Trump Declares A Trade War On Uninhabited Islands, US Military, And Economic Logic

Economics

from the when-you-don't-understand-trade,-everything-looks-like-theft dept

There’s a fundamental problem with Donald Trump’s new trade policy: it fails a test that actual 5th graders can pass. I know this because I tried explaining his “Liberation Day” trade plan to one last night. Here’s how that conversation went:

“Imagine you want to buy a toy at a store which costs $50. You pay for the toy and walk away with it. The President looks at that transaction and says ‘wait, you paid the store $50 and the store paid you nothing, therefore the store is stealing from you. To “fix” this, I’m going to tax the store $25. From now on that same toy costs $75.”

The 5th grader looked at me like I was crazy. “Whaaaaaaat? None of that makes sense. If I pay for something, it’s not stealing. And taxing the store seems stupid, and then everything is more expensive. Why would anyone do that? That can’t be how it works.”

This is the core problem with Trump’s “Liberation Day” trade policy: it fundamentally misunderstands what trade deficits are. And if you think that’s bad, just wait until we get to the part where this policy declares economic war on penguins and our own military base.

The policy, unveiled yesterday afternoon, is called a “reciprocal tariff plan,” which is a bit like calling a hammer a “reciprocal pillow.” The premise is that since other countries have high tariffs on us (they don’t), we should have high tariffs on them (we shouldn’t). But that’s not even the weird part.

At the heart of this policy is a chart. Not just any chart, but what might be the most creative work of economic fiction since, well, Donald Trump launched his memecoin. Trump proudly displayed these numbers at a White House event, explaining that they showed the tariffs other countries impose on the US. He emphasized repeatedly that the US was being more than “fair” because our reciprocal tariffs would be less than what other countries were charging us.

There was just one small problem: none of the numbers were real tariff rates. Not even close. Vietnam, according to the chart, imposes a 90% tariff on US goods. This would be shocking news to Vietnam, which does no such thing.

At first, observers assumed the administration was simply inventing numbers, which would have been bad enough. But the reality turned out to be far more stupid. James Surowiecki stumbled into what was actually happening:

Let’s pause for a moment to appreciate what Surowiecki discovered. The administration didn’t just make up random numbers — that would have been too simple. Instead, they invented a formula that manages to be both more complicated and more wrong: they took our trade deficit with each country and divided it by that country’s exports to us.

So for Indonesia, the math went like this:

• US trade deficit with Indonesia: $17.9 billion
• Indonesia’s exports to the US: $28 billion
• $17.9B ÷ $28B = 64%
• Therefore (according to this logic), Indonesia must be charging us the equivalent of a 64% tariff

This is roughly equivalent to calculating your coffee shop’s markup by dividing how much coffee you buy from them by how much coffee they buy from you. Which would make sense if you were in the coffee business, but you’re not.

When confronted about this methodology, the administration didn’t backtrack. They just admitted it:

“The numbers [for tariffs by country] have been calculated by the Council of Economic Advisers … based on the concept that the trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating,” a White House official said, calling it “the most fair thing in the world.”

Whoever on the Council of Economic Advisers used this formula should turn in their econ degree, because this is not how anything works. Even if they then go on to publish another version of the formula that looks all sophisticated and shit:

This is what happens when you ask ChatGPT to “make my wrong econ math look more scientific.” The document even admits that they couldn’t figure out the actual tariff rates, so they “proxied” them with this formula instead. That’s a bit like saying you couldn’t find your house keys, so you proxied them with a banana.

The fundamental problem here isn’t just that the tariff numbers are wrong — though they absolutely are. It’s that the entire premise rests on treating trade deficits as if they were tariffs. They’re not the same thing. At all.

Let’s back up for a moment and talk about trade deficits, because Trump has been getting this wrong for longer than some of his supporters have been alive. His logic appears to be:

1. “Deficit” sounds bad
2. Therefore, trade deficits must be bad
3. Therefore, countries with whom we have trade deficits must be cheating us
4. Therefore, we should punish them with tariffs to “level the playing field”

Remember that 5th grader from earlier? They already understood what Trump doesn’t: when you buy a toy for $50 at a store, you have a “trade deficit” with that store. You gave them $50, they gave you $0. But you also got a toy. That’s not the store cheating you — that’s just how buying things works.

A trade deficit between countries works the same way. When we have a trade deficit with a country, it just means we bought more stuff from them than they bought from us. We got the stuff. They got the money. That’s it.

Trump’s solution to trade deficits (which aren’t a problem) is to impose tariffs (which don’t help). In fact, they can often make things worse. According to actual economists who study this stuff, higher tariffs can actually lead to higher trade deficits, not lower ones.

Joseph Gagnon, one of the world’s foremost experts on trade deficits, explains exactly why this is such a bad idea:

Although tariffs do not reduce trade deficits, they do reduce imports and exports, as well as total income. That’s because they force a country to shift resources from more profitable exports to less profitable imports, as well as to services. But the long-run economic effects are also negative. By shielding producers from foreign competition, a tariff ultimately leads to less business innovation, slower productivity growth, and lower household living standards.

