Trump’s Tariffs: Economic Voodoo at Work

“They are to economics what creationism is to biology, and astrology is to astronomy,” tweeted Larry Summers, former U.S. Secretary of the Treasury. A statement that highlights the sheer absurdity — even outright foolishness — of the tariffs imposed by the Trump administration.

Why then has Lesotho, one of the poorest nations in Africa — and thus in the world — with an annual GDP of just $2.1 billion, been hit with one of the highest tariffs globally, at 50 percent? Is Lesotho somehow extorting the United States, which continues to claim that it is simply applying the principle of reciprocity when it comes to customs duties?

Lesotho is indeed a member of the Southern African Customs Union, which uses a unified tariff schedule. This means Lesotho applies the same import duties on U.S. goods as its fellow member countries — Botswana, South Africa, Namibia, and Eswatini. Based on this, one might expect the U.S. to apply identical tariffs to all countries in that union.

But that’s not what happens. These countries aren’t treated the same at all — they face tariffs of 37, 30, 21, and 10 percent respectively. So what’s going on with Lesotho, which is clearly being singled out and treated far worse than its partners?

Lesotho exports roughly $240 million worth of goods to the U.S. each year, mostly diamonds, while it only imports about $7 million worth of American products. Is this trade imbalance the result of any dishonest or unfair practices? Not at all. In fact, in a country where over half the population lives below the poverty line and earns less than $1,000 per year — that’s under $3 a day — almost no one can afford an iPhone, let alone a Tesla.

So these American tariffs clearly have nothing to do with reciprocity. They’re not a reaction to the duties other countries impose on U.S. goods. Instead, they’re based on the trade deficit the U.S. has with each country — calculated using a simplistic, almost crude method. Since the U.S. runs an almost 100 percent trade deficit with Lesotho, it has slapped on a “discounted” tariff of 50 percent.

But why are countries like Lesotho so angry, when the U.S. isn’t even fully reciprocating, and is instead being “generous” by applying only half the tariff they theoretically deserve?

In my view, there are only two ways to balance the trade deficit between the U.S. and Lesotho: either the U.S. stops importing so many diamonds, or Lesotho’s citizens achieve a standard of living that allows them to buy American gadgets.

This surreal logic also applies to places like Saint Pierre and Miquelon, home to just 5,819 people, which has also been slapped with a 50 percent tariff — mainly on lobster exports to the U.S. For the record, the algorithm used by U.S. authorities had initially recommended a 99 percent tariff on them.

These extreme examples point to a few important takeaways. These tariffs will not lead to a revival of American manufacturing — neither Lesotho nor Saint Pierre poses any kind of threat. The surpluses they run are structural, not strategic. What these tariffs will do is further weaken already vulnerable countries, since their citizens will now be even less able to afford American goods that are now 50 percent more expensive. These measures will only deepen global poverty. They mark a sharp reversal from decades of U.S. policy that preached poverty reduction through a mix of financial aid (which has now disappeared with USAID) and open trade.

Unsurprisingly, a reshaping of alliances across Africa — and globally — is bound to follow these American tariffs. AFRICOM, the United States Africa Command, which oversees military operations and security cooperation on the continent, claims its mission is to promote peace, stability, and partnership in Africa. Its commander, General Langley, recently issued a warning that China is now working to replicate American aid programs in Africa — using them as an extension of its Belt and Road Initiative.