5 ms·

Reciprocal Tariff Calculations

43 points by silverkite 2y ago

chris_wot 2y ago
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?
ur-whale 2y ago
So epsilon * phi is exactly 1, no ?
- codetrotter 2y ago
  Yup. Patrick Boyle has an interesting video on the tariffs that I watched earlier, and he mentions that too. https://youtu.be/IpKe_HbVG64 https://youtu.be/IpKe_HbVG64 Worth watching this video.
- nkoren 2y ago
  Yes. They added greek letters to make themselves sound smart. But the terms cancel out and are therefore meaningless.
  - _t9ow 2y ago
    > 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.
  - vntok 2y ago
    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!
  - marcusb 2y ago
    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.
  - nasmorn 2y ago
    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.
- garciasn 2y ago
  https://bsky.app/profile/carlquintanilla.bsky.social/post/3llw7cx2bd22z https://bsky.app/profile/carlquintanilla.bsky.social/post/3l...
- rayiner 2y ago
  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 https://x.com/monacelt/status/1908040195888353595?s=46
- namdnay 2y ago
  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.
Majromax 2y ago
> 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!
- rayiner 2y ago
  [flagged]
  - nasmorn 2y ago
    Half of US imports from Madagascar is vanilla. It is the only place in the world that grows a lot of good vanilla. All you will be getting is more expensive vanilla.
    - Freedom2 2y ago
      I checked in with my Republican friend and they said that US vanilla is just as good, if not better, because the soil is "more free". I don't think the issue of trade is an easy one for many in the US.
  - crabmusket 2y ago
    > You make money on your laptop which you then trade for a variety of goods from actual producers Isn't that actually also a good analogy for the way the US produces a lot of money "on its laptop" (service industry) and imports "actual" goods like consumer items from overseas?
    - rayiner 2y ago
      and what segments of the population do you think that structure helps in which segments do you think that hurts?
- 2y ago
ricardobeat 2y ago
> 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.
- z2 2y ago
  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."
- throwup238 2y ago
  We want to annex all of the vanilla beans. In return, they will import Disney cartoons about their own island.
- gpm 2y ago
  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. --- 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.
  - cyberge99 2y ago
    Yes but in your example resources are not weighted. The US has far more natural resources than say, Chiquita.
- mr_toad 2y ago
  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.
avidphantasm 2y ago
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.
deleted 2y ago
[deleted]
stabbles 2y ago
> Let ε<0 represent the elasticity of imports with respect > The price elasticity of import demand, ε, was set at 4.
- ttyprintk 2y ago
  Shibboleth for judgment of an economist’s loyalty.
xyzzy9563 2y ago
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.
- jemmyw 2y ago
  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.
rsfern 2y ago
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
dataviz1000 2y ago
> 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 https://www.youtube.com/watch?v=1ts5wJ6OfzA
vertnerd 2y ago
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.
smitty1e 2y ago
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.
- AnimalMuppet 2y ago
  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?
  - smitty1e 2y ago
    Decrease in yield means that the crushing national debt is getting cheaper to re-finance.
    - ttyprintk 2y ago
      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.
deleted 2y ago
[deleted]
mizzao 2y ago
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.

43 points by silverkite 2y ago

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?

ur-whale 2y ago

So epsilon * phi is exactly 1, no ?

codetrotter 2y ago
Yup. Patrick Boyle has an interesting video on the tariffs that I watched earlier, and he mentions that too. https://youtu.be/IpKe_HbVG64 https://youtu.be/IpKe_HbVG64 Worth watching this video.
nkoren 2y ago
Yes. They added greek letters to make themselves sound smart. But the terms cancel out and are therefore meaningless.
- _t9ow 2y ago
  > 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.
- vntok 2y ago
  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!
- marcusb 2y ago
  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.
- nasmorn 2y ago
  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.
garciasn 2y ago
https://bsky.app/profile/carlquintanilla.bsky.social/post/3llw7cx2bd22z https://bsky.app/profile/carlquintanilla.bsky.social/post/3l...
rayiner 2y ago
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 https://x.com/monacelt/status/1908040195888353595?s=46
namdnay 2y ago
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.

Majromax 2y ago

> 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!

rayiner 2y ago
[flagged]
- nasmorn 2y ago
  Half of US imports from Madagascar is vanilla. It is the only place in the world that grows a lot of good vanilla. All you will be getting is more expensive vanilla.
  - Freedom2 2y ago
    I checked in with my Republican friend and they said that US vanilla is just as good, if not better, because the soil is "more free". I don't think the issue of trade is an easy one for many in the US.
- crabmusket 2y ago
  > You make money on your laptop which you then trade for a variety of goods from actual producers Isn't that actually also a good analogy for the way the US produces a lot of money "on its laptop" (service industry) and imports "actual" goods like consumer items from overseas?
  - rayiner 2y ago
    and what segments of the population do you think that structure helps in which segments do you think that hurts?
2y ago

ricardobeat 2y ago

> 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.

z2 2y ago
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."
throwup238 2y ago
We want to annex all of the vanilla beans. In return, they will import Disney cartoons about their own island.
gpm 2y ago
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. --- 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.
- cyberge99 2y ago
  Yes but in your example resources are not weighted. The US has far more natural resources than say, Chiquita.
mr_toad 2y ago
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.

avidphantasm 2y ago

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.

deleted 2y ago

[deleted]

stabbles 2y ago

> Let ε<0 represent the elasticity of imports with respect > The price elasticity of import demand, ε, was set at 4.

ttyprintk 2y ago
Shibboleth for judgment of an economist’s loyalty.

xyzzy9563 2y ago

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.

jemmyw 2y ago
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.

rsfern 2y ago

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

dataviz1000 2y ago

> 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 https://www.youtube.com/watch?v=1ts5wJ6OfzA

vertnerd 2y ago

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.

smitty1e 2y ago

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.

AnimalMuppet 2y ago
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?
- smitty1e 2y ago
  Decrease in yield means that the crushing national debt is getting cheaper to re-finance.
  - ttyprintk 2y ago
    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.

deleted 2y ago

[deleted]

mizzao 2y ago

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.