The Tariff Chronicles: Fake Reciprocity As Real Leverage

Forbes

5 days ago

WASHINGTON, DC - APRIL 02: U.S. President Donald Trump holds up a chart while speaking during a ... More 'Make America Wealthy Again' trade announcement event in the Rose Garden at the White House on April 2, 2025 in Washington, DC. Touting the event as 'Liberation Day', Trump is expected to announce additional tariffs targeting goods imported to the U.S. (Photo by)
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Ninety deals in 90 days. That's what White House senior adviser Peter Navarro predicted earlier this year with the announcement of President Trump's 'Liberation Day' tariff policy. Things haven't worked out that way. Not many people thought they would.
Navarro is the same gentleman who explained to Fox News Sunday's Shannon Bream that 'the message here is that tariffs are tax cuts' after she presented him with a Fox News survey showing 69 percent of respondents believed Trump's tariffs would make consumer products more expensive.
Navarro separately claimed Trump's tariffs would generate $600 billion per year in new federal revenue — an estimate echoed by U.S. Treasury Secretary Scott Bessent. That's roughly $6 trillion when scored over a 10-year budget window which, if accurate, would rank among the largest tax increases in U.S. history. If your brain can conceptualize how a historically massive tax hike can simultaneously be spun as a popular tax cut, I applaud your cognitive flexibility.
Meanwhile, Goldman Sachs estimates 70 percent of Trump's tariffs will be passed through to U.S. retail consumers, with the remainder of the burden split equally between U.S. businesses and foreign manufacturers. For every one dollar of tariff pain, that's 85 cents absorbed by U.S. taxpayers and a mere 15 cents absorbed by foreigners.
The 90 days have come and gone. Thus far the administration has notched three trade deals — sort of. The agreement with the United Kingdom was announced in May; recent agreements with Vietnam and Indonesia were announced in July. Additional trade deals could still be announced before the revised August 1 deadline, when the reciprocal tariffs are expected to finally take effect.
To refer to these new arrangements as comprehensive trade deals would be generous. The U.S.-U.K. deal comes the closest to resembling the finished product. It's preliminary in nature, better described as a framework for a future trade deal. At least it was accompanied by a fact sheet circulated by the U.S. Trade Representative Jamieson Greer, plus an Oval Office press briefing with U.K. Prime Minister Keir Starmer piped in via speakerphone.
That's more of an acknowledgement than we're getting with the Vietnam and Indonesia deals. White House officials aren't yet authorized to comment on the latter two projects. That nobody in government can provide a half-page of bullet points makes you wonder how tentative these arrangements really are.
WASHINGTON, DC - APRIL 02: Trade advisor to U.S. President Donald Trump Peter Navarro departs after ... More U.S. President Donald Trump signs executive orders imposing tariffs on imported goods during a "Make America Wealthy Again" trade announcement event in the Rose Garden at the White House on April 2, 2025 in Washington, DC. Touting the event as "Liberation Day", Trump announced sweeping new tariffs targeting goods imported to the U.S. on countries including China, Japan and India. (Photo by)
Tempting as it is, I won't ridicule the administration or Navarro for being spectacularly wrong in their estimate of what could be accomplished in 90 days. Most people appreciate that it takes a long time to hash out a comprehensive trade agreement. On average more than 900 days, according to the Council on Foreign Relations. The broader issue for tax and trade specialists is whether any agreement negotiated by the administration will prove to be a durable and stabilizing force for cross-border trade. As we've learned, the presence of a binding trade commitment (the U.S.-Mexico-Canada Agreement comes to mind) doesn't signify the contracting states will play nice once the ink has dried. Some of Trump's harshest trade threats have been reserved for Mexico and Canada, despite the U.S.-Mexico-Canada Agreement being his own handiwork.
Still, a new trade deal — even an embryonic one — is not nothing. This article looks at what we know about the new agreements with Vietnam and Indonesia. Spoiler alert: It ain't much.
Trump's Big, Beautiful Chart
The background for understanding the current trade environment is the chart that President Trump unveiled during his April 2 press conference from the White House Rose Garden. You've probably seen photographs or video clips of Trump proudly displaying the oversized visual aid. The chart contains an array of most (but not all) U.S. trade partners. Russia was curiously omitted for reasons that remain murky.
The salient feature of Trump's big chart is the set of columns that list contrasting tariff rates. At first glance, the two columns purport to represent the applicable tariff rates for U.S. imports and exports — a relevant topic, given the importance that Trump has placed on reciprocity. That impression, however, is not accurate.
