Before you join in the international meltdown over the Trump Administration’s reciprocal tariffs, a few words of caution. Before hyperventilating over every expert’s telling of what’s sure to come, toss out any answer that contains the phrase “I think. Ditto “I feel” or “the consensus of our analysts is….”
“Cogito ergo sum” may mean “I think, therefore I am” in Latin, but in economics it’s the equivalent of the realtor-speak term “SWAG.” SWAG is the acronym for a “sophisticated wild-ass guess.”
Right now, no one knows what’s really going to happen.
Every country on that rather long list as well as the companies headquartered there, is trying to determine whether their best course of action is to be conciliatory or retaliatory. Switzerland, quick to bottom line any situation, elected to “wait and see.”
Right now, the ultimate journalistic cop out is appropriate: “only time will tell.” It brings audible groans from editors, but they’re also quick to ignore the fact that “no comment” is not an admission of anything. It’s the clear and inarguable recognition that it’s often preferable to say nothing than to say something that may back up on you like a clogged drain down the road.
Today’s “super clever political tweet” may be what stood between you and your dream job. And it’s not difficult to dredge up past comments. Ask Columbia University’s board of directors. They’re on their third president in just over a year. They’re also, at least of this writing, out $400 million in federal funding for milquetoast responses to militant pro-Hamas students and a decided failure to maintain control of their own campus. Failing to protect students cost Minouche Shafik her presidency, last Friday Acting President Katrina Armstrong resigned after less than eight months on the job.
And a gambler might take the “under” on the tenure of new acting President Claire Shipman. She’s squarely in the sights of NY Congresswoman Elise Stefanik who observed “Another untenable @Columbia President. They will be onto yet another Columbia President very, very soon after this one.”
Having played the pivotal role in roasting both predecessors, Stefanik seems more than willing to add Shipman’s scalp to her totem pole.
But tariffs and their impact are harder calls to make. Wall Street, always panics at uncertainty. Yesterday’s market plunges worldwide verified their consistency on that behavior.
Despite Canada and Mexico being omitted from the latest round of tariffs they’re squawking. Other countries say the new tariffs “aren’t the actions of a friend.”
Neither are their blocks of free trade with the United States. But prior to this administration, few in Washington were willing to acknowledge yet another inconvenient truth. Despite claims to the contrary, U.S. goods are routinely subjected to tariffs and restrictions specifically crafted to keep U.S. goods out of certain foreign markets.
We’re all wondering about exactly how the administration arrived at their percentages. The Office of the U.S. Trade Representative gave a math formula that bears a strong resemblance to our 2024 trade deficit divided by the amount of goods imported from that country. China, for example imports $295B of our exports. We import $439B of Chinese goods. $295 divided by $439 equals 67% .
Here’s the USTR’s short explanation of the reciprocal tariff calculation: “Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners.” You can read the entire explanation here.
Despite what many media outlets insist on implying, a 25% tariff on a $40,000 import car does not mean the cost will automatically jump to $50,000. Tariffs are not based on retail prices.
They are based on the declared value of the good before it enters the United States, plus insurance and freight costs. Retail pricing is calculated considerably later in the pricing process.
Tariffs are paid on arrival in the United States and before release by U.S. Customs. There are always exceptions, and those can include components used in manufacturing products primarily made of U.S. originating components, or imports from countries subject to Free Trade Agreements (FTA) with the United States. It’s nearly as simple as our Tax Codes.
You can read President Trump’s Executive Order for “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits” here.
Uncertainty, we got. Answers are in shorter supply today.
As always, we’ll keep you posted.
— Jim Shepherd
