After US President Donald Trump unveiled a massive tariff chart in the Rose Garden on Wednesday, announcing 10 per cent tariffs on all countries, and detailing higher reciprocal tariffs on what he called the “worst offenders”, a wave of questions rippled across the globe.
Why, for instance, are imports from Vietnam – a Southeast Asian nation the US has courted in recent years to counter China in the region – facing a staggering 46 per cent tariff?
‘How did South Korea products end up with a 25 per cent tariff?
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Or Taiwan’s goods face 32 per cent, Switzerland’s 31 per cent and Indonesia’s 32 per cent?
How exactly did Trump and his tariff team arrive at these figures?
According to White House Deputy Press Secretary Kush Desai: “We literally calculated tariff and non-tariff barriers”, sharing a maths formula on social media.
While the formula, replete with Greek symbols, may appear complicated to those who do not like maths, it is apparently quite simple.
Indeed, many US economists say it is too simple and note that different methods might have led to results the Trump administration does not want.
Some others, however, argue that a formula can be used as a tool in trade negotiations, calling it “poor economics” but a “reasonable approach”.
Whether it makes sense, the formula’s deployment against all US trade partners at once has effectively sparked the biggest trade war in nearly a century.
In less than 24 hours, the fallout has ranged from a steep dive in global equity markets to a call by the leader of Washington’s oldest ally – France – for companies to pause investments in the US.
After imposing a baseline of 10 per cent on all trading partners, Trump claimed on Wednesday that in assessing the tariffs that a “worst offender” charged the US, his team included “currency manipulation and trade barriers” to arrive at the total.
But the White House apparently took the US trade deficit with a country, then divided the deficit by the total dollar value of imports from that country – and then divided that result by two.
That way, Trump said on Wednesday, “we charge them less, so how can anybody be upset?”
For example, Chinese imports face reciprocal tariffs of 34 per cent. To calculate that, the Trump team apparently took the annual US trade deficit with China, US$295 billion, then divided that by the value of imports the US buys from China, US$440 billion.
That calculation results in 67 per cent, the overall tariff figure Trump claimed on Wednesday was the level of China’s tariffs on US imports. By halving that and rounding up, the result was a US reciprocal tariff on Chinese imports of 34 per cent.
This short cut works with every country listed.
“The formula seems to assume that in the absence of trade barriers, the bilateral trade deficit and surplus would be zero,” said Alex Durante, a senior economist at the Tax Foundation, a non-partisan policy group in Washington.
This assumption, Durante said, was “seriously mistaken”.
“Ideally, to calculate a reciprocal tariff, you would just find the average tariff rate for each country, and then the US would adjust its rate to match that,” he said.
Non-tariff barriers, like a country’s import regulations, are harder to measure, Durante noted – though some models try to do so.
He suggested that the office of the US trade representative, which prepared the chart, did not pursue this approach because “they would not like the answer it would give, because it would imply much smaller increases or possibly even small decreases in our tariff rates in some cases”.
Nancy Qian, an economist at Northwestern University, warned that assuming that every bilateral trade deficit should be zero “does not make sense in a multilateral world”.
“If China sells sneakers to the US, the US sells services to Europe, and Europe sells luxury goods to China, each bilateral relationship will exhibit a trade imbalance, despite perfectly fair and healthy relationships”, she said.
Paul Krugman, a Nobel laureate economist at the City University of New York, told MSNBC that the new tariffs were “full-on crazy”.
In an analysis on his Substack page, Krugman told his readers to “ignore” the Greek letters, “which cancel each other out”.
“This says that the assumed level of a country’s protectionism is equal to its trade surplus with America divided by its exports to America,” he wrote.
Lawrence Summer, a former US treasury secretary during the Clinton administration and former president of Harvard who directed the National Economic Council during the Barack Obama administration, quipped on social media that “this is to economics what creationism is to biology, astrology is to astronomy, or RFK thought is to vaccine science”.
It’s now clear that the @realDonaldTrump Administration computed reciprocal tariffs without using tariff data. This is to economics what creationism is to biology, astrology is to astronomy, or RFK thought is to vaccine science. The Trump tariff policy makes little sense EVEN if...
— Lawrence H. Summers (@LHSummers) April 3, 2025
David Bieri, an associate professor at Virginia Tech’s School of Public and International Affairs, contended that those upset with the formula were making a “big conceptual mistake”.
The Trump formula, he said, was merely “a strategic tool to negotiate and communicate”.
Bieri, who formerly worked at the Bank for International Settlements, argued that this was “exactly how international policymakers negotiate”.
“I come up with a set of numbers, and I say, ‘I base it on this.’ Then the others come up with their formula, and they say, ‘We base it on that,’” he said.
Ivan Werning, an economist at the Massachusetts Institute of Technology, conceded on social media that when used “in isolation on a single small trading partner, the formula makes some sense”.
When applied broadly, he wrote, “economic theory robustly suggests you are unlikely to get as strong trade balance reductions and you need more parameters to know (including some pertaining to saving/investing decisions)”.
But for many others, no explanation justified the steep tariffs.
Randall Holcombe, an economist at Florida State University, said that Trump’s approach to trade deficits was “flawed at its very foundation”.
“Everyone runs a bilateral trade deficit with someone but overall imports for each country could equal exports so nobody would run a current account deficit,” he said.
More from South China Morning Post:
- China vows to retaliate after ‘bullying’ US imposes 34% reciprocal tariffs
- As the dust settles from Trump’s ‘Liberation Day’, what’s China’s effective tariff rate?
- Canada hits US car sector with 25 per cent tariffs, mirroring Trump’s move
- US dollar weakens against yen, Swiss franc on concern of Trump tariffs’ economic impact
- Trump announces new US tariffs of at least 10% on all imports
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