Seen for what it is, the chart is an assemblage of fictitious tariff rates on U.S. exports. Its singular purpose is to provide a handy predicate for the desired reciprocal tariffs. It's a means to an end, and the means is bogus.
The chart's left column is labeled 'Tariffs Charged to the U.S.A. including currency manipulation and trade barriers.' The percentages are the greater of (i) the listed country's annual trade deficit (in goods) with the United States, divided by the value of annual U.S. imports (of goods) from said country; or (ii) 10 percent. Note that the chart's focus is exclusively on the trade in goods, oblivious to the global trade in services.
The 10 percent floor is completely arbitrary. It's presented as if it were some kind of universal baseline tariff applicable to all U.S. exports worldwide, regardless of their destination. That's a concept that doesn't exist. Each trade partner has its own baseline tariff, and they typically vary by product categories. Presumably, the 10 percent figure was yanked out of the air as a matter of convenience. It equates with Trump's known desire for an elevated (10 percent) U.S. baseline tariff. Previously, the most commonly applied U.S. baseline tariff was 2.5 percent.
If Trump wants to quadruple the baseline U.S. tariff on imports, that's his business. Doing so is not nearly as controversial as the shenanigans he's perpetrating with his big tariff chart — which involve outright deceit. The American public should realize that the figures appearing in the chart's left column represent a hodgepodge of factors that (while not all wholly irrelevant to global trade tensions) cannot be conveniently translated into a statistic that bears any relation to real-world tariff rates.
As such, the left column of the chart is an elaborate index of perceived grievances. It reflects pure invention, not reality. The percentages you see there are not the actual tariff rates that other countries charge on U.S. exports.
The chart's most cringeworthy attribute is not the blatant inaccuracy, but the disingenuity. The tabular presentation cloaks a bundle of subjective resentments with the veneer of an objective method.
The column to the right is labeled 'U.S.A. Discounted Tariff Rate.' These percentages are the greater of (i) the fictitious tariff rate from the left column, divided by two; or (ii) 10 percent. As discussed above, the latter option represents Trump's minimum price of entry for access to the U.S. market. It's the least objectionable part of the whole exercise.
The column's title hints that U.S. tariffs on imports are to be 'discounted' by a factor of two, relative to the corresponding tariff on U.S. exports — as if to suggest the new tariff policy is a benevolent gesture. That's hardly the case. Recall that the imagined discount relates to a bogus tariff rate. By analogy, if a merchant were to triple his retail prices and then offer you a coupon for half off, you'd still be paying more than you were to start.
Indeed, the reciprocal tariffs in the right column are generally lower than the corresponding rates in the left column. However, the key to the ruse is that the figures in the left column are fabrications. They are faux tariff rates. Economist Soumaya Keynes with the Financial Times mocked the administration's tariff formula:
'OK, so there has been a certain amount of ridicule of this formula. There was one particular post I saw that said that 'your tariff is your star sign divided by the number of boys you'd kissed times by one.' I'm not going to pretend that the exercise was many, many levels more sophisticated than that.'
Humor aside, Keynes is not wrong that Trump's tariff formula is pseudoscience. What you're looking at is a constructive tariff rate that could — hypothetically — be high enough to alter trade deficits based on certain assumptions about the price sensitivity of imports.
Sure enough, if a government were to set its tariff rates so high that bilateral trade relationships grind to an abrupt halt, it could claim to have 'solved' the trade deficit. But to what end? Such overbearing tactics are sure to create new (and worse) problems in the process. They would devastate the country's own economic performance. Trump's fanciful chart says nothing about the negative effect these higher U.S. tariffs will have on U.S. exports.
WASHINGTON, DC - APRIL 02: Charts that show the 'reciprocal tariffs' the U.S. is charging other ... More countries are on display at the James Brady Press Briefing Room of the White House on April 2, 2025 in Washington, DC. Hosting a "Make America Wealthy Again" trade announcement event in the Rose Garden touting as a 'Liberation Day' event, President Donald Trump announced sweeping new tariffs targeting goods imported to the U.S. on countries including China, Japan and India. (Photo by)
As best I can tell, the chart assumes that U.S. export activity will be immune to predictable knock-on effects. Does anyone seriously think other countries aren't going to respond in kind with retaliatory tariffs of their own? Recall what transpired the last time the United States went through an exercise like this: Congress had to bail out U.S. farmers when other countries stopped purchasing U.S. agricultural output, with U.S. taxpayers left to pick up the tag. That's not how farm subsidies are supposed to work. That's an indirect acknowledgement that your trade policies are backfiring.
A Few Illustrative Examples
Let's take China as our first example. It's the quintessential example of a trade partner with which the United States has an expansive trade relationship, characterized by a chronic trade deficit.
According to government statistics, the United States imported far more dutiable goods from China last year ($438.9 billion) than it exported to Chinese purchasers ($143.5 billion). That's a trade deficit for goods of $295 billion.
Per the formula above, we arrive at a fraction of which the numerator is the U.S. trade deficit with China and the denominator is the value of Chinese imports. That's $295 billion over $439 billion, for a quotient of 0.67. Again, the fraction ignores the services trade.
That's the process by which the White House arrived at the pretend tariff rate of 67 percent, which the Chinese government hypothetically applies to U.S. exports. As mentioned above, it's a fake tariff rate. In fact, most Chinese tariff rates (pre-Liberation Day) are nowhere close to that level. The corresponding U.S. reciprocal tariff is half of 67 percent, or 34 percent.
For the chart to work as intended, the fake tariff rate assigned to China — and supposedly applied to U.S. exports — must be exorbitant. That allows for the 'discounted' U.S. tariff to be abnormally high. We observe this repeatedly for countries with which the United States has a chronic trade deficit. Taiwan is assigned a fake tariff rate of 64 percent, generating a discounted U.S. tariff of 32 percent. India is assigned a fake tariff rate of 52 percent, generating a discounted U.S. tariff of 26 percent, and so forth.
The mechanics look different for those instances in which the United States runs a trade surplus. Consider the case of Singapore.
Last year U.S. producers exported dutiable goods to Singapore totaling $46 billion, with imports from Singapore coming to $43 billion. That's a U.S. trade surplus of $3 billion. As a consequence, the numerator of the fraction is a negative number (trade deficits are positive). That renders the quotient ill-suited for use in Trump's tariff chart, which assigns Singapore a generic tariff rate of 10 percent. Again, that is a contrivance. All instances of U.S. trade surpluses are awarded the lowest possible reciprocal tariff, 10 percent.
What's wrong with applying a 10 percent tariff on imports from Singapore? It's worth noting that Singapore and the United States are partners to an active free trade agreement (FTA) signed in 2004. It's regrettable that an in-force FTA gets Singapore nowhere. Trump's chart happily ignores FTAs.
Singapore's reciprocal tariff (10 percent) is higher than the rates available under the FTA. That means a cooperative trade partner is poised to be unilaterally punished for the unforgiveable sin of selling the United States fewer goods than it buys from it.
This outcome is backwards. Trump claims that he wants to punish nations that 'rip us off' through chronic trade deficits. Here, his policy punishes a country with which the United States enjoys a trade surplus.
Of all the nations in the world, which has offended the United States so badly that it deserves the maximum reciprocal tariff? That would be Lesotho, one of the poorest countries.
Trump's chart pretends that Lesotho applies a tariff rate of 99 percent (yikes!) to U.S. exports, resulting in a 'discounted' reciprocal U.S. tariff of 50 percent.
You might ask yourself, why does Lesotho charge the United States a 99 percent tariff? Answer: It doesn't. Remember, all the rates in the chart's left column are fictitious.
It's peculiar that Trump's trade policy singles out Lesotho for punitive treatment. The two nations do comparatively little trade. For 2024, the combined U.S.-Lesotho trade relation was valued at just $240 million. That's peanuts to the United States.
The offense lies in the lopsided nature of the trade balance. To put it bluntly, nobody in Lesotho is wealthy enough to buy the things that the U.S. economy produces. They can't afford Fords, Chevrolets, or Jeeps.
With U.S. exports to Lesotho being inconsequential, the U.S. trade deficit — though small in absolute numbers — is disproportionately large relative to the volume of imports from Lesotho. Comparing the trade deficit (the numerator) with the value of imports (the denominator), we approach a one-to-one ratio. Based on that, Trump's chart assigns Lesotho a fake tariff rate of 99 percent, which translates to a reciprocal tariff of 50 percent. What immediately stands out is that Lesotho's assigned tariff rate (99 percent) is wildly inaccurate.
By way of background, Lesotho's government does not set its own tariff rates. It's a member of the Southern African Customs Union (SACU) along with four other nations: Botswana, Eswatini (formerly Swaziland), Namibia, and South Africa.
