715/what-differe.... It means you’re perpetually borrowing to finance consumption.

That’s why the Madagascar example misses the point. There’s a handful of large trading partners that account for our overall trade deficit. Everyone else is just being swept in.

But I don’t have debt and I have a trade deficit with every store I buy things from.

Like I get that household finances and Country finances don’t map 1 to 1 but like way too much of what I am reading coming from the Trump administration and about international trade and everything seems contradictory.

We sell things to ourselves. Is Ohio going bankrupt buying Californian Wines? If States could enact tariffs would it make sense for Ohio to tariff imports from California then?

The problem with your analogy is that the US doesn’t have a trade deficit with just one country. It has a trade deficit with everyone, which creates a current account deficit.

In your analogy, you have trade surplus with your employer.

But what is the mechanism which causes the Federal Government to go into debt when private companies and citizens import more than they export?

If I import more bananas from some Pacific Island country than they buy of American goods, how does that cause the government to borrow money and go into debt?

It’s not public debt, it’s private debt. It’s not a coincidence that Americans are becoming more indebted at the same time as the country is running current account deficits.

The trade deficit is not the main cause of Washington's borrowing. The deficit causes trillions of dollars to accumulate in the hands of Chinese manufacturers, much of which eventually ends up in the hands of the Chinese government (a sovereign wealth fund). The Chinese government keeps that money in dollars (rather than convert it to Chinese currency) because converting it would reduce the strength of the dollar relative to the Chinese currency, making Chinese imports more expensive to Americans, which Beijing does not want. Someone holding $trillions is motivated to invest it to avoid its being eaten away slowly by inflation, and in general, it is not easy to invest that much money especially when you are not located in the US, but US Treasury bonds are one easy way to invest a lot of money.

Accumulating $trillions in US Treasury bonds was never one of Beijing's goals: it is the side effect of Beijing's being eager to help its export industries, which is does to give as many Chinese as possible hope for the future, so they don't revolt.

Fun fact, when you are the world's reserve currency your current account deficits are offset by the fact that every other nations has to hold your currency so that they can conduct international trade. Being the reserve currency makes your currency itself a product that other countries want from you.

Do you think that is sustainable forever? If not, how long?

No idea, it's been going on a long time. The dollar weakening would be a sign. The dollar was pretty strong up until Trumps BS.

That sounds like a scam. Why would other countries put up with that?

Wait until you learn how money works. It's all just bits of paper (or now just actual bits/bytes) people pretend has value.

The administration absolutely does not care about Madagascar or those smaller countries. This is about the trade deficits with the EU, Japan, and China. The EU is a big, diversified economy and maintains basically a zero trade balance (small surplus relative to the economy). But applying an across the board principle obviously is politically easier.

> This is about the trade deficits with the EU, Japan, and China.

And trade deficits are important because… ?

* https://www.noahpinion.blog/p/trade-deficits-do-not-make-a-c...

> The Swiss make the watches and the Italians make the pasta.

> If the watches cost more than the pasta it doesn't mean the Italians are getting "ripped off". It just means they are optimizing their comparative skills wisely.

* https://twitter.com/cullenroche/status/1908229255026397574

Noah’s article has a whole headline that says:

> A trade deficit is like buying stuff with a credit card

Yeah—that’s exactly why it’s bad! That’s why very smart and responsible countries like Japan and Germany seek to maintain trade surpluses.

>> A trade deficit is like buying stuff with a credit card

> Yeah—that’s exactly why it’s bad! That’s why very smart and responsible countries like Japan and Germany seek to maintain trade surpluses.

Yeah, at the end of that section:

> Does using your credit card to buy a washing machine from Target mean that Target has ripped you off? No. Does it make you poorer when you use your credit card to buy a washing machine from Target? Nope. You now have less money, but you have more stuff. In just the same way, a trade deficit means that the U.S. has less money and more stuff. It does not mean America is poorer, or that it has been ripped off by foreigners.

People in the US seem to want to save less but have more stuff. Other countries have different priorities.

Neither having more stuff, nor having more money, is "better" in an 'objective' sense, but relative to what you want out of life. If the Japanese and/or Germans are happy saving, then good for them; if Americans are happy spending, then good for them too.

And a reminder: the main point of money is not to have money but to use it to live life. Certainly you should have an emergency fund and save for retirement, but having a large number in some account is not useful. Money was invented to make the exchange of goods and services easier, so spending money is the point of money.

You don't celebrate having a movie or concert ticket for the sake of having the ticket, but for the sake of being able to go to the show. The moneys are the tickets to be able to see the show of life.

> Neither having more stuff, nor having more money, is "better" in an 'objective' sense, but relative to what you want out of life. If the Japanese and/or Germans are happy saving, then good for them; if Americans are happy spending, then good for them too.

Except our monetary and industrial policy incentivizes or disincentivizes those choices. Japan and Germany engineer those producing versus consuming choices deliberately. And Americans wanted to change that so they voted for the guy promising tariffs.

> Japan and Germany engineer those producing versus consuming choices deliberately.

Or those cultures aren't as materialistic and don't have as much of a 'keeping up with the Jones' attitude.

> And Americans wanted to change that so they voted for the guy promising tariffs.

Americans can change things by simply 'voting with their wallets'.

> Japan and Germany engineer those producing versus consuming choices deliberately

> Americans wanted to change that

Isn't 'smaller government' a one of the top mantras for republicans in the US? This is all extremely contradictory.

Free trade isn’t “smaller government,” because in practice this has meant maintaining a worldwide military empire to maintain the USD as the reserve currency.

Regardless, tariffs and protectionism was a founding pillar of the Republican Party. The party existed for 130 years before the libertarian phase of the 1980s.

