Without straight answers from the White House, nothing about America’s trade policy makes any sense.
Why did US president Donald Trump levy a 10% import tariff on goods from the Heard and McDonald Islands?
The penguins wanted to know, so they contacted a journalist in the US to ask Trump’s Commerce Secretary, Howard Lutnick.
He assured the journalist that the White House did not use AI to generate a list of top-level domain names to levy tariffs against.
“The idea is that there are no countries left off,” he said. “Basically, he said, ‘Look, I can’t let any part of the world be a place where China or other countries can ship through them.’ So he ended those loopholes, these ridiculous loopholes. We need the greatness of America to actually be built in America, and he’s tired of being ripped off by the rest of the world.”
How do you know when a MAGA minion is lying? His lips are moving.
That answer explained nothing at all.
There is no “ridiculous loophole” at the Heard and McDonald Islands, or any other islands, for that matter. These islands fall under Australia, imports from which are already tariffed at 10%. So if someone decided to ship their goods to a remote, uninhabited island with no infrastructure, where no human has set foot for over a decade, to re-export those goods to the US, they would already be tariffed at Australia’s 10% rate. There is no loophole there.
Yet, as we saw last week, the list didn’t include all tiny territories. So that does appear to create loopholes.
Niue, for example, is not on the list, nor is Ascension Island, nor is Saint Barthélemy. Why aren’t they treated the same as Tokelau, St. Helena, and Saint Pierre and Miquelon, which likewise fall under the states of New Zealand, United Kingdom and France, respectively?
And if the Trump administration is worried about loopholes, why tax imports from different countries at different rates?
Isn’t Australia, with its 10% tariff, already a “ridiculous loophole” for Chinese companies facing a 54% (soon-to-be 104%) import tariff?
Nobody needs to sail to some godforsaken volcano thousands of miles from anywhere to get around Trump’s tariffs. They can hit up any of the 10% countries for a small trans-shipment fee.
None of this makes any sense.
Rip-off
And would someone please explain the “rip-off” argument? To Trump, a trade deficit – that is, when the US imports more from a country than that country imports from the US – is somehow a ripoff.
It is absurd to expect a small country that exports, say, raw materials, to import an equal value in US goods. Why would they? For that matter, how could they? They export low-value goods. The US exports high-value goods. Poor people in resource-exporting countries have very basic needs. They don’t need the kind of high-value manufactured imports that the US offers.
How does it harm the US if they don’t import US goods? It’s as if Trump thinks US buyers of those raw materials send money abroad without getting anything of value back, and demanding that the foreign country import US goods would equalise the value traded.
In reality, an entirely one-sided trade is already balanced: value in the form of payment is sent one way, and value in the form of goods is sent in the opposite direction.
And because the payment involved is likely US dollars, there is a higher chance that those dollars will eventually make their way back to the US, to pay for US exports. The US already has the better of its trading partners, in that respect.
And why, if countries with which the US runs trade deficits are the ones supposedly ripping the US off, did Trump also levy punitive tariffs on countries with which the US runs a trade surplus? Shouldn’t he be subsidising imports from those countries in order to achieve a supposedly fair, balanced trade ledger?
None of this makes any sense.
Services
Why does Trump worry only about the import and export of goods, without considering the import and export of services, in which the US runs a trade surplus with most other countries because services is what an advanced economy does best?
Societies develop from poor agrarian economies, to mining resource economies, to emerging industrial manufacturing economies, to advanced, high-tech services economies.
The US is an advanced, high-tech services economy. Yet Trump wants to turn America around. He wants to de-develop, and re-industrialise. He wants to go backwards, down the value chain, to have Americans do more low-value manual labour. Why?
“The army of millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America,” Lutnick said during an interview with CBS’s Face the Nation.
Why would anyone want this? What American would want to do this sweatshop work? Flipping burgers for minimum wage at least gets you some human interaction. Millions of minimum-wage drones on assembly lines is going to drive the US suicide rate way up (and given the high minimum wage in the US, by global standards, is going to drive the price of iPhones way up).
Trump is shipping America’s own immigrants to brutal concentration camps in third world countries, so they won’t be around to do the unskilled work, and America already has only a 4% unemployment rate as it is.
With no immigrants, American workers will be needed to tend to the gardens and clean the houses and till the farms of other Americans. They’re not going to have time to assemble iPhones en masse.
I suppose you could put the children to work, as Florida governor Ron DeSantis wants to do. Their little fingers are probably better for tiny screws anyway, and they’re too young to start unions or backchat the slave-driver in charge.
But then Lutnick adds: “It’s going to be automated.”
Wait, what? So why bring the jobs back from the Far East in the first place? If it was cheaper to automate this stuff than to pay some low-wage foreigners to do the job, I can assure you, iPhones would already be assembled in America. It isn’t.
So what, exactly, does Trump want?
None of this makes any sense.
