What Just Happened with Trump’s Tariffs?

A deep dive into the chaotic logic behind Trump’s global tariffs—and the real-world damage they’re already doing.

Thanks again to all my subscribers, especially those who have chosen a paid subscription to support me with this work! And I’m hugely grateful to those making use of my ‘Buy me a coffee’ link - knowing people are finding enough value in what I do to help me cover some expenses is amazing!

Photo by Manuel Cosentino on Unsplash

This wasn’t the topic I planned to cover this weekend, but after the last few days, it feels like the one that needed debunking and explaining.

So I’m going to do my best to distil everything I’ve learned about Trump’s tariffs into an easy-to-digest piece, including debunking some of the claims that have been made on the subject.

As you’ll be aware, Wednesday, 2nd April, was termed “Liberation Day” by Trump, as he announced his planned tariffs on the rest of the world.

Trump’s love of tariffs is well-documented and goes back decades. In his first term, he imposed some, mainly on China — costing the average American about $500 a year in higher prices.

Sadly, Trump 2.0 no longer has the guardrails in place that curbed his tariff enthusiasm last time, and the consequence is that $2.5 TRILLION was wiped off the US stock market in one day. For context that’s more than the entire GDP of Italy ($2.4 Trillion)!

First some basics

What is a Tariff?

A tariff is basically a tax on something being imported into your country. They can be used to protect local industry from cheaper exports or they can be used simply to bring in more taxes.

For instance, if you import microwaves from China for $100, a 34% tariff means you (the importer) pay $134. You will almost certainly pass on that extra cost to your customer. It is not China that pays that extra $34, it is ultimately the consumer.

What is a trade deficit?

A trade deficit simply means that you import more than you export. This generally means the country is successful, with citizens rich enough to buy lots of goods, drawing in those resources from the rest of the world.

It means that even people on lower wages in that country can afford decent products, while also boosting the economies of the countries that produce them. This has been the cornerstone of decades of global economics.

Unfortunately, Trump doesn’t see it that way. He sees a trade deficit as countries ‘taking advantage’ of the USA for not buying enough from them. He said,

“For years hard-working American citizens were forced to sit on the sidelines as other nations got rich and powerful, much of it at our expense, but now it’s our turn to prosper”

Given the US became the world’s biggest economy under this setup, it’s hard to take that seriously!

How were the tariffs calculated?

Everyone knew tariffs were coming, but no one had any idea what they would look like before Wednesday.

As reported in The Washington Post, his economic staff had been working on “a daunting task: determining tariff rates for dozens of countries to fulfil the president’s campaign pledge of imposing “reciprocal” trade barriers. Staff from the trade office spent weeks calling U.S. firms operating abroad to learn the precise challenges they faced in foreign countries, and his administration officials studied how foreign countries’ policies, such as their currency practices, affected their trade with the United States.”

Trump was given a “menu of options meant to account for a wide range of trading practices”, and even on Wednesday morning, no decision had yet been made.

In the end, Trump announced a blanket 10% tariff on every country (except Russia, Belarus, North Korea, and Cuba!), with a ‘reciprocal’ tariff on top for countries that sell more to the US than they buy from them.

It appears that someone in Trump’s team asked ChatGPT (or another AI) for “an easy way for the US to calculate tariffs that should be imposed on other countries to balance bilateral trade deficits between the US and each of its trading partners, with the goal of driving bilateral trade deficits to zero”

The formula for each country it produced was:

Trade Deficit (goods imported - goods exported) divided by Total Imports

For example, Vietnam sells $136.6billion of goods to the US, but only imports $13.1billion:

(136.6-13.1)/136.6 = 90.4%

Trump then halved the number because “the president is lenient and he wants to be kind to the world” (Yes, that is a direct quote!) giving a tariff of 46%.

In reality, Vietnam’s tariffs on US goods are below 15%, with some products as low as 2%, nothing like the 90% Trump claimed.

A trade deficit has absolutely nothing to do with tariffs.

It’s worth noting that the USA is the world’s biggest exporter of services, and Trump chose to exclude services from these calculations. The numbers would have been much smaller if they’d been included!

What’s the deal with the penguin jokes?

Not satisfied with using the most blunt blanket formula to calculate ‘reciprocal’ tariffs that bear no relation to actual tariffs, they’ve also have been slapped on places that do absolutely no trade with the USA!

Photo by Cornelius Ventures on Unsplash

The Heard and McDonald Islands — part of Australia — haven’t had a visitor since 2016, let alone any trade! They are inhabited by penguins and elephant seals! Despite the UN trade statistics showing zero economic activity, they were still hit with a 10% tariff!