Collectively, the SACU bloc applies a common external tariff, just as the EU does. Within the SACU trade zone, goods cross borders free of tariffs — much like the EU single market. Anecdotally, you could say that SACU member states have taken a page out of the EU's playbook. In reality, it's the other way around: The EU is mimicking SACU. Founded in 1910 (decades before the EU), SACU is the world's oldest customs union.
3d illustration flag of Lesotho. Lesotho flag isolated on the blue sky with clipping path.
There's no reason why Lesotho should incur a higher reciprocal tariff than other SACU member states. Each of the five governments applies the identical external tariffs to U.S. exports. Yet we observe that Trump's chart assigns these nations divergent tariff rates. In a Kafkaesque twist, Trump's chart assigns Eswatini the lowest possible (10 percent) reciprocal tariff, despite the fact the nation applies the same external tariffs as Lesotho. There is literally no difference in how Eswatini and Lesotho tax U.S. exports — yet one receives the maximum punishment while the other gets the minimum.
Under SACU's external tariff policy, the actual tariff rates charged on U.S. exports typically range between 0 and 30 percent, depending on the type of good. Many U.S. exports enter the SACU trade zone with a zero tariff. According to South African officials, the average SACU external tariff rate applied to U.S. goods is 7.6 percent. The variance between that and the White House's fake tariff rate (99 percent) is egregious.
For years, the textile sector has been Lesotho's economic life blood, growing to become the nation's leading export industry. It has the U.S. government to thank for that, because it relies heavily on the African Growth and Opportunities Act — a U.S. trade initiative from a previous era that offers qualifying nations duty-free access to the U.S. consumer market.
Household names like Levi's and Wrangler have taken advantage of the act, setting up textile factories in eligible nations. Thanks to the U.S. initiative, textiles have become Lesotho's largest source of private-sector employment — responsible for 40,000 jobs and one-tenth of the nation's GDP.
With the announcement of Trump's Liberation Day tariffs, the business model supporting Lesotho's blue jean factories is in serious jeopardy.14 The duty-free treatment of the past is on the verge of being replaced with a 50 percent punitive tariff — a shocking and destructive increase that serves no obvious purpose.
It's hard to see what Lesotho has done wrong other than be too poor to afford U.S. exports. Ditto for Cambodia, Laos, and Madagascar: three other nations that were assigned sky-high reciprocal tariffs — 49 percent, 48 percent, and 47 percent, respectively.
Currency Issues and Nontariff Barriers
Currency manipulation is a legitimate issue. It also has little to do with a country's tariff policy. Wanting a foreign country to revalue its currency (upward) and wanting it to adjust its tariffs (downward) are two different things.
To further complicate matters, some countries manipulate their currencies by acquiring large quantities of U.S. debt, which directly benefits the federal government by allowing Washington to finance its deficit spending on more favorable terms.
If some of those trade partners listed on Trump's tariff chart were to suddenly stop manipulating their currencies (by dumping their U.S. debt holdings) it's doubtful there'd be sufficient demand in the rest of the bond market to pick up the slack. That would almost certainly force yields to rise and dramatically increase the federal government's cost of borrowing.
Putting that aside, the objection here is that currency issues are an awkward fit for a computational exercise in setting reciprocal tariffs. The chart's reference to trade barriers is similarly awkward. In context, the term is taken to mean nontariff barriers. Again, that's a legitimate issue when studied in isolation.
A classic nontariff barrier occurs when a country or trade bloc (such as the EU) limits or bans the importation of a particular subcategory of goods on account of some distinguishing attribute. For instance, U.S. meat products might be denied market access because of restrictions on chlorinated chicken or hormone-treated beef.
Don't get me wrong. Nontariff barriers are a major source of trade tensions and a legitimate complaint. They result in U.S. manufacturers being denied valuable market access. The objection here is that it's nonsensical to express a tariff rate for such occurrences because the goods are blocked from entering the foreign market. As such, Trump's tariff chart attempts to quantify the unquantifiable — although that didn't stop him from trying.
Basically, Trump's tariff chart is rigged. Rigged to toss around exaggerated tax rates that are never applied to U.S. exports. Rigged because the fake tax rates provide a foundation for higher reciprocal tariffs. Rigged so that any instance of a trade surplus earns the baseline tariff, irrespective of that nation's actual tariff rate.
It would be more straightforward for the White House to skip the superfluous computational exercise and simply announce a batch of new baseline tariffs. Countries like Singapore would be no worse off, and countries like Lesotho — the great loser in this drama — would be far better off. It's evident that true reciprocity has nothing to do with Trump's trade agenda. Why indulge in the pretense that it does?
