Howard Lutnick, U.S. commerce secretary, holds a reciprocal tariff poster. Photographer: Kent Nishimura/Bloomberg.
President Donald Trump’s administration calculated its raft of new tariffs based primarily on current trade balances—a departure from pledges to match the tariff rates and trade barriers imposed by other countries.
In a statement published Wednesday night to explain its methodology for tariffs that rocked the globe, the United States Trade Representative (USTR) detailed a formula that divides a country’s trade surplus with the U.S. by its total exports, based on data from the U.S. Census Bureau for 2024. And then that number was divided by two, producing the “discounted” rate.
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China, for instance, had a trade surplus of $295 billion with the U.S. last year on total exports of $438 billion—a ratio of 68 percent. Divided by 2 according to Trump’s formula, that yielded a tariff rate of 34 percent. The same calculations roughly produced the rates for other economies like Japan, South Korea, and the European Union.
Countries where the United States runs a trade surplus were also hit, facing a flat 10 percent rate regardless, as were nations where trade was roughly even last year.
The USTR statement said that while it is technically possible to calculate rates for actual barriers, the methodology it employed will achieve Trump’s goal of driving down trade deficits. “While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax, and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero,” said the statement, which was unsigned.
Trump unveiled a range of tariffs in the Rose Garden on Wednesday by flipping around a placard with a series of rates based on “tariffs charged to the USA” and, at half the rate, the “discounted reciprocal tariff.”
The method for calculating the tariffs had been largely unknown in the run-up to Trump’s announcement. Adding to the confusion, the rates released by Trump differ slightly from those in the annex accompanying Trump’s executive order. South Korea, for instance, was listed at 25 percent on Trump’s board and 26 percent in the annex. Prior to release of the tariff rates, Trump’s administration had said the rates would be calculated to factor in both tariffs and non-tariff barriers, including taxes. And Trump’s board displayed the rates under a category titled “Tariffs Charged to the U.S.A. Including Currency Manipulation and Trade Barriers.”
The actual formula used isn’t how the White House initially signaled the calculations would be done.
In its February 13 memorandum teeing up the reciprocal tariffs, Trump ordered an analysis of “comprehensive scope, examining non-reciprocal trade relationships with all United States trading partners,” including their tariffs, taxes, non-tariff barriers, currency manipulation, and “any other practice” that “imposes any unfair limitation on market access or any structural impediment to fair competition.”
It didn’t list trade balances, but separately said non-reciprocal trade is “one source of our country’s large and persistent annual trade deficit in goods.”
Trump’s formula included two other parameters—price elasticity of import demand and the elasticity of import prices with respect to tariffs. These were set at figures that effectively canceled each other out, together amounting to multiplying by one.
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