But they got lucky with their 10%, unlike Norfolk Island (pop, 2,188), another Australian territory that doesn’t trade with the US, which got hit with 29%!

So what happened?

It looks like errors were made in recording some shipments of aquariums, and steel from Norfolk in ENGLAND to the USA. The address on the paperwork was Diss in Norfolk, but entered into the system as Norfolk Island!

The place with the highest calculated tariff of 99%, was Saint Pierre and Miquelon, a French-owned island off the coast of Canada with a population of 6,000.

In 2024, they returned some engine parts to the USA, which ended up getting recorded as a US import of $3.5million. That got plugged into the formula to give a 99% trade deficit!

The point of highlighting these absurdities is to showcase what happens when you get tech-bros who know nothing about geography or economics (or sense-checking their findings!) to create your trading policies.

What about the high tariffs on countries that do trade with the USA?

While the tariffs on penguin-inhabited islands are faintly amusing and indicative of the ineptitude of the Trump administration, they will have no meaningful impact as no trade actually occurs.

But for many other countries who have been hit with incredibly high tariffs, these will have real-world consequences.

Lesotho, Laos, Cambodia, Vietnam, Myanmar and Madagascar have all been hit with tariffs above 45%.

What they have in common is that they are generally low-income countries with specific industries that export a lot to high-income countries. Madagascar exports products such as high-value vanilla as it is one of the best places in the world to grow it, but with a poverty rate of 75%, Madagascans aren’t in a position to buy US goods such as Teslas and iPhones! So, the gap between what they sell to the US and what they buy in return is vast - hence these crazy ‘reciprocal’ tariffs.

These tariffs ‘punish’ countries for not buying enough from the US — but by hitting already struggling economies, they’ll only be able to buy even less.

One of Trump’s arguments for these tariffs is to bring manufacturing back to the US. But in the case of Madagascar with its vanilla or Lesotho with its diamonds, these are NOT products that the US can produce themselves. They achieve nothing beyond making those products more expensive for Americans while harming the economies of some of the poorest countries on the planet.

For decades, the USA had a policy of “Trade not Aid”. This meant they encouraged poor countries to build up trade in things the US wanted, to boost their economies so they’d need less foreign aid. Having got rid of US AID earlier this year, they’re now attacking the ‘Trade’ part. Trump is actively penalising countries for following the trade policy the USA asked of them.

US exports account for around 10% of the Lesotho economy, and most of the government tax revenue comes from taxing exports, as most of the population can’t afford to pay income tax. A fall in their exports to the US will directly impact their health care, infrastructure and education.

What about the UK? I’ve heard it was a Brexit benefit!

The Daily Express ran with the following headline after the UK was hit with a 10% tariff and the EU got 20%:

It is true that had we been part of the EU, we would have been hit with a 20% tariff as well, although it’s worth noting that our second biggest export to the US - cars - has been given a a 25% tariff anyway. The OBR warned that a 20% tariff would likely mean a 1% hit to our economy. But they also highlight that Brexit itself has caused a 4% hit.

So we would have been better off with no Brexit and Trump’s EU tariffs!

Did any countries escape tariffs?

Weirdly, just four countries escaped these tariffs - Belarus, Russia, Cuba and North Korea!

It looks like it pays more to be a traditional US enemy than it does to be their ally.

Canada and Mexico were not included in the ‘Liberation Day’ tariffs as they had already been targeted by Trump’s tariff whims earlier in the year.

What will the impact be on the USA?

This is going to be the biggest tax rise in modern US history.

Already Nintendo has announced a delay in pre-orders of their Switch 2. Japan is now subject to a 24% tariff, and Vietnam, where some of the manufacturing happens was hit with 46%. The console was meant to retail at $449, but now they don’t know if it will be $500, $600 or $700.

Another issue this highlights is that many products are manufactured in multiple countries, which will now be subjected to different tariffs. The USA will encounter the joys of every product it imports needing reams of paperwork to prove where each component originated, so the correct level of tax can be charged (sound familiar Brexit Britain?!) How much of the Nintendo Switch was made in Japan and how much in Vietnam, and did any of the screws holding it together come from China….?

And it’s not just final products coming into the USA that will be impacted. Industries such as car manufacturing will be impacted as they import parts from all around the world, as this graphic highlights:

Source: https://www.gzeromedia.com/gzero-north/graphic-truth-where-us-automakers-get-their-parts

Companies can just move their manufacturing back to the US - right?

That’s certainly what Trump is suggesting, but in practice, it’s highly unlikely to happen.