Vietnam and Indonesia
Trump took to social media on July 2 to announce that the United States and Vietnam had reached a bilateral trade deal. He characterized the arrangement as 'something that they [Vietnam] have never done' before.
The gist of the deal is that Vietnamese imports would incur a revised U.S. tariff of 20 percent. That exceeds the current tariff rate but is much lower than the anticipated reciprocal tariff.
For 2024 the United States recorded a trade deficit (for goods) with Vietnam of $123 billion. That's $136 billion in imports less $13 billion of exports, reflecting the United States' fourth largest trade deficit — trailing only China, the EU, and Mexico.
These figures produced a constructive (fake) tariff rate on U.S. exports of 90 percent ($123 billion divided by $136 billion). That generates a reciprocal U.S. tariff of 46 percent, which Hanoi was desperate to avoid. As with Lesotho, the abnormally high quotient is a byproduct of Vietnamese importers not purchasing a lot of U.S. goods — because the goods are too expensive for the average Vietnamese household.
Vietnam has achieved remarkable success in developing its export sector, to the point that the national economy is extremely reliant on its export capacity. Many U.S. companies now do their overseas manufacturing there — including popular sportswear firms like Nike and Adidas. If you look at the label in your kid's Lionel Messi replica jersey, you'll probably find that it was made in Vietnam.
You can see why Vietnam made the deal it did. The 20 percent U.S. tariff is double Trump's minimum baseline rate, but it's far lower than the expected reciprocal tariff (46 percent).
In return, Vietnam agreed to let U.S. exports enter the country with a zero tariff. That's not as big a concession as you'd think, because Vietnam purchases so few U.S.-made goods. As a result, Vietnam's treasury might be forgoing some tariff revenue, but it's preserving the economic engine that fuels domestic investment and job creation.
Vietnam's state media outlet didn't have much to say about the new trade arrangement. It noted only that Communist Party General Secretary Tô Lâm had a phone call with Trump on July 1 and reached a consensus for a 'fair and balanced reciprocal trade agreement framework.' There was no mention of Vietnam waiving all tariffs on U.S. exports.
US President Donald Trump stands during an arrival ceremony in Hanoi on November 12, 2017. Trump ... More arrived in the Vietnamese capital on November 11 after attending the Asia-Pacific Economic Cooperation (APEC) Summit leaders meetings earlier in the day in Danang. / AFP PHOTO / JIM WATSON (Photo credit should read JIM WATSON/AFP via Getty Images)
There's one aspect of Vietnam's export sector that has long worried U.S. trade officials. That concerns the practice known as transshipping, whereby goods produced elsewhere (think China) are repackaged as 'Made in Vietnam' and sent on their way. For Washington, the worry is that the practice improperly masks the extent of the origin country's trade activity. Chinese producers could use Vietnam as a conduit for avoiding U.S. retaliatory tariffs.
According to Trump's social media post, the forthcoming trade deal with Vietnam will address the issue by tagging U.S.-bound transshipments with a 40 percent tariff. That's twice the tax charged on genuine Vietnamese products.
Significantly, there is no further detail about what constitutes a transshipment. Vietnamese exporters are understandably concerned about how the term will be defined. An overly restrictive definition could drag in goods produced in Vietnam using Chinese commercial inputs. A looser definition could open the door for Chinese exporters to ship semifinished goods to Vietnam, where a modicum of local processing is performed. The challenge will be to get the details appropriately targeted.
The details of the U.S.-Indonesia trade deal are similarly incomplete. Apparently, Indonesian goods entering the United States will be greeted with a 19 percent tariff. That's approximately double the desired baseline tariff, but less than the anticipated reciprocal tariff (32 percent).
As part of the arrangement, Indonesia will commit to purchasing at least $4 billion per year in U.S. agricultural products, and at least $15 billion per year in U.S. energy products (oil and gas). Also, the government is committing to place orders for up to 50 new aircraft from Boeing.
Conclusion
I've been highly critical of Trump's tariff chart, and of his Liberation Day tariff package generally. No doubt, his aggressive trade policy has many defenders. They will point to the recent trade deals with the United Kingdom, Vietnam, and Indonesia as evidence that his approach is working.
Without the ridiculous chart and its bogus tariff rates, would those other governments have come to the table and made trade deals? That's a fair rebuttal. In the case of Vietnam, especially, it seems likely the threat of outrageous reciprocal tariffs may have played a role. For some folks that will be enough to declare a win. I'll continue to maintain that the fundamental flaw in the scheme is Trump's fixation with trade deficits.