President Trump triumphantly held up a poster board in the Rose Garden on Wednesday showing the reciprocal tariffs he plans to impose on nearly every country in the world.
But just how the White House came up with the formula to determine what percentage of tariffs to impose and where has left foreign leaders, financial analysts and consumers scratching their heads.
Administration officials insist that trade deficits took a central role in determining the rates. In rolling out the tariffs, officials said the rate for each country would also be calculated by both tariffs imposed on U.S. goods and non-trade barriers like currency manipulation, intellectual property theft like knock-offs and other factors that made it more difficult to sell into that country.
A summary by the U.S. Trade Representative’s (USTR) office purports to show how it reached the final number imposed on other countries but it also relies heavily on sheer trade deficits between the U.S. and other countries when all was said and done.
“Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners,” the USTR summary stated. “This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports.”
The disconnect between how the rates were reached and whether or not Trump was using the tariffs as a negotiating tool only furthered confusion.
When it comes to tariffs imposed on China, who saw the highest rate of retaliation, Trump’s board in the Rose Garden showed its tariffs against the U.S. at 67 percent, resulting in the reciprocal tariff of 34 percent. But that rate is compounded by an existing 20 percent tariffs, making the total 54 percent on goods.
Chinese tariffs against U.S. imports were at 22.6 percent following retaliatory tariffs imposed in recent weeks, according to the Peterson Institute for International Economics. Dividing the United States’ 2024 trade deficit with China by the amount imported from there results in the 67 percent figure displayed on the chart.
Similarly, dividing the United States’ $62.6 billion trade deficit with Japan in 2024 by the $135.8 billion of Japanese goods the U.S. imported results in the roughly 46 percent tariff the White House said Japan was charging. That was used to get the 24 percent tariff the Trump administration imposed on Japan.
Dividing the $41.5 billion U.S. trade deficit with Thailand by the $57.7 billion imported from Thailand results in the 72 percent tariff the White House said Thailand was charging.
The Wall Street Journal reported that the same formula appears to apply for at least 71 of the 184 countries that were hit with reciprocal tariffs on Wednesday.
The trade deficit-based math was first highlighted by James Surowiecki, a contributing writer for The Atlantic.
White House deputy press secretary Kush Desai responded to Surowiecki on X, pushing back on his assertion that the formula was as simple as using trade deficits.
“No we literally calculated tariff and non tariff barriers,” wrote Desai, who linked to the USTR report laying out its determinations.
Desai’s post on X sharing the USTR formula was amended with a community note from the social media platform that noted the purported formula was “essentially equivalent” to the trade deficit-based formula, “and includes no terms for the tariff rate charged by the exporting country.”
A White House spokesperson did not respond to a request for additional comment on the formula.
The White House’s emphasis on trade deficits reflect Trump’s longstanding frustration with how much more money the U.S. spends on foreign goods than they spend on American products.
Trump has long viewed the fairness of trade relationships through the size of the U.S. trade deficit in goods with that nation. He has frequently blasted political leaders in both parties for signing trade deals that led to an influx of cheap goods from abroad and the decline of U.S. factories.
While most trade experts say Trump has legitimate grievances about the legacy of free-trade deals, they say the trade deficits in goods the U.S. runs with most nations simply reflects American purchasing power and the high U.S. demand for goods not easily produced domestically.
As administration officials took to the airwaves on Wednesday morning to defend Trump’s tariffs, they largely avoided specifics on how the amounts were calculated.
Commerce Secretary Howard Lutnick said the USTR’s office worked with the Council of Economic Advisers to determine the rates based on decades of analysis of “tools that other economies use to hurt America.”
Former Treasury Secretary Steven Mnuchin on CNBC was also pressed on how the White House came up with its formula, to which he pivoted away from the metrics used to determine the percentages.
“I wouldn’t focus on the way they’ve calculated it. I would focus on – the numbers are quite high,” Mnuchin said. “Particularly when you add up the existing tariffs on China and others and places like Vietnam. And I think that hopefully this will be a negotiation of let’s get to the table. Let’s negotiate fair deals.”
