Why Economists Are Horrified by Trump's Tariff Math

When President Donald Trump initially announced his new tariffs in February, he proposed them as a “fair and reciprocal plan on trade.” And so it was assumed that these reciprocal tariffs, as they are known, would be equal in value to the taxes that foreign countries have set against U.S. goods.

In fact, the tariffs unveiled on Trump’s April 2 “Liberation Day” were slightly more complicated—and for some economists, more worrying.

Trump first slapped a 10% blanket tariff on all imports into the U.S., including from uninhabited islands, such as the Heard and McDonald islands, and on places with which the U.S. runs a surplus, such as the U.K.

“To all of the foreign Presidents, Prime Ministers, Kings, Queens, ambassadors and everyone else who will soon be calling to ask for exemptions from these tariffs, I say: ‘Terminate your own tariffs, drop your barriers, don’t manipulate your currencies,’” Trump said while speaking from the Rose Garden at the White House.

Read More: Is the U.S. Heading Into a Recession Amid Trump’s Tariffs? ‘Liberation Day’ Fallout Sparks Fresh Fears

On top of this baseline 10% charge, Trump held up a cardboard chart and announced additional tariffs for  some countries, calculated by “tariffs charged to the USA.”

The Trump Administration ended up using a simple calculation: Each country’s U.S. trade deficit divided by its exports to the U.S.. The final reciprocal tariff was then divided by 2, with a minimum of 10%.

Before the Trump Administration confirmed this method, prominent economist James Surowiecki received attention for reverse-engineering the explanation of the tariff pricing on X.

“Instead, for every country, they just took our trade deficit with that country and divided it by the country’s exports to us,” the former financial columnist for the New Yorker posted on X. “What extraordinary nonsense this is.”

The Office of the United States Trade Representative confirmed Trump’s tariff math in an explainer, stating: “Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners….To conceptualize reciprocal tariffs, the tariff rates that would drive bilateral trade deficits to zero were computed.”

Though the explanation uses Greek letters and formulas, Politico notes that it is essentially the same formula that Surowiecki posted.

Using this formula, the Trump Administration calculated extremely high rates for certain countries, including a new 34% tariff imposed on China, 46% for Vietnam, and 20% for the European Union.

Felix Tintelnot, associate professor of economics at Duke University, sees major problems with this method of calculation—notably that the trade deficit is “normal” and “can change.”

“Let’s say the trade deficit in Vietnam shrinks over the next year. Well, then the tariff rate also should change. But now market participants need to forecast how much the trade deficit with individual countries will change,” Tintelnot says. “And that’s not straightforward, because we are changing so many tariffs at the same time, and ultimately, the aggregate trade deficit of the U.S. is largely determined by other macro decisions, like aggregate savings and aggregate investment, that have nothing to do with tariff rates.”

He also points out how for certain countries, it does not matter whether they actually have tariffs on the U.S. Israel eliminated tariffs on U.S. goods on April 1, in preparation for Trump’s tariffs, but were still hit hard by a 17% tariff in the April 2 announcement.

“The fact that countries that charge zero tariffs on the U.S. have been hit with tariffs illustrates that these are not reciprocal tariffs in their true meaning,” Tintelnot says. “It is perfectly normal in an integrated global economy for a bilateral trade deficit to exist. A little introspection helps: You have a bilateral trade deficit with your grocery store, but a bilateral trade surplus with your employer. Why would you put a tariff on your local grocery store?”

Brian Bethune, professor of economics at Boston College, argues that the Trump Administration should have never calculated these tariffs for countries with such vastly different economic standings and relationships to the U.S. while utilizing the same formula.

“Treating all of the small developing countries the same way as you’re treating the European Union… that seems to be outrageous,” Bethune says. “Some of these countries with relatively small and more fragile economies may have somewhat of a different approach to trade. This is the problem when you lump them all together.”

Trump’s new tariffs have prompted renewed fears that a U.S. recession could be on the horizon. Today, an immediate impact has been felt as a result of Trump’s “Liberation Day.” The U.S. dollar has fallen to a six-month low against the EURO and Dow Jones has plunged over 1,500 points. Trump has previously said that “some pain” could be encountered as a result of the tariffs. Bethune predicts that the Trump Administration is preparing people for a recession that is, in his professional opinion, “inevitable.”