Bad Math for a Bad Policy
Is there such a thing as mathematical wool?
Synopsis
President Trump wants to make changes in the trading relations with other countries. But, since, with few exceptions, countries don’t trade people do, he has proposed some very flawed tax policies. To sell his flawed policies, he has engaged in some very questionable math.
Introduction
Most of the knowledge and understanding I have acquired over many years has come not from school but from asking embarrassing questions. When Donald Trump showed those impressive boards outside the White House, I thought that his staff must have put a lot of time and effort into preparing those charts they must have used sound calculations.
But then came the questions.
Does Vietnam really impose 90% tariffs on US goods? Does South Korea (where I served in the Army in the mid-1960s) really impose 50% tariffs on “US” goods? Where did they get these “Tariffs Charged to the U.S.A.” figures?
The Formula
With a little research I found that they used a formula.
Seeing that formula triggered my formula anxiety. I needed an explanation.
The Explanation
I found this explanation.
This explanation helped me to understand the math. But what does it mean?
Notice that on the right-hand side of this equation, no reference to tariffs appears. And what does “Change tariff import rate” mean?
Notice that using this formula, you would arrive at a large “Change tariff import rate” for a country that imposed absolutely no tariffs on US goods if sellers in that country sold more goods to buyers located in the US.
So, let’s try an example.
An Example
Many look upon China as the bad guy, and maybe they have a point. But do they really impose a 67.3% tariff on goods sold by businesses located in the US? Do you really believe that a Ford would cost 67% more dollars in China than it would in the US?
I don’t know.
Conclusion
Donald Trump bases his tariff policy on flawed economic hypotheses (not theory). I will explain many of those flaws in future newsletters, but for now, I have only one question:
Has Donald Trump used bad math to sell bad policy?
Check with your local mathematician. And don’t forget to ask, “Why?”
Footnote:
I copied these images from www.usatoday.com. But, I found supporting explanations from other sources.