Why is there a trade deficit with a country if there aren’t trade barriers or other unfairness, such as China’s weaker labor laws and environmental laws? Mathematically, “free trade” treats those things as a “comparative advantage” but we don’t have to pretend that reflects reality.
The formula simply reflects the premise that, in a fair system, trade deficits would average out to zero. It also escalates the tariffs as the trade deficit goes up, and reduces them as the other country imports more of our goods. It’s an elegant formula.
The formula simply reflects the premise that, in a fair system, trade deficits would average out to zero. It also escalates the tariffs as the trade deficit goes up, and reduces them as the other country imports more of our goods. It’s an elegant formula.