from Hacker News

Trump's Tariff Formula Makes No Economic Sense. It's Also Based on an Error

by Leary on 4/5/25, 3:24 AM with 191 comments

by greaber on 4/5/25, 5:54 AM
Doesn't this formula also punish circular trade patterns in a strange way, like if the US imports $X of good from country B and country B imports $X of goods from country C and country C imports $X of goods from the US, and there are no flows in the opposite direction, then the US would impose an infinite tariff on country B since US imports from B are zero?
by kristopolous on 4/5/25, 5:31 AM
I wonder if he and his friends opened a bunch of options the morning of and are now collecting their winnings...
he does have a bunch of crypto pump and dumpers as advisors.
by seydor on 4/5/25, 6:19 AM
I believe the idea was "Very High Tarrifs" and the formula was some kid in MS Excel . They are definitely not reciprocal. They don't need to be, since the plan was to use the high tarrifs as negotiating tool to somehow reduce the US national debt
by qwertox on 4/5/25, 5:59 AM
By the time companies decide to open factories in the US, these factories will be run with Chinese robots by companies which wouldn't care about a 500% tariff on Chinese robots if they are still cheaper than the work of an American worker.
by __MatrixMan__ on 4/5/25, 5:29 AM
It makes plenty of sense if you consider that it wasn't designed to benefit the US, but rather to drive US trade to our competitors.
by barkingcat on 4/5/25, 10:14 PM
Instead of trying to make sense of the formula, it's much more likely the administration needed a global 30% and then they made up the formula (and the constants, etc) to get to that number.
Anyone who's trying to make arguments based on the formula itself is the dog being wagged.
by user1241320 on 4/5/25, 5:18 AM
Funny he put like Martinique which is a territory governed by France
by klooney on 4/5/25, 4:40 AM
I feel bad for Lesotho- 50% is tough.
by ilrwbwrkhv on 4/5/25, 5:10 AM
Can't wait for the sniffling Marc Andreessen to claim this is blue skies for small tech.
by maeil on 4/5/25, 7:13 AM
Wonder why this has been flagged.
by fblp on 4/5/25, 5:45 AM
I don't quite understand the error this article is pointing out and how it could lead to a four fold inaccuracy. Can someone try explain with an example?
by whatever1 on 4/5/25, 6:31 AM
The funny part is that China yesterday imposed a 34% tariff on US imports.
The “reciprocal” formula does not even consider this. China can impose a 1000% tariff and the formula will not move :facepalm:
by croes on 4/5/25, 5:26 AM
> if the US imports $100 million worth of goods and services while exporting $50 million to a country, then the Trump Administration alleges that country levies a 50 percent tariff on the United States
The Trump Administration ignores the services and only looks at goods. So the base is already wrong.
by foxglacier on 4/5/25, 6:16 AM
Can anyone explain the reversal of positions on free trade between left and right since the 2000s? Back then, the biggest bogeyman of leftists was globalization and they would protest against free trade agreements and wanted to boycott imports from poor countries because it was exploiting workers there and taking jobs from poor people in rich countries. At the same time rightists loved free trade because it was good for economic growth everywhere. Since Trump 1 when he cancelled some trade agreements, that somehow turned upside-down and leftists since then love free trade while rightists (or at least Trump) oppose it. Trump seems to be like part of a 2000's leftist dressed up as a rightist.
I wonder if the change in leftists is just a reaction to Trump who they didn't like because of his personality. Now everybody's making economic arguments which is nothing like what the older type of leftist would do.
by ArtTimeInvestor on 4/5/25, 5:53 AM
Could it be that Trump's main goal is to stay in power? I mean not only for the next 3 years. But beyond.
If we look at his actions from this angle, could they make sense?
by senectus1 on 4/6/25, 3:41 AM
could this possibly be a long term strategy to eliminate china as a threat?
ie, Huge tariffs on China means US doesnt buy from china, Huge tariffs FROM china means us doesnt SELL to china...
a country isolated is a country that slowly chokes...
by jmyeet on 4/5/25, 5:27 AM
There are two silver linings to all this:
1. The evisceration of American soft power will really diminish the direct and indirect harm the US intentionally and unintentionally causes. Just look at China, South Korea and Japan deciding to respond to tariffs together [1]. That is an absolutely astonishing event given fairly recent history. Future retellings of history will correct portray the US as the actual Evil Empire; and
2. All of these actions are doing a ton to break the myth of meritocracy. The people involved in this, at the highest levels, are clearly demonstrating just what complete and utter morons they are. This is why fascism flames out: valuing loyalty above all else results in an administration of sycophantic morons.
This is going to do untold economic harm in the interim but ironically it's accelerating the rise of China as a global power, despite the fact that this administration are China hawks and see these tariffs as a means reducing China's power, which it won't.
[1]: https://www.reuters.com/world/china-japan-south-korea-will-j...
by hayst4ck on 4/5/25, 6:06 AM
Trump is only confusing if you think his policies are meant to benefit America.
If you don't believe that, then his policies are terrifyingly not confusing. If you believe his policies are primarily meant to benefit American oligarchs or Russia, his policies are even less confusing.
Withdrawing support for Ukraine and not putting tariffs on Russia, despite putting tariffs on uninhabited "Heard Island and McDonald Islands" is probably the least confused I've been since his inauguration. https://www.theguardian.com/us-news/2025/apr/03/donald-trump...
