[graeme]

Someone calculated the formula used. They divided the trade deficit of each country by total trade of each country and assumed that was all a tariff.

So for example Indonesia and the US traded $28 billion. The US has a 17.9 billion trade deficit with Indonesia. 17.9/28 =0.639, or 64%, which is assumed to be all caused by tariffs. So they divide by two and impose 32%.

Anyway no the US isn't matching tariffs they're dramatically exceeding them.

[googlehater]

Thanks for pointing this out. As a follow up, if the US has a trade surplus, they seem to just slap 10% in both columns.

[tim333]

That's a bit of a messed up way to calculate things.

I also think the US deficits are hugely overstated because much of what the US produces is intellectual capital rather than physical goods and the profits are made to appear in foreign subsidiaries for tax reasons. Like if I buy Microsoft stuff in the UK, Microsoft make out it was made in Ireland for tax purposes, but really the value is created in and owned by the US. The US company both wrote the software and owns Microsoft Ireland. So much of the perceived unfairness Trump is having a go at isn't real.

[peterbecich]

You raise an excellent point that US corporate tax evasion is exaggerating the trade deficit. However, from the perspective of winning US elections, I think it does not change the issue that the trade deficit falls more on de-industrializing Midwestern states, and the corporations you are referring to are concentrated in Northeastern and Western states.

Secondly, if Microsoft or Apple makes the profit appear in Ireland, it cannot move that money back to the domestic US, right? So as long as the money sits overseas, it would not count towards US trade and thus the deficit calculation is fair.

[oezi]

They don't move the profit back to the US, but through Ireland and the Netherlands they move it out of the EU mostly to some tax havens in the Caribbean. From there they use them for their stock buybacks, which I think equals mostly flowing back into the US.

[disgruntledphd2]

This is no longer true. Said loophole was eliminated in 2017, and completely closed in 2020.

[pishpash]

Again, not flowing back to the right people. All of this could have been solved by sane redistribution, but no. It'll still be redistribution but in a cruder, less apparent form.

[graeme]

If the profits went back to Apple HQ directly they would serve to raise the share price and allow stock buybacks and stock based compensation for employees. Same as they do now.

You may not like a tech company succeeding at exports and having a rising share price, but that is distinct from the overall point which is that properly considered these are US exports obscured by the US tax code which incentivizes profits abroad.

[graeme]

That's a great point. I checked into this, and if and when the profits are repatriated they indeed only show up in the capital account, not the current account.

However, in practice even if not repatriated those exports show up in the us economy. Profits raise the share price, which allows stock grants at higher values, effectively a wage as one example.

I wonder how big an effect this phenomenon you highlight has. Must be a fairly large overstatement of the US trade deficit.

[Buttons840]

If the US has a trade deficit, doesn't that mean the US is trading make-believe pieces of paper for real goods.

Like, if I scribble on a piece of paper and then trade you the piece of paper for an incredibly engineered brand new laptop, is that bad for me? Is this a sign of my weakness?

I know economics can be complicated, and probably "it depends", but why is a trade deficit bad? Why does the Trump administration want to eliminate trade deficits?