From what I can see, Madagascar in 2024 had a trade deficit with the US of about $700 million and had total imports of about $5.4 billion. It's feasible that they might prefer to transfer 13%[0] of their current imports to sources from the USA even if it's more expensive since being able to export more cheaply to the USA would be a net gain.

0. Actually less than this since there's a floor of a 10% tariffs. They can have deficit/imports of up to 20% before they incur a penalty.

That's simply rationalizing the use of tariffs as leverage for trade deals, and only makes it desirable to the US. But that was not the question. A poorer country that exports raw goods does not necessarily have the spending power (or need) to import the same amount of goods - having a trade surplus is desirable for them, and not necessarily bad for the US.

Oh I see. To you earlier question, I believe neoclassical economics assumed international trade would tend towards balance in the long run due to market forces.

My lay understanding is that the US can’t have USD be the global reserve currency without running trade deficits. Countries need dollars because it’s what oil and other commodities are exchanged for. At some point, the only way to get dollars is by selling things to the US. If they turn around and buy an equal amount of things from the US, they wouldn’t have the dollars they need to buy things like oil.

I'm not an economist, and my statistics background is definitely sub-par. But as I read this article, I couldn't help feeling something was off. For something of this importance, I would think the author would want to avoid mangling words like this:

"To calculate reciprocal tariffs, import and export data from the U.S. Census Bureau for 2024."

I am also not familiar with the term "censoring" as it is used in statistics, so this sentence really threw me:

"The reciprocal tariffs were left-censored at zero."

Does that just mean that they didn't set any negative reciprocal tariffs? I thought the reciprocal tariffs were limited to 10% and above. I don't understand.

The other thing that tickles my brain is how the author uses an equation to effect change in the real world. The math is a model of the behavior of trade between nations, which is fine, so long as it doesn't assume the reliability of, say, physical laws of kinematics. Arbitrarily manipulating quantities in an equation like this and assuming it will still hold is a bold move.

I feel like our entire country is the subject of an undergraduate economics project.

It's actually better to have a trade deficit. Let's say you are a king living in a castle. If you are importing grain from all the surrounding land, the peasants are doing all the hard labor. You have a trade deficit with the peasants and pay them with pieces of paper and goodwill (i.e. dollars). You get to enjoy your life in the castle and read books or whatever else you do in your spare time.

Yes and even better if your pieces of paper are what the peasants use to trade with one another. That means you can make more paper money and it keeps value because it's in demand beyond your own trade needs.

We in Australia have a trade imbalance - we run a trade deficit to the U.S.

So the trade deficit is $19.99 billion.

Plug this into the formula and you get a negative tariff.

What am I missing?

This calculation critically depends on a linearity assumption that doesn’t seem at all justified with the large tariff rate changes being thrown about

They just estimate the derivative of the import volume wrt the tariff rate, then solve a linear equation to set adjust the import rate to equal the export rate.

This also assumes the export rate is totally unaffected

> Let ε<0 represent the elasticity of imports with respect

> The price elasticity of import demand, ε, was set at 4.

Shibboleth for judgment of an economist’s loyalty.

Pay attention to the bond yields.

For all the hue and cry about the Dow-Jones &c, there are more strategic dimensions to the economic questions of our day than just the tactical concerns of the stock market.

OK, and?

What should I be looking for in the bond yields? What questions do you think they are going to answer, and how are they going to answer them?

Decrease in yield means that the crushing national debt is getting cheaper to re-finance.

Layperson here. How can we tell if progress is made on this? Japan and China are the big owners, and haven’t blinked in recent trade wars.

So epsilon * phi is exactly 1, no ?

Yup. Patrick Boyle has an interesting video on the tariffs that I watched earlier, and he mentions that too.

https://youtu.be/IpKe_HbVG64

Worth watching this video.

Yes. They added greek letters to make themselves sound smart. But the terms cancel out and are therefore meaningless.

> They added greek letters to make themselves sound smart

That's because they know that most Americans won't be able to figure out that those terms cancel out.

That's not how applied math works. Sure, two variables may cancel out when set to specific values and multiplied or divided together... however that certainly does not mean that the variables are meaningless in the overall equation!

Between the Penguin Tax and the wonky math, I maintain this entire thing was developed by LLM.

The only thing that gives me any pause is the wonky math is consistent.

My theory is the tariffs have simply been set by relative trade deficit and after Trump has announced them and been ridiculed someone tasked economists with finding an explanation for the rates. This formula kind of just works out if you estimate the elasticities for all import from all countries conveniently at 2.

https://bsky.app/profile/carlquintanilla.bsky.social/post/3l...

It happens to work out that way for the particular values selected. You’re welcome to argue those selections are wrong, e.g. https://x.com/monacelt/status/1908040195888353595?s=46

As the great Matt Levine said:

Well, yes. I just like that they made up the numbers to get an exact negative 1. Again, I am a financial columnist, and I have a patriotic appreciation for the US’s export industry of finance, and two of that industry’s most popular products are:

1) Sprinkling some Greek letters on your work to add visual interest, and

2) Making up parameters to solve for the result you want.

Even in this tariff announcement, you see the US leaning into its comparative advantage.

> Why Trump's tariff chaos actually makes sense (big picture) [0]

The title is a little misleading. The video explains objectively the logic used for the tariffs mostly to first to create chaos. But, towards the end, it makes the argument that the current strategy also requires countries to have a high level of trust that the United States will uphold treaties and agreements for the current strategy to work. The end goal is to force countries to become vassals to the United States by pegging their currency to the dollar with the benefit that the United States will provide military protection. However, without the trust the United States will honor agreements this strategy will fall apart.

[0] https://www.youtube.com/watch?v=1ts5wJ6OfzA

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