An Applause for Moderation on Tariffs

On April 2nd, 2025, President Donald Trump announced sweeping tariffs on around 90 nations around the globe. In a move propagandized as "Liberation Day", the President shocked the investing public and leaders around the globe. Some countries were hit with tariffs of above 40% such as Vietnam, Madagascar, and the Falkland Islands. Others were hit with just the flat rate of 10% charged to every country. Experts were puzzled at how the rates were calculated. The President and his team described the tariffs for weeks as "reciprocal", basically charging other countries to import into our country what they charge us to import into their country. It sounds fair right? However, Trump's trade team also sited "non-tariff barriers" as reasons for additional American tariffs. This proves to be difficult to quantify as many countries have a Byzantine and often corrupt regulatory system. As described in a recent article by the Wall Street Journal, the rates were calculated based on the US's trade deficit with each particular country rather than any sort of nuanced approach. It was simply, "we have a trade deficit so they must being doing something to stop our trade!" Well poor countries like Lesotho & Madagascar would beg to differ. The two African nations do have large trade deficits with the US, but not for the reasons Trump would like to eliminate.

As described in a recent New York Times article, Lesotho is a country of about 2.3 million people with a total GDP of about $2.1 billion. That is a GDP per capita of about $900. The impoverished people of the landlocked African nation were ecstatic when Chinese & Taiwanese companies built factories there to manufacture denim for US clothing companies Levi & Wrangler. According the NYT article, about 70% of Lesotho's trade goes to the US, so the 50% tariffs inflicted on "Liberation Day" were a gut punch. Tens of thousands of jobs could be lost by this action. Why doesn't Lesotho buy goods from America? Well, they can't afford to. US goods are too expensive for most Lesothoians, and the country doesn't really need what the US produces.

Madagascar is a poor island nation off the coast of continental Africa mostly known in the US for the popular series of DreamWorks films from the 2000s. The country is mostly a mountainous jungle, and, like Lesotho, extremely impoverished. With a population of about 27 million people, its GDP is roughly 15.7 billion. That is a GDP per capita of around $600. The country is one of the few places in the world that vanilla beans can grow at volume. The US imports thousands of tons of this sweet product to mix in our ice cream and lattes. Like Lesotho, Madagascar cannot afford expensive US made goods and has a massive trade deficit with the US.

For these and many other hilarious reasons, the Trump trade policy has been lambasted as rushed and poorly thought out. The President has a desire to bring manufacturing jobs back into the US, an admirable goal, but one I find to be difficult to achieve. This is why I applaud today's announcement of a 90 day pause in tariff implementation for most countries. All countries will still face Trump's baseline 10% tariff, but they will temporarily be spared the "retaliatory tariffs" so triumphantly presented at last week's "Liberation Day" event. Hopefully the President will get what he wants out of this trade war and move on to more important issues.