by renewiltord on 4/5/25, 4:57 AM
A pity about the tiny islands with their own TLDs.
by hello_computer on 4/5/25, 6:21 AM
The global economy is a complex system. Far more complex than software. All of the nerds will adjust their pocket protectors and spew their dubious word-salad (for or against), but the fact of the matter is that nobody truly knows what the nth-order effects will be until they happen.
AEI is just another church of Austrian economics--still burning incense for the ghost of Milton Friedman. If you told any of them, "Tariffs, or your mother dies in her sleep tonight.", they would reply in chorus, "Oh well, that's why I keep a picture to remember her by." If any of these people actually knew what they were talking about, they would be fabulously wealthy hedgies like Dalio or Simons, rather than "think-tank" shills.
by walterbell on 4/5/25, 5:47 AM
> The formula for the tariffs, originally credited to the Council of Economic Advisers and published by the Office of the United States Trade Representative, does not make economic sense.
There is a 2024 paper (40 pages) by Stephen Miran, chair of the Council of Economic Advisers, https://news.ycombinator.com/item?id=43589350
```
  The root of the economic imbalances lies in persistent dollar overvaluation that prevents the balancing of international trade, and this overvaluation is driven by inelastic demand for reserve assets. As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella, as the manufacturing and tradeable sectors bear the brunt of the costs... Tariffs provide revenue, and if offset by currency adjustments, present minimal inflationary or otherwise adverse side effects.
```
https://financialpost.com/news/stephen-miran-economist-trump...
> Miran.. points to Trump’s application of tariffs on China in 2018-2019, which he argues “passed with little discernible macroeconomic consequence.” He adds that during that time the U.S. dollar rose to offset the macroeconomic impact of the tariffs and resulted in significant revenue for the U.S. Treasury.. “The effective tariff rate on Chinese imports increased by 17.9 percentage points from the start of the trade war in 2018 to the maximum tariff rate in 2019,” the report said. “As the financial markets digested the news, the Chinese renminbi depreciated against the dollar over this period by 13.7 per cent, so that the after-tariff USD import price rose by 4.1 per cent.”
by timka on 4/7/25, 10:20 PM
Trying to make economic sense of a political action makes no sense. Trumps's goal is to disrupt global trade.
by DarknessFalls on 4/5/25, 5:48 AM
Trump said he is open to negotiation on these tariffs. The factor of four difference is likely intentional padding. This way, he can:
1.) Shock the market into dropping several hundred points on the S&P and Nasdaq indices, thereby making quite a bit of money on the way down and then back up again. and
2.) Lower tariffs in exchange for patronage from countries or specific businesses that want a port opened in this new trade firewall.
by rramadass on 4/5/25, 5:28 AM
This is what i was thinking of yesterday after folks on HN pointed me to the "official formula" from the govt. I could not understand why the "elasticity" parameters were chosen in such a manner as to cancel out. Now it seems it was chosen deliberately to give "room for maneuvering" when the concerned countries inevitably come to the negotiating table; never mind that the formula itself is not economically sound. It also explains why Trump and his Team keep saying the "economic hardships" will be short-term and will get better soon.
by deepfriedchokes on 4/5/25, 5:01 AM
Trump was the emotional vote, and he is governing emotionally.
by raffael_de on 4/5/25, 11:38 AM
Most people's thinking here seems to be clouded by political ideologies and anger over their stocks being down. Game theoretically Trump has a long history of basically playing the perfect strategy of extreme unpredictability, willingness to take a loss for the purpose of making a point, but sufficient reliability if a deal is agreed upon that he benefits from the most. He's the one who'll brake the last in a game of racing to the edge of a cliff - always. That's why he will succeed and the US will keep the upper hand geopolitically and economically. But the world will change also - that's actually why he's playing so tough. The cake is being divided anew and China _will_ get a much larger portion. His goal is not to prevent this - because he can't - his goal is to secure an as large as possible piece for himself and the US.
The tariffs are for forcing the entire world to renegotiate anything that he is interested in. And that plan will work. They will ALL negotiate, with him holding the upper hand.
PS: Many of the replies suggest that countries can achieve independence of US companies and the US Dollar. While that is possible they forget a key weakness of democracies. Politicians are elected based on short-term benefits and avoidance of suffering. All those required actions to reach independence require serious long-term efforts that detrimentally impact the comfort of the respective voting population at least short-term. That's why those adjustments probably won't happen. Trump knows that and takes advantage of it. Countries not governed by a democratic system are usually led by an elite who'll be indifferent of pretty much anything we are debating here - they just want to obtain more power and wealth. And they'll be achieving this easier when they cooperate with who is factually the most powerful man on the planet.
by charcircuit on 4/5/25, 5:28 AM
>The trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.
All of those other things, minus geography are influenced by the terrifs. Terrifs make economic incentives to invest in America, for America to gain comparative advantages, etc.