The Big Lie: US 'Reciprocal' Tariff Rates
- Arne Mielken
- Apr 7
- 5 min read
The U.S. reciprocal tariff calculations misinterpret rates, merely spotlighting the trade deficit rather than actual tariffs.
Navigating the intricacies of Customs and Trade Compliance is crucial for anyone involved in international trade. The recent surge in discussions about "reciprocal" tariffs, particularly those implemented by the US, has raised numerous questions among import and export professionals. Understanding the methodologies behind these tariffs is essential for effective compliance and strategic planning.
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Key Questions Covered in This Blog:
How are the US's "reciprocal" tariffs calculated?
Are these calculations truly reciprocal?
What are the potential impacts on global trade and businesses?
How can businesses adapt to these tariff changes?
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"This is an arbitrary "finger in the air" calculation; it does not aim to accurately assess how tariffs across nations compare. In the complex world of global trade, clarity and precision are paramouThis is NOT that". — Arne Mielken, Managing Director, Customs Manager
Abbreviations Used In This Blog:
US: United States
EU: European Union
UK: United Kingdom
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How are the US's "reciprocal" tariffs calculated?
The Trump administration's approach to calculating "reciprocal" tariffs was notably straightforward, yet arguably flawed.
Instead of meticulously matching tariff rates on a product-by-product basis, they used a simple formula: the country's trade deficit divided by its exports to the US, multiplied by 1/2.
This method aimed to equate the perceived "tariff charged to USA" with the trade surplus percentage.
For instance, if a country had a trade surplus of 67% of its exports to the US, that percentage was treated as the "tariff." This simplified approach, while expedient, overlooks the nuanced complexities of international trade. this is represented in the now famous calcualtion formula:
"Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies"
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