FACT: Trump tariffs have nothing at all to do with ‘reciprocity.’

THE NUMBERS:  

Trump tariff on anything from Lesotho:	50.0%
Current U.S. tariff on Lesotho goods:	0.0%

WHAT THEY MEAN:

A small landlocked country of 2.2 million in southern Africa, Lesotho’s modest shipments of clothing – $230 million worth last year — accounts for 0.007% of American imports. The Trump administration has singled this out for a 50% tariff, the highest rate anywhere in the world. Should it stay on, the tariff will likely cripple Lesotho’s economy and immiserate the 12,900 young women at work stitching shirts and blue jeans around Maseru this afternoon. Much the same will happen in Cambodia, Madagascar, Pakistan, Bangladesh, Vanuatu, Sri Lanka, and dozens of other low-income countries.

How did this happen?  Background, and a look at the likely effects.

Having spent the last three months claiming that Americans are victims, immiserated, plundered, etc., by “unfair” trade barriers in foreign countries and arguing for “reciprocal” tariffs, the Trump administration seems to have decided in March that calculating “reciprocity” was too hard. The tariffs Mr. Trump imposed by decree last Wednesday – in effect as of this morning – have nothing at all to do with foreign tariffs on American goods.  Instead, the administration did two quite different things:

(1)  Gave every country in the world a 10% tariff. (For those interested in reciprocity, a flawed but not wholly useless concept, the average world tariff is probably a bit above 3%.) This appears to be added to, rather than replacing, the existing 2.4% average. Based on records kept by the U.S. International Trade Commission, the resulting ~12.4% tariff rate would be the U.S.’ highest since the Depression of the 1930s.

(2)  Created a second set of tariff rates for 57 countries (counting the 27-member European Union as a single economy) with which the U.S. ran a “goods trade deficit’” in 2024. I.e., Americans bought more from the relevant place than we sold to people there. (Russia, a -$2.5 billion deficit country last year, gets an exemption.) As practical examples, this means surtaxes of 20% on Dutch cheese and semiconductor manufacturing equipment, 26% on Korean cars and computers, 48% on Cambodian shirts, 28% on Tunisian dates and jewelry, and so on.

Where do these numbers come from? The administration appears to have gotten them not by looking up tariff rates abroad – though they’re easy to find – but from a four-column spreadsheet based on an arithmetical formula. One column has the dollar value of American exports (excluding services trade, so Hollywood film revenue, telemedicine, foreign-student tuition, tech-sector search and data analytics, financial services, architecture and engineering contracts, etc., count as nothing). The second column has the value of goods-only trade deficits, or “exports minus imports.” The third column calculates a “trade balance to imports” ratio, and the fourth divides this ratio by two to get a supposed ‘reciprocal’ tariff.

Here’s a real-world case: The Falkland Islands – a British South Atlantic territory home to 3,162 people – gets hit with a 42% tariff. They sold Americans $22.8 million worth of toothfish and squid last year (fisheries are 40% of the Falklands economy) while buying $4.1 million worth of American airplane parts, ceiling fans, and computer accessories. The administration gets its 42% ‘reciprocal tariff’ on Falklands goods from the following formula:

{(fish – airplane parts)/fish}/2.

Spelling it out, fish minus airplane parts equals $18.7 million.  Divided by fish ($22.8 million), this yields a ratio of “0.84.” Division of this by two then produces the 42% “reciprocal” tariff. Obviously this has nothing to do with Falkland Islands tariffs, nor America’s either. Neither does it get more logical results anywhere else. Some examples, placing the Trump tariff against the actual trade-weighted average tariff rates published in the WTO’s World Tariff Profiles 2024:

Trump tariff on Bosnian goods:	36.0%
Bosnian average trade-weighted tariff:	6.2%
Trump tariff on Brazilian goods:	10.0%
Brazil average trade-weighted tariff:	6.7%
Trump tariff on Jordanian goods:	20.0%
Jordan tariff on U.S. goods (FTA partner)	0.0%
Trump tariff on Madagascar goods:	47.0%
Madagascar average trade-weighted tariff:	8.7%
Trump tariff on UK goods	10.0%
UK average trade-weighted tariffs:	2.3%
Trump tariff on Vietnamese goods:	46.0%
Vietnamese average trade-weighted tariff:	4.5%

 

This sort of fecklessness has drawn appropriate derision from economists. It is also, though, bringing real-world results varying from absurd through disastrous to genuinely tragic. The Falklands’ case is in the “absurd” category – they sell most of their squid and toothfish to Europe anyway – and Falklanders can ridicule it, get angry, or sadly shake their heads depending on temperament. The “disastrous” effects are piling up daily in financial markets and industry sites – about 5% of American wealth already vanished in the last week, likely future layoffs and price spikes, etc.

Others can’t laugh it off. Twelve of the 57 countries on the administration’s list are “least-developed” states: Angola, Bangladesh, Cambodia, Chad, DR Congo, Laos, Lesotho, Madagascar, Malawi, Mozambique, Myanmar, Zambia, Zimbabwe – as well as many more lower-middle income (e.g. Pakistan and Sri Lanka), small southern-Europe democracies under Russian pressure such as Moldova and Bosnia, Arab-world allies like Tunisia and Jordan, Asia-Pacific Treaty allies Philippines and Thailand, small island states Vanuatu and Fiji, and more.