• It takes 5 or 6 years to build a factory - during which time there will have been at least one mid-term election, the 2028 election, and maybe even another mid-term. Who knows what the political landscape will look like by then - tariffs might have been removed.

• In fact, given Trump’s track record, who knows if the tariffs will have been removed, or at least significantly reduced, by next year, next month, or maybe even next week!

• Companies know that the parts needed for their products are likely to be imported, even if the final product is made in the US - so tariffs will still apply.

• The US has a pretty low unemployment rate - only around 4% and only about 10% of jobs are in manufacturing. There’s no vast pool of Americans eager to take up low-paid factory jobs. In fact, Florida is looking to loosen child labour laws to allow children as young as 14 to work night shifts on school days, to make up for the fact that Trump is deporting undocumented migrants!

• Ultimately, businesses want long-term stability before they invest in a country. Trump just wiped the GDP of Italy off the US stock market in one day!

What about the impact on other countries?

Firstly, Trump’s made it clear these aren’t set in stone — inviting world leaders to come and negotiate better deals. He’s open to industries lobbying him personally for special exemptions, which is a recipe for corruption on an epic scale!

This means months of uncertainty. Investment paused everywhere while businesses wait to see how this all pans out. And in the meantime, the poorest countries with the highest tariffs will suffer.

Secondly, countries could decide to hit back rather than beg for reductions. China has already announced a reciprocal 34% tariff. Contrary to some commentary I’ve seen, that doesn’t mean they cancel each other out! It means that citizens in both countries are now being hit with these taxes AND businesses in both countries are going to find it harder to export.

The last time major tariffs were imposed like this was in the 1930’s and the escalations and subsequent tariff wars led directly to the global depression. All sides suffer, as prices rise in both countries and jobs are lost in both countries.

There’s a reason why we’ve had decades of increasing global prosperity and stability as we’ve made free-flowing trade easier and cheaper.

Another major impact will be on America’s influence in the world. As it retreats from global aid and now alienates its trading partners, other countries will step in - namely China. China recently introduced a zero-tariff policy for 100% of products from 33 least-developed African countries. The USA has just slapped tariffs of up to 50% on those same countries. Who are they going to see as their allies going forwards…?

For a country that sees China as its biggest threat, the USA is currently doing a great job of handing it some big wins!

Rather than just putting tariffs on China to encourage manufacturing to move away to US allies - Vietnam, Taiwan, Japan etc, Trump has stuck tariffs, some even higher than China’s, on those countries too!

To sum up….

The madness of these tariffs is off the scale. There is no logic, no reasoning behind them.

Trump loves tariffs.

Trump wanted tariffs.

The well-thought-out, targeted analyses were too complicated for him, so he asked AI for a “simple formula” to even out trade. Because he thinks tiny, poor countries like Lesotho should buy and sell the same amount as the USA.

And even when countries DO buy more from the US than they sell, he still stuck on a tariff. There is no ‘reciprocal’ about it!

As someone on twitter beautifully highlighted:

“We're making socks 18% more expensive for American families to punish Bangladeshi families with an annual income of $900 for not buying enough Herman Miller chairs, Viking ranges, and Steinway pianos.”

The absurdity of putting tariffs on uninhabited islands was just another indicator of the lack of thought, and rationale that is happening at the top levels of the most powerful government in the world. As political commentator, Ian Dunt pointed out:

“The tariffs-on-penguins joke is also effective because it's proof of madness. Without it, we'd see the kind of thing we usually have to ensure on days like this - otherwise sensible journalists trying to find some sense in what Trump has done. Well, they'd say, it is actually true that China operates in the world economy without following its rules. And hey, maybe Trump's real strategy is to trigger a series of bilaterals in which he has leverage. You know this process. You've seen it countless times: the sane-washing of Donald Trump. (But)…the idiocy is simply too extravagant.”

One final point that’s not had much coverage, is that tariffs should be agreed by Congress and take 180 days to be enacted.

But Trump has invoked several war time powers, including the International Emergency Economic Powers Act and the National Emergency Act earlier this year, giving himself sole power to make these changes. Trump has declared a national emergency in response to what he called an “unusual and extraordinary threat” to America’s economy and security.

A country with record-low unemployment, a growing economy, and falling inflation is NOT a country in a national emergency!

Thank you for sticking with me through this! I hope you are now better armed when you come across people trying to claim these tariffs were in any way well thought through, targeted, or had anything to do with balancing out global trade.

If you got value from this piece, please consider sharing it with friends! And as ever, a cup of coffee is always much appreciated! I certainly need a calming cup of tea after this deep dive!

Photo by Max van den Oetelaar on Unsplash