We strongly recommend that a baseline tariff amount be enacted as proposed here, giving the Administration limited ability to negotiate on specific products based on these amounts and removing blanket authorization to declare an emergency to work around the enactment of detailed tariff policies.
These proposed tariff rates are based on the value added taxes of our trading partners. We have also provided information on national gross domestic product in purchasing power parity terms (based on data originally calculated by the International Monetary Fund for 2022, the most recent year available in the vast majority of countries). These percentages were used to adjust the balance of trade figures currently available from the World Population Review.
As we explained in April, until the United States adopts its own Value Added Tax System, as we have proposed for the past ten years, it could fund domestic military and civilian discretionary spending - with the higher rate including what is now collected by employers for Old Age and Survivors Insurance. Without such a tax, the enactment of tariffs is necessary to compensate for the lack of one, while those nations who use this levy zero rate it at the border, which damages U.S. competitiveness.
Dealing with this issue is a main driver behind the President’s efforts to impose a tariff policy. Sadly, the Administration’s imposed tariffs were initially based on total trade amounts by a logic that I cannot understand. The proper metric, if dealing with the national economies of our trading partners, is to adjust trade margins as explained above, but this calculation would mainly be to use tariffs to increase their economies for the benefit of their citizens, while holding American firms harmless from trade relationships that exploit overseas workers, while robbing American workers their jobs.
Correcting this circumstance was one of President Trump’s main promises, although most of his base did not realize that this would be inflationary unless other taxes were reduced through tax reform. Imposing tariffs before tax reform is enacted has put the cart before the horse. This is why tariff policy should move back to Congress, which should also engage in bipartisan reforms along the lines that we first proposed in 1998.
Sadly, the horse has already left the barn, so tariffs need to be rationalized as soon as possible. They should be based on the exporter's value added tax rate that was zero rated at the border. Let us offer some examples. Canada has a Goods and Services VAT at the Dominion and Provincial levels. The tariff for each trading partner needs to be at least that much. Most Canadian provinces have a 5% rate, while Ontario’s rate is 13%. I offer these in case we wish to enact rates for each province.
The proposed rates in the attachment largely mirror VAT rates for each nation, although different rates were proposed for some nations. If our trade surplus, adjusted as described above, is less than the VAT, the proposed rate is decreased by that amount. If we run a larger surplus, the VAT rate is used as our trading relationship will not be damaged by enacting the higher amount.
Tariffs for most developing nations were based solely on their VAT rates, as increasing tariff rates to purchasing power parity/trade deficits would effectively stop trade with these economies. The exception to this is for major importers, such as China, Taiwan or Bangladesh, where armies of exploited low wage workers dump products on the American economy.
GDP, adjusted for purchasing power parity and the size of the American economy as expressed as an inverse relationship are provided. Thus, if an economy is only 10% of the American economy, the percentage difference in the table is 90%. This is most of Africa and much of the world. Tariffs on these nations should not include this adjustment in raw form, as this would result in trade embargos without helping overseas workers at all.
These percentages were used as an adjustment to trade deficit percentages with the U.S., with positive numbers showing a U.S. surplus and negative indicating a trade deficit. Even these amounts would severely damage trade, but because they fit, in general, with the President’s apparent rationale as first proposed, they are provided for information.
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