You might notice something about that paragraph. It starts by describing how tariffs hurt the economy in the short term. Then there’s a “but” — which usually signals some kind of silver lining. Instead, it just pivots to explaining how tariffs hurt the economy even more in the long term.

Cool.

So we have a policy that:

1. Is based on a fundamental misunderstanding of trade deficits
2. Uses made-up numbers derived from a nonsense formula
3. Would actually make the “problem” it’s trying to solve even worse
4. Will definitely make Americans poorer

But wait, it gets better.

All of this glosses over the fact that “reciprocal tariffs” are not reciprocal at all. Trump’s team is making up fake tariff numbers for foreign countries based not on anything having to do with tariffs, but on trade deficits, which is just an accounting of inflows vs. outflows between two countries. It’s only reciprocal because the Trump team faked the numbers.

On top of that, Trump can only impose tariffs (normally a power of Congress) based on the International Emergency Economic Powers Act and the National Emergencies Act. Both laws require there to be an actual “emergency.” The only emergency here is that nobody in the administration understands what trade deficits are.

But at least we may know where they got their brilliant formula from. There has been some suggestion that the administration got the idea from AI — specifically from asking a large language model how to calculate “fair” tariffs based on trade deficits. And yes, when asked “What would be an easy way to calculate the tariffs that should be imposed on other countries so that the US is on even-playing fields when it comes to trade deficit? Set minimum at 10%,” several AI models did suggest something similar to the administration’s approach.

But here’s the thing: every single AI model also included very clear warnings about why using this formula would be catastrophically stupid. I tested this myself with multiple LLMs (Claude, Gemini, DeepSeek, Llama, and Copilot), and they all basically said “Well, if you insist on doing something this economically illiterate, here’s how you could do it, BUT PLEASE DON’T.”

My favorite was DeepSeek, in which I had its reasoning turned on, and it seemed particularly perplexed as to why I would try to balance trade deficits with tariffs, but felt resigned to do so:

That’s a little small to read, but it says:

Wait, but is this the right approach? I mean, tariffs can have various effects. If you impose a tariff, it might lead to retaliation from other countries, which could hurt US exports. Also, higher tariffs could increase prices for consumers in the US, which isn’t great for the economy. But the user is specifically asking about balancing the trade deficit, so maybe those considerations are secondary here.

Yeah, that’s literally DeepSeek grappling with the fact that the user here (the US government) is asking for a fundamentally stupid thing without understanding the consequences.

The administration appears to have taken only the formula and ignored all the warnings. Which would be merely sad if they were just playing with theoretical numbers. But they’re not. They’re actually implementing this policy, using emergency powers that are supposed to be reserved for actual emergencies — not “we don’t understand how trade works” emergencies.

Which then brings us around, finally, to the penguins.

Because MAGA’s best economists are implementing it so mechanically, applying their formula to every country in what appears to be the CIA World Factbook, we end up with some truly spectacular results.

Let’s take a closer look at the very last page of the administration’s tariff list:

Now, you might notice a bunch of these entries show a flat 10% tariff rate. That’s what happens when a “country” has no trade with the US at all — the formula defaults to the minimum. A mildly competent team might have wondered why these places have zero trade with us and done a quick check before declaring economic war on them.

But this team isn’t mildly competent. This team is extremely, profoundly, impressively incompetent.

So let’s look at who exactly we’re launching a trade war against, starting with the Heard and McDonald Islands. Total population: zero human beings. The only residents are some absolutely stunning penguins. You can actually adopt one if you want — though I suppose that may now cost 10% more, thanks to Trump’s tariff.

But that’s not even the best part. Just a few lines up, you’ll find the “British Indian Ocean Territory,” also known as the Chagos Islands. Nearly all of the humans currently on these islands are US military personnel at the Diego Garcia base. And they’re only there because, as detailed in a recent Behind the Bastards podcast, the British government forcibly expelled all the native inhabitants to lease the territory to the US military.

Let that sink in for a moment: Donald Trump just imposed tariffs on our own military base. On territory we lease. Where the only residents are US military personnel.

So to sum up where we are:

1. The administration invented an economic emergency
2. To justify a policy based on made-up numbers
3. Generated by an AI formula that came with explicit warnings not to use it
4. Which they’re now using to launch trade wars against:
   • Penguins
   • Our own military
   • And presumably Santa’s Workshop (someone check for a North Pole entry)

And while the penguins and military base make for amusing examples of this policy’s incompetence, the real damage will come from applying this same backwards logic to basically all of our actual trading partners — countries whose goods and services make American lives better and whose economic relationships we’ve spent decades building. And who, historically, welcomed back American goods and services as well. All of that is now at risk because someone couldn’t be bothered to learn what a trade deficit actually is. And the American electorate deciding that’s who we wanted to govern the country.

When your trade policy is so fundamentally misguided that you’re declaring economic war on flightless birds and your own armed forces, perhaps it’s time to admit that the 5th grader from the beginning of this story wasn’t just smarter than the administration — they were dramatically overqualified for Trump’s Council of Economic Advisers.

Filed Under: biot, chagos islands, diego garcia, donald trump, economics, heard and mcdonald island, liberation day, motherfucking penguins, penguins, reciprocal tariffs, tariffs, trade deficit, trade war