Since taking office, U.S. President Donald Trump has constantly stirred global reactions with his tariff decisions. Whether it's imposing more tariffs on China or announcing a sudden 25% tariff on India, have you ever wondered how these tariffs are determined? Is it just an arbitrary decision made by Trump, or is there a formula behind it all?
A while back, a report from the White House was presented, which illustrated how tariffs for different countries are decided. It's not about whims; there's a straightforward mathematical formula in place for tariff calculations. The U.S. applies this formula consistently, whether it's for countries like India, China, or anywhere else. Let's explore this formula and understand how these tariffs are computed.
How are Trump's Tariffs Decided?
On April 2nd, when Trump announced the tariffs, a chart detailed each country's tariff rate. The U.S. also shared a formula that, at first glance, seems like a complex math problem.
Source: aajtak
However, if you dive into the formula, it's actually simple arithmetic. Take the U.S. goods trade deficit with a specific country, divide it by the total goods imported from that country, and then divide that number by two.
Let's break it down with the example of China and the U.S. Suppose the U.S. trade deficit is $295 billion, and it imports goods worth $440 billion from China. By dividing $295 billion by $440 billion, you get 67%. Dividing this by 2, you arrive at a 34% tariff on China. Similarly, using this calculation, a 25% tariff was announced on India.
What is a Trade Deficit?
A trade deficit occurs when a nation's imports exceed its exports in monetary terms. This financial gap, where import costs outstrip export revenues, defines the trade deficit.
25% Tariff on India
On Wednesday, Trump declared a 25% tariff on India, citing penalties for purchasing oil and defense products from Russia. Initially set to take effect from August 1st, the deadline was postponed by a week to August 7th.
Current Status of U.S.-India Trade Talks
The fifth round of U.S.-India trade talks has concluded, with the sixth round slated for August 25th. However, Trump's tariff announcement may complicate these discussions.
The U.S. aims to pressure India into reducing agricultural and dairy tariffs favorable to U.S. interests. Nevertheless, India stands firm on its policies, stating that every possible measure will be taken in the country's interest, with no compromises on these sectors.
