Trump tariff formula misrepresents global trade economics, experts say
When President Donald Trump announced his controversial tariffs on virtually every trading partner in the world, he repeatedly called them "reciprocal" -- a response, he said, to those nations that had hit the U.S. with tariffs and hurt the American economy.
But Trump's claim is misleading not only because some of the nations hit with tariffs haven't levied any against the U.S., but also because the math apparently used by the administration to come up with the tariffs doesn't hold up, according to several economic experts.
The White House's list of tariffs issued against each location includes different tariff rates. In announcing the tariffs at the Rose Garden on Wednesday, Trump claimed the numbers were calculated based on "the combined rate of all their tariffs, non-monetary barriers and other forms of cheating." Trump added that he was being "kind," and divided that number in half and called it a "discount."
The calculations for almost all of the tariffs was determined by dividing trade deficit of each nation with the value of its imports, according to economic experts' analysis. That number was then divided in half for Trump's "discount" for the final tariff percentage, experts said.
"Before yesterday, 99% of trade economists had never seen a formula like this before," Oren Ziv, an assistant professor of economics at Michigan State University, told ABC News Friday.
Several economic experts and journalists blasted the formula soon after the speech, including James Surowiecki, a financial news journalist and author, who explained it in a post on X.
"So we have a $17.9 billion trade deficit with Indonesia. Its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us. What extraordinary nonsense this is," he said in his post.
The White House later put out an explanation of its calculations that said it was using the trade deficit and import figures.
"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 White House said in a statement.
National Economic Council Director Kevin Hassett told Fox News on Thursday about the administration's thinking behind their policy.
"So what happened was that the U.S. Trade Representative looked at where the trade deficits were and adjusted