Donald Trump’s technique for calculating trade duties on frozen islands primarily home to penguins has a serious side: it is also having a significant negative impact on some of the world’s poorest countries.
The calculation is straightforward: the US “reciprocal” tax, with a floor of 10%, is calculated by dividing the country’s exports to the US by the US goods trade deficit, halving the result. Thus, a 10% tariff was imposed on the Antarctic McDonald Islands and the volcanic Australian possession of Heard Island. You could say that the penguins were treated carelessly.
However, Madagascar, one of the world’s poorest countries with a GDP per capita of just over $500, is subject to a 47% duty on the tiny $733 million in textiles, metals, and vanilla exports it made to the US last year.
In a sarcastic allusion to Madagascar’s unlikely capacity to appease Trump by purchasing upscale US goods, John Denton, head of the International Chamber of Commerce (ICC), told Reuters, “I assume no one is buying Teslas there.
Madagascar is not alone: a sizeable reciprocal tally is always the result of the formula’s bluntness when applied to countries that cannot afford to import much from the US: 49% for Cambodia in Southeast Asia and 50% for Lesotho in Southern Africa. The measure “risks further damaging the development prospects of countries already facing worsening terms of trade,” Denton said, adding that Africa and Southeast Asia stand to lose the most.
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