Everyone gets a Chevy Tahoe
The madness of Trump's tariffs, through the lens of two middling American trading partners in the Middle East
I had planned to write about something else today, but that seems a bit pointless when the whole world is talking about Trump’s tariffs. When it comes to trade with the US, the Middle East is a trivial player compared to Europe, Asia and North America. But the region offers a good example of how these tariffs are divorced from any real economic logic.
Jordan signed a free-trade agreement (FTA) with America in 2000. It was the first Arab country to do so. The deal required both countries to eliminate customs duties, which they did over the following years. Before the FTA Jordan charged tariffs of 30% on American hamburger and up to 48% on American sneakers. Today those rates are zero.
Don’t take my word for it: you can check the tariffs yourself from the US government’s own data. Even where Jordan ordinarily charges tariffs on goods, it makes exemptions for US-made ones.
Contrast Jordan with Egypt, which is fond of putting walls around its domestic economy. It has no free-trade agreement with the US. If you’re an American manufacturer of wooden office furniture (the customs categories are really specific), you’ll face a 60% tariff on your exports to Egypt, the same rate as everyone else: there are no exceptions to the levy. Egypt has a big furniture industry and uses tariffs to protect it. The same goes for a bunch of other sectors, from 10% on cheese to 30% on motors.
The White House insists the tariffs announced on April 2nd are “reciprocal”: if you charge us, we charge you. You would thus expect it to impose much higher levies on high-tariff Egypt than zero-tariff Jordan. In fact, the opposite happened. Jordan was hit with a 20% tariff rate, implying that it imposes a 40% burden on American goods. Egypt got away with only the 10% base rate applied to all countries.
We know, of course, that these tariffs aren’t actually “reciprocal”. The White House calculated them with the crudest possible formula: dividing America’s trade deficit with a country by that country’s exports to America. (In a moment of real comedy, Trump’s deputy press secretary confirmed this was the methodology while he was attempting to deny it.)
That is why Jordan was hit harder. America has become Jordan’s largest export market, accounting for 21% of its total exports. A lot of American textile firms, in particular, piled into the country after the FTA was signed. Jordan now exports more than $1.7bn worth of clothing to America each year—more than 11% of its total goods exports to the entire world. It runs a trade surplus with America, while Egypt runs a deficit. Hence the divergence in Trump’s tariff rates.
That’s also why Syria was hit with a 41% tariff. It is a desperately poor country with an economy ruined by a decade of civil war. It exports little to America and can afford to import even less. In percentage terms, it runs an enormous trade surplus. Never mind that its entire balance of trade with the US is a piffling $13m (mostly spices and pickles): if you just divide two numbers, devoid of any context, it looks like Syria is an economic juggernaut determined to exploit long-suffering American pickle producers.
If you are a Jordanian official, you are probably desperate to get these tariffs reduced or removed: they are a painful blow to your economy, which depends on exports to America. How might you do that?
Were they truly about “reciprocity”, you could ask to have them lifted immediately. After all, you cannot drop tariffs on US-made goods lower than zero. Perhaps the White House would counter that you still have some non-tariff barriers to trade. The president, for example, has a novel theory that value-added taxes are a kind of tariff. That is nonsense (they apply to all goods, even domestic ones). Still, the administration might ask you to lower it. But you will politely ignore that request.
You do charge a hefty 60% sales tax on imported cars, which serves as a way for your cash-strapped state to pad its revenues by taxing people with enough money to afford a private car. Maybe you could offer an exemption for American vehicles. But that would upset your other trading partners, who might demand similar exemptions. You’ll blow a big hole in your budget (which, by the way, America supports with an annual financial-aid package).
What’s more, the tax doesn’t seem to have deterred your citizens from buying American cars. Roughly 11% of Jordan’s car imports by value are US-made, around four points higher than America’s share of the global auto-export market.
So there’s not much you can do on reciprocity. Again, though, we know that isn’t the real issue: the balance of trade is. But you are a lower-middle-income country that runs a $1.4bn trade surplus (3% of your GDP) with America. It’s unclear how you can gin up enough extra demand for American products to balance the ledger.
Your largest imports are oil, which you mostly get from your neighbors (because they are, you know, nearby); cars, which you already buy a bunch of from America; and gold. Maybe the king could require every Jordanian drive a Chevy Tahoe.
There’s another option, of course: you could export less to the US. That would be painful in the short term. Your factories have spent years building a supply chain that serves the needs of American buyers. But there are probably fashion houses in Europe, Asia and the Gulf that would be happy to manufacture clothes in Jordan. Maybe over time you can start to reorient your supply chains away from America.
Meanwhile, your high-tariff neighbor Egypt has an incentive to do nothing. On the one hand it has little reason to ease tariffs on American goods: it received a preferential rate from Trump despite being protectionist. At the same time, it might be cautious about trying to grow its exports. The tariffs on Jordan could be an opportunity for Egypt, which has its own big textile industry, to scoop up new business. But that risks pushing it toward a trade surplus with America, which might upset the man in the White House.
No one benefits from any of this. Countries like Jordan will take an economic hit precisely because they lowered trade barriers with America and built competitive firms. Countries like Egypt will have no reason to fix the myriad inefficiencies and barriers that hobble their own economies—not if we’re in an era when exporting goods to the world’s largest economy is seen as a bad thing.
And what about America? It’s not about to discover some enormous untapped vein of demand for US-made goods in Jordan. Even if Jordan can balance its trade, it will add a mere 0.07% to American exports. Nor will it put thousands of Americans to work sewing cheap sweaters. Whether that is even a desirable outcome is a separate question: we’re back to an era before the theory of comparative advantage.
What it will do is damage America’s relationship with a close regional ally—and encourage that ally to start delinking its economy from America’s. Also: Weakening Jordan’s already sluggish economy, at a moment when the country and the region are a tinderbox, seems like a risky idea!
There are other, stronger examples of this elsewhere: high tariffs on a country like Vietnam, for example, seem utterly bonkers at a time when Trump also wants to contain China and push American firms to move their supply chains elsewhere. The tariffs themselves make no sense. And if you put them in a broader geopolitical context they almost seem tailor-made to sabotage, rather than promote, American interests around the world.