Introduction to the Trade Policy Debacle
The recent announcement of the White House’s latest trade policy has left many people baffled. President Donald Trump unveiled a plan that includes a 10 percent baseline tariff on all imports into the US, as well as high rates on specific countries. The tariffs are supposedly based on "tariffs charged to the USA," but the numbers don’t seem to add up.
Where Did These Numbers Come From?
Economist James Surowiecki discovered that the numbers can be recreated by taking a given country’s trade deficit with the US and dividing it by their total exports to the US. Halve that number, and you get a "discounted reciprocal tariff." The White House claims to have used a different formula, but it looks suspiciously like Surowiecki’s method.
The Role of AI Chatbots
It turns out that several major AI chatbots, including ChatGPT, Gemini, Claude, and Grok, recommend a similar formula when asked for an "easy" way to solve trade deficits. When asked to provide a solution to balance bilateral trade deficits, these chatbots suggest dividing the trade deficit by the total exports and then halving the result. This raises questions about how the White House came up with their numbers and whether they relied on similar oversimplified calculations.
Testing the Chatbots
The Verge tested the chatbots with different phrasing and questions, and the results were consistent. All four platforms gave the same fundamental suggestion, with some variation in the details. For example, Grok and Claude suggested halving the tariff figure to generate a "reasonable" result, while Gemini warned about the potential negative consequences of using this approach.
The Potential Consequences
The chatbots caution that there are tradeoffs and complications to using this oversimplified approach. Gemini, in particular, warns that "while this calculation offers a seemingly straightforward way to target bilateral trade deficits, the real-world economic implications are far more complex and could lead to substantial negative consequences." Many economists argue that tariffs are not an effective tool for balancing trade deficits, and the potential consequences of these tariffs could be severe.
The Future of Global Trade
The world will be watching to see if these tariffs come into effect on April 5th. If they do, it could have significant implications for global trade. The Trump team’s back-of-the-napkin math could lead to sharp price hikes on almost everything, and stock markets have already plummeted in response to the announcement.
Conclusion
In conclusion, the White House’s latest trade policy has raised more questions than answers. The use of oversimplified calculations and the potential reliance on AI chatbots has sparked concerns about the effectiveness of these tariffs. As the world waits to see what will happen next, one thing is clear: the consequences of these tariffs could be far-reaching and devastating for global trade.
