Trump’s “Economic Liberation Day” and the Tariff Illusion
Cracking the Code, Reading Between the Lines and Looking Behind the Rhetoric
Yesterday, President Trump declared “Economic Liberation Day”, calling it one of the most significant days in U.S. history. However, much of what he said seemed confusing and required decoding.
After some analysis, I think I’ve cracked the code.
The ‘Reciprocal Tariffs’, as he calls them, are set out below:
The Mystery of Reciprocal Tariffs
Trump’s claims about tariffs imposed on U.S. goods by other countries don’t hold up under scrutiny. Let’s break them down:
Europe’s 20% “Tariff”
Trump claimed that Europe imposes a 20% tariff on U.S. goods in the form of VAT (Value Added Tax). But VAT is simply a sales tax applied to all goods and services - even those supplied domestically in Europe - just like state sales taxes in the U.S. His team appears to have misunderstood or misrepresented how VAT works.The UK’s 10% Tariff
Trump stated that the UK applies a 10% tariff on U.S. imports. That’s blatantly false - there has been free trade between the U.S. and UK for decades.Made-Up Numbers
Many of the tariff rates Trump mentioned seem to be completely fabricated. His team attempted to justify them by claiming they account for both tariff rates and some undefined "non-financial barriers." In reality, this seems to be an attempt at obfuscation.
Cracking the Code: Where Did These Numbers Come From?
Trump’s team appears to have calculated these so-called tariffs using a flawed formula:
Take the U.S. trade deficit with a country
Divide it by that country’s exports to the U.S.
Call the result a “tariff”
Here are some examples:
The EU: Exports ~$605.8 billion, imports ~$370.2 billion. Trade deficit = $235.6 billion.
235.6 ÷ 605.8 = 39% (Trump’s number).
Indonesia: Exports ~$28 billion, trade deficit = ~$17.9 billion.
17.9 ÷ 28 = 64% (Trump’s number).
Israel: Exports ~$22.2 billion, trade deficit = ~$7.4 billion.
7.4 ÷ 22.2 = 33% (Trump’s number).
Additionally, if a country’s trade deficit was less than 10% - or if the U.S. had a trade surplus - Trump’s team simply listed it as 10%. That’s why countries like the UK and Australia, which don’t fit the narrative, were still given a 10% tariff figure.
Trump’s team also ignored services trade, where the U.S. actually runs a huge surplus with most countries. That omission drastically skews the numbers.
The Bottom Line
Trump’s so-called list of foreign tariffs against the US aren’t tariffs at all - they’re a misrepresentation of trade deficits, dressed up to justify new trade policies. The numbers don’t reflect actual tariffs imposed by other nations but are instead a misleading statistical trick.
“Economic Liberation Day” or “Economic Fraud Day”?
You decide.
I don't blame you, most American's can't understand VAT because it's a strange concept. It's _not_ like a sales tax. Sales tax is paid by consumer at the point of purchase and remitted to taxing authority (the state, in the US). VAT is paid by the consumer at the point of purchase as well but that's where the similarity ends. From that point on, the VAT merchant has paid on all their purchases is deducted from that VAT collected (on behalf of taxing authority). So VAT is shared by all the stages of the value chain _FOR DOMESTIC CONSUMPTION_. And this is where Trump gets pissed off. When the good is exported, the exporter get's to claw back all the VAT. So yes, he's right that when a US good goes to EU, the price gets jacked up 20%. And when EU good goes to the US, the price is reduced 20%.
VAT is great for taxing consumption, but it does double duty as tariff in international trade.
Thank you.