Markets
Trump had a go at China, “whose markets are crashing”, for daring to raise retaliatory tariffs even though he told them not to. Hey, bub, who are you to order sovereign countries around? And have you looked at your own markets lately?
In that same message, Trump said “there is NO INFLATION”. But that’s not true. In fact, inflation in the US is higher right now than it was before the 2024 election, under Biden.
He said, “the long time abused USA is bringing in Billions of Dollars a week from the abusing countries on Tariffs,” but it isn’t.
It is levying billions of dollars in new taxes on American companies that import goods for sale to American customers.
None of this makes any sense.
Globalisation
Who remembers the Battle of Seattle of 1999? Or the Occupy Wall Street protests of 2011?
These left-wing movements, which included labour unions, anti-capitalists, socialist anarchists and environmentalists, protested against globalisation. They protested against free trade. They protested against the World Trade Organisation.
How on earth did the anti-globalisation torch get passed from the left to the right? How do MAGA minions reconcile themselves with the fact that they’re now cheering on exactly the same policies the dreadlocked commies demanded 25 years ago?
How do they make peace with the fact that in believing Trump when he says protectionism will enrich Americans, they are of a mind with left-wing economists like Joseph E. Stiglitz, author of Globalization and its Discontents, and George Soros, who called this book, “Penetrating, insightful… A seminal work that must be read.”
Do they just tune out the cognitive dissonance?
None of this makes any sense.
Formula fun
I wrote last week about the way these supposed reciprocal tariffs, which aren’t reciprocal at all, are calculated.
Here’s the source, from the US Trade Representative’s website. Note the formula and its explanation:
“Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies:”
Now, we’ve already seen that this simply calculates the trade deficit divided by the total imports from country i. But there is some weirdness here that should raise eyebrows.
First, what’s with what looks like a square full stop at the end of the formula? Who does that? Professional formula typesetting software certainly doesn’t.
And who, having written more than a dozen formulae in their life, whether in mathematics, statistics or economics, uses an asterisk to indicate multiplication?
I’ll tell you who. Nobody.
Anyone with any experience in any of those fields would have written the formula as follows:
Then, notice that exports (x) minus imports (m) actually gives a negative trade balance. Whoever wrote this formula made up for that by specifying that the elasticity ε must be negative. This cancels out the fact that they wrote mi – xi the wrong way around.
If you read on, you’ll find that they assumed the import demand elasticity, ε, to be equal to four, and the passthrough from tariffs to import prices, φ, to be 0.25.
They did cite actual economic papers to justify these assumptions, but the authors of those papers are not best pleased, saying that their papers were written to discourage exactly the sort of tariff policy that the Trump administration was now trying to justify.
Conveniently, these assumptions makes εφ=1, which cancels out those awe-inspiring Greek letters entirely, so the real formula is:
It’s as if someone, who has never written an equation in earnest before, went into Microsoft Word’s equation editor and deliberately tried to obfuscate the formula to make it look like someone actually put some thought into the tariffs. They didn’t.
None of this makes any sense.
“Incomprehensibly dumb”
A moderator of the AskEconomics subreddit put it this way: “These tariffs are incomprehensibly dumb. If you were trying to design a policy to get 100% disapproval from economists, it would look like this. Anyone trying to backfill a coherent economic reason for these tariffs is deluding themselves.”
You don’t have to go far to find endless similar opinions. The Economist, a venerable free trade newspaper, denounced “the madness of King Donald”, calling the tariffs “utterly deluded” and “flat-out nonsense”. I cannot recall it ever using such scathing words before.
Foreign Affairs bemoaned “The Incoherent Case for Tariffs,” adding, “Trump’s fixation on economic coercion will subvert his economic goals.”
Make it make sense!
Why does Trump want to return the US to some sort of Dickensian industrial past, where Americans are employed in factories doing low-skilled labour that can more profitably be outsourced?
The administration has given a smorgasbord of reasons. Re-industrialising America’s heartland. Recovering lost American jobs. Unfair wage differentials. Foreign value-added taxes. Foreign subsidies, which, unlike American subsidies, are unfair. Foreign import tariffs, which in many cases are lower than US tariffs on the exact same goods. Unspecified “non-tariff barriers”, which unlike American non-tariff trade barriers such as the Jones Act are not fair. Currency manipulation.
Yet none of these reasons make any sense.
It is impossible to get coherent answers out of the Trump administration. Yet they must want something. There must be a reason why they’re actively destroying trillions of dollars of American wealth, torching the global trade system, and driving their own country into economic crisis and the rest of the world with it. They must have a plan, however ill-conceived, and perhaps evil, it is.
Since we cannot ask them, and they won’t answer except with vague, handwavy misdirection, I’ll do some informed speculation about what, exactly, their goal might be in my next column
Whatever it is, it won’t be sensible.
[Image: Burning Cash.webp – Composite image depicting Donald Trump burning money. Trump likeness from Wikimedia. Image generated using Google Gemini.]
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