DT 2.0 Tariffs

DT 2.0 used a formula to calculate tariffs based primarily on the trade deficit between the US and each country as a trading partner. The formula converts the trade deficit into a percentage. That is how it gets to tariff rates with a floor of 10% and no ceiling. Essentially, the larger the trade deficit, the higher the tariff. So smaller and poorer exporting countries have higher and higher tariff rates. The formula considers factors like tariffs imposed on US goods along with non-trade factors like currency manipulation and/or intellectual property theft. This approach is aimed at balancing trade deficits and confronting unfair trade practices. (Source: The Hill from multiple reports)

Kotok note: Labels of fair or unfair trade practices are opinions formed by countries, and they differ widely. For example, if I am a poor country, and my wage rates are much lower than yours, and I sell to you at a lower price, am I “unfair” — or am I just poor?

I asked an expert why Trump and Co. selected this bizarre and discredited approach to create its formula. His name is David Blond. He is a former chief economist for the Pentagon, and he worked in the Reagan administration. He subsequently founded QuERI International (http://www.queriinternational.com). He models the entire world in a cross-country trade economic model that was developed by him for the US. Here’s his personal email: davidblond2000@gmail.com.

He answered: 

Apparently, they were applying some random formula to get these tariffs. I guess they realized that trying to administer 2 million individual tariffs (countries in the world times HS6-8 tariff lines was impossible for the government but also for the customs clearance freight agents who would have to get the goods out of customs and pay the costs).

 I asked David for his take on this approach. He said,

I’m shocked by their stupidity and lack of care for the American people’s welfare. I have always thought Trump is the Manchurian Candidate not for the Russians but for the Democrats. Everything he is doing should tie the Republican party to Hoover-like stupidity — that didn’t work well for Republicans for thirty years. In the Reagan years, Trump’s approach would have lasted a few seconds and died quickly on the vine.

Kotok note: “HS6-8 tariff lines” refers to the 6-digit Harmonized System (HS) codes, which are internationally standardized for product classification, and the additional two digits used by individual countries, including the United States, to create more detailed tariff lines for their own national tariff schedules and statistical needs. The Harmonized System (HS): The HS is a standardized system used by the World Customs Organization (WCO) to classify traded products. For example, the 6-digit HS code for “yoghurt” is 0403.10, while a US tariff line for “low-fat yoghurt” might be 0403.10.11. Sources: WTO, WCO

Kotok view — we are in serious trouble as a country now because of this cockamamie scheme. The political pivot needed from DT 2.0 appears impossible without more pain suffered by Americans, who will eventually turn against DT 2.0, and that will trigger change.

I asked David Blond for his approach to the problem. Here’s his answer as a professional. Readers can evaluate this for themselves. We thank him for taking the time to share his model and history with us.

I wrote many an article over the last twenty years about the hollowing out of the American manufacturing sector, but there are good ways to deal with the problem and bad ways. Trump’s tariffs are the wrong way and will yield. If we are lucky, a recession, but if not then a depression if companies choose to lay off workers and shutter plants when demand falls rather than build new, costly, and impossible to staff with skilled workers new plants to replace the 20% plus of US consumption that is imported.

But this next step is so counter to the laws of logic as to be laughable. If you are going to fight a war against the world, then get the facts right. The table below, taken from my integrated global model and dataset that is based on a true set of trade, industry, employment, macro data for 72 countries and over 150 industries of which about 120 are traded commodities, is instructive. The way to read it is to look at the first column showing the share of US production exported to the world. The second column shows the same percent for the rest of the world (71 other countries making up about 90% plus of world gross output). The third column shows how much of the exports of other countries could replace US exports excluding US imports. We would need 27% more skilled labor to replace the lost foreign products net of exports. Good luck on that one.

US Export Share of US Production	Non-US Export Share of Non-US Production	Non-US Exports Share of Non-US Import Demand	ISIC3 Code	Isic 3 Description
0.85071	0.837959	0.666186	C1111	Farming
0.051411	0.008919	0.929571	C1112	Fruits & Vegetables
0.215553	0.072659	0.698416	C1114	Other Agriculture
0.102929	0.020318	1.069722	C1121	Animal Husbandry
0.133588	0.119913	0.591265	C1133	Agricultural Materials
0.008912	0.026545	0.887274	C1150	Agricultural Support Activities
0.119276	0.473805	0.863526	C2110	Oil & Gas
0.63981	0.34528	0.561035	C2122	Metal Ore Mining
0.076644	0.107917	0.826091	C2123	Nonmetallic Minerals Mining
0.003445	0.01577	0.898637	C2131	Mining Support Activities

The table above is an illustrative excerpt from a comprehensive data set supplied by David Blond. Readers can download the data set, with David’s preface, as a PDF at this link: https://davidkotok.com/wp-content/uploads/2025/04/DT-Tariffs-David-Blond-Tables.pdf.