U.S. trade with the least-developed countries in particular, though small in the $7 trillion world of American trade flows, is often an essential source of wage employment, macroeconomic stability, and poverty alleviation. Lesotho’s case is illustrative of the harms they will suffer, but also extraordinary for the scale of the tariff and its likely human impact.

Over the past generation, the country’s 33 garment companies have been especially successful users of the African Growth and Opportunity Act’s tariff waivers, and as a result, are Lesotho’s largest source of wage-paying jobs. Southern Africa, being the region hit hardest by the HIV/AIDS pandemic, Lesotho also has the world’s second-highest adult HIV-positive rate at 19.3% of adults. The garment factories joined the American PEPFAR program – USAID had a $47 million health commitment to Lesotho – as important providers of HIV treatment and education.

Their $230 million worth of clothes account for about 0.2% of American clothing imports. That’s about a day’s worth of U.S. clothes shopping a year, and makes up the “0.007%” of total imports noted above. They also create a ‘bilateral trade deficit’ a bit above $200 million. Since Lesotho doesn’t buy very much, and most American products there arrive via South Africa, the ‘ratio’ formula has pushed Lesotho to the very top of its list. The resulting 50% tariff, an artifact of the Trump calculators’ indifference and laziness, may destroy the industry and its workers’ livelihoods by summer. Considering that this economic blow comes simultaneously with the destruction of USAID and “pause” in PEPFAR’s Lesotho work, the word ‘tragic’ is strong but probably not strong enough.

** Very recent update, 1:45 p.m.: these now seem to be ‘paused’ for 90 days after a financial-market and public-opinion hurricane of opposition. We’ll see; if this is so and the ‘reciprocal’ tariffs stay off, at least for now the ‘10%’ global rate seems to remain.

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

Comparing tariff rates:

Trump administration’s decree imposing tariffs; see “Annex I” for list of countries.

And for those genuinely interested in “reciprocity,” the WTO’s Tariff Profiles 2024 makes it easy to look up and compare rates.

And reports on the impacts abroad:

The Lesotho Embassy.

… responses from government, academia, and business from Maseru-based Lesotho Reporter.

… and from the Guardian, on-site reaction from Lesotho workers and government.

… and the U.S. Trade Representative Office’s African Growth and Opportunity Act (AGOA) page.

Via the BBC, a view from the Falklands.

… and the Falkland Islands Fishing Companies Association.

And Nikkei talks with Phnom Penh garment workers.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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FACT: U.S. Constitution: “Congress shall have power to lay and collect Taxes, Duties, Imposts, and Excises.”

THE NUMBERS: Consumer confidence “Expectations Index”* – 

March 2025:	65.2
February 2025:	72.9
(Recession level)	(80.0)
December 2024:	81.1
October 2024:	89.1

* Conference Board, March 25, 2025

WHAT THEY MEAN:

Is Mr. Trump’s tariff binge — now delayed until 4:00 today, presumably to avoid split-screen footage placing tariff announcements against crashing financial markets, but said to include extensive new taxation of cars, semiconductors, OTC and prescription medicines, Canadian energy, Chinese toys, Mexican fruits and vegetables, etc. — really “the largest peacetime tax increase in history.” The White House’s claim of a $600 billion increase in annual tariff collection would be about 2.2% of GDP. That would make it at least a contender for the title, though it might wind up below the introduction of the Social Security and Medicare taxes in the 1930s and 1960s.

But if the scale remains a little blurry, the public’s view seems by comparison sharp and clear: higher prices and fear for the future. The Conference Board’s survey of American “consumer confidence” (March 25, done after tariffs on Canada/Mexico/China but before last week’s on cars) suggests opinion has gone far enough south to reach the “Tierra del Fuego” latitudes, where phrases like “nose-dive” and “free fall” turn up. Here’s their ashen-faced release a week ago Tuesday:

“The Expectations Index – based on consumers’ short-term outlook for income, business, and labor conditions – dropped 9.6 points to 65.2, the lowest level in 12 years [ed. note: lowest since the end of the post-2008 financial crisis] and well below the threshold of 80 that usually signals a recession ahead.  … Optimism about future income – which had held up quite strongly over the past few months – largely vanished, suggesting worries about the economy and the labor market have started to spread into consumers’ assessment of their personal situations. … [R]esponses also showed that inflation is still a major concern for consumers and that worries about the impact of trade policies and tariffs in particular are on the rise.”

Should the public be that worried? Recent experience offers little guidance, since no administration since Herbert Hoover’s in 1930 has tried something like this. Warning lights are flashing red in GDP outlook, financial markets and manufacturing  (“bearish market sentiment and tariff applications and costs have dominated discussions”) as well as in consumer confidence.  And some real-world leading indicators — say, layoffs in steel factories specialized in automotive metal — are turning down. But apart from the layoffs, these are still mostly “signs and portents.” Spring will bring more reliable stats on macro employment/price/growth impacts; effects on goods-buying industries such as factories, farms, restaurants, retail, and building contractors; and the fortunes of the American export manufacturing and farming, services and digital, and IP sectors now suddenly targets for retaliation.

