What’s behind Trump’s strange (and basic) tariff formula?
The president is using an unintelligible equation as a way to impose higher tariffs on the countries with which the United States has the largest trade deficit
The United States has unleashed a trade war by announcing a minimum 10% tariff on all imports, in addition to specific tariffs for its trading partners.
These new tariffs are calculated using a formula that, in essence, only takes into account the U.S. trade deficit with its partners. The below chart compares the U.S. trade balance with each of its top 30 trading partners in 2024, with the tariff plan announced on Wednesday. The relationship is clear.
This chart shows the specifics of the new tariffs announced by Trump. China — the country with the largest trade deficit with the U.S. — is also the country that will be subject to the highest tariffs. The Asian nation was already subject to a 20% tariff, which will be increased by an additional 34%. Mexico and Canada were spared from the new wave of tariffs, although they have already been subjected to a 25% tariff on most of their exports.
The European Union has been considered as a whole, with a uniform tariff of 20% applied to all 27 member states, regardless of their trade balance.
The five unprovable factors for determining tariffs
The formula does not strictly follow the supposedly complex methodology that Trump approved last February when he initiated the process. The president signed an order outlining five factors to determine the tariff level to be applied to each country, but these factors are so broad that almost any tariff could be imposed.
The first factor for applying reciprocal tariffs was to consider the taxes each country currently imposes on U.S. products. There is indeed a connection between these levies and Trump’s announcement at the White House, although the U.S. response has been far more aggressive. For example, the United Kingdom had an average tax of 3.3% on U.S. products, according to the World Trade Organization. In the table shown by Trump at the White House, British products will now face a 10% tariff upon entering the U.S.
The second factor considered any “unfair, discriminatory, or extraterritorial taxes imposed by our trading partners on United States businesses, workers, and consumers, including a value-added tax [VAT].” According to the logic of the U.S. government, some countries were unfairly increasing the cost of U.S. products with such taxes, such as VAT, which Washington incorrectly interpreted as a trade barrier. However, this reasoning does not seem to align with the new tariffs: countries with higher taxes have received lower tariffs. For example, nations like India and Japan face similar tariffs (around 25%), despite Japan imposing a VAT that is 7 percentage points lower than India’s.
The remaining factors are broader. The third rule refers to “nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies, and burdensome regulatory requirements on United States businesses operating in other countries.”
None of these measures are easily quantifiable, as the White House has not provided any specifics about the practices being referenced. The fourth and fifth factors cover concepts as broad as currency manipulation, low wages, and any other practices considered unfair or harmful.
Methodology
Trade balance figures are from 2024 data published by the U.S. Census Bureau. The tariff considered in effect is based on the World Trade Organization calculation of the average tariff each country imposes on the United States.
The VAT figures are taken from the average tax rate for each country in the report by the consulting firm PwC, the remaining data come from Our World In Data.
The formula and all related calculations were made using the data released by the White House this past Wednesday. The countries included in this article are the United States' 30 largest trading partners.
Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition
