(Reuters) – Ridicularized by imposing commercial tariffs on frozen islands inhabited largely by penguins, Donald Trump’s formula for calculating these rates has a serious side: she is also reaching some of the poorest nations in the world.
Mathematics is simple: Take the US commercial deficit of the US goods with a country, divide it by the country’s exports to the US and turn it into a percentage value; Then cut this value in half to produce the US “reciprocal” tariff with a 10%floor.
This is how the Australian volcanic territory of Heard Island and the McDonald islands in Antarctica ended a 10%tariff. And it can still be said that the penguins got along.
But Madagascar – one of the poorest nations in the world, with a Gross Domestic Product (GDP) per capita of just over $ 500 -, on the other hand, faces a 47% tariff over the modest $ 733 million exports of vanilla, metals and clothing he made with the US last year.
“Presumably, no one is buying Teslas there,” John Denton, head of the International Trade Chamber (ICC), told Reuters, in an ironic reference to Madagascar’s improbability being able to placate Trump by buying sophisticated American products.
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Madagascar is not alone. The risk of the formula applied to economies that cannot afford to import a lot from the US inevitably lead to a high reciprocal rate: 50% for Lesoto, in southern Africa, 49% for Cambodia in Southeast Asia.
“The biggest losers are Africa and Southeast Asia,” said Denton, adding that the measure “risks further harming the prospects for developing countries that are already getting worse in trade.”
Rich nations are also affected
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The formula is also sowing confusion among rich countries. For the European Union, it produced a 20% punitive tariff – four times more than the 5% that the World Trade Organization (WTO) calculates as the EU average tariff rate.
“Therefore, at least for us, it is a colossal inaccuracy,” said Stefano Berni, general manager of the consortium that represents the manufacturers of special Grana Padano cheese in Italy.
“Today, it costs three times more for us to enter the US than for US cheeses to enter our market,” he said in a statement.
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White House Vice Secretary Kush, Kush Desai, posted in X that “we literally calculate the tariff barriers and not tariff” and included a screen capture of an White House document that presents the algebra behind the formula.
Asked by CNBC about how the Trump administration came to the formula, Secretary of Commerce Howard Lutnick did not directly explain, but said economists at the US Commercial Representative Office (USTR) worked for years in a metric to reflect all commercial barriers established by a particular country.
Economists from around the world, however, rushed to point out that the terms were canceled in such a way that they could be reduced to a simple quotient between the goods’s trade deficit and exports of goods trade.
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“There is really no methodology,” said Mary Lovely, senior member of the Peterson Institute. “It’s like finding that you have cancer and find that medication is based on your weight divided by your age. The word ‘reciprocal’ is deeply misleading.”
Robert Kahn, administrative director of global macroeconomics at consulting firm Eurasia Group, agreed that the announcement produced “many of these meaningless numbers that are not relevant.”
“This sends a sign (…) that we are moving away from our relationships and alliances with them and is a cold water shower for many of our traditional allies,” he told Reuters.
(Newsroom and report by Mark John; Additional reports of Giselda Vagnoni in Rome; Kate Holton in London)