But whatever the economic gashes and wounds, the most important long-term harm will likely be elsewhere. After all, governments often make policy errors, sometimes they’re pretty big, and countries usually recover in time. (Though recuperation from Hoover’s required a lot of time). Damage to governance goes deeper. And here, Mr. Trump’s approach — bad-faith “emergency” and “national security” declarations, coupled with Executive Orders attempting to create tariffs by decree — carries the risk of infection to the political system separate from its economic consequences.

The Constitution gives Congress, not presidents, authority to “lay and collect Taxes, Duties, Imposts, and Excises,” as well as “regulation of Commerce with foreign nations.” For good reason: giving any single individual power to set tax rates means not only heightened danger of impulsive and unsound decisions, but temptation to use that novel power in corrupt ways — to reward family members, cronies, and supporters, and/or to harm political critics, business rivals, and opposition strongholds.

Earlier presidents never questioned this principle. The sepia-tinged pre-New Deal pols who wanted tariff hikes (e.g., Hoover, Warren G. Harding, William McKinley, Benjamin Harrison) asked Congress to pass bills and sign the result. Historians debate the economic merits, but their tariff increases had a Constitutional legitimacy Mr. Trump’s program wholly lacks. Should his program stick, it will weaken the separation of powers, usurp authority over taxation, and substitute one-man “rule by decree” for authentic (if sometimes ill-judged) law. Next to this, costs to growth, jobs, and living standards are more immediately painful but likely lesser issues.

Where to next? Court cases this year may limit Mr. Trump’s options, but there’s a simpler and better solution: Congress has the power it needs to defend its authority, and should use it. House Speaker Mike Johnson and Ways and Means Committee Chairman Jason Smith, and their Senate counterparts Majority Leader John Thune as Majority Leader and Finance Committee Chair Mike Crapo, need only — per their oath of office to “protect and defend the Constitution” — call a vote. If Congress likes Mr. Trump’s tariffs, it can impose them in the proper way. If not, it should say “no” and end them.

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;

• Connect tariff policy to growth, work, prices and family budgets, and living standards;

• Stand by America’s neighbors and allies;

• Offer a positive alternative.

The Constitution and its friends:  

Official U.S. Constitution text, from the National Archives. See Article I, Section 8, first clause, for “Taxes, Duties, Imposts, and Excises.”

PPI’s look last fall at the Constitutional Convention of 1787, the tax power, and the harm inherent in rule by decree.

• Sen. Tim Kaine (D-Va.), with Sens. Klobuchar, Coons, and Paul (respectively Ds-Minn. and Del., R-Ky.), have a resolution this week to repeal the March “emergency” declaration used as a pretext for tariffs on Canadian goods.
• Reps. Don Beyer (D-Va.) and Suzanne DelBene (D-Wash.) on ensuring that any tariff imposed on “emergency” or “national security” grounds must get Congressional approval.
• Rep. Brad Schneider (D-Ill.) on scrapping a surviving Hoover legacy, “Section 338.”
• Rep. Jimmy Panetta (D-Calif.) on ensuring Congressional approval for balance-of-payments tariffs.

On the other side: 

Two hours before today’s White House tariff decrees are supposed to be released, neither their texts nor their content are yet public. For interim reading in their absence, try the President’s Trade Agenda report, put out by the Office of the U.S. Trade Representative on March 3. Each year this is supposed to lay out the year’s main goals and activities. This year’s edition has a lot of puzzling gaps. The report does converge at some points with the options floated in the press this past week. But it doesn’t mention taxation of cars and medicine, trade wars with Canada and Mexico, or any large overall tariff.

Leading indicators:

Conference Board finds Americans fearful, expecting a recession, and thinking a lot about tariffs.

… the University of Michigan’s consumer-confidence survey finds the same thing. Sample:

“The expectations index plunged a precipitous 18% and has now lost more than 30% since November 2024. This month’s decline reflects a clear consensus across all demographic and political affiliations; Republicans joined independents and Democrats in expressing worsening expectations since February for their personal finances, business conditions, unemployment, and inflation. Consumers continue to worry about the potential for pain amid ongoing economic policy developments. Notably, two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.”

And about that “$6 trillion”: 

Concise judgment from Ben Ritz and Alex Kilander this February: Trump administration tariffs are “bad tax policy that don’t raise much revenue but do raise costs for businesses and households.”

And Laura Duffy’s It’s Not 1789 Anymore: Why Trump’s Backwards Tariff Agenda Would Harm America (October 2024) on the First Congress and the deep flaws of tariffs as a form of taxation: can’t raise enough revenue to support a modern government; non-transparent to the public and thus unusually easy for well-connected interest groups to manipulate; inequitable as business taxation and regressive as consumer taxation; large harms to “downstream” industries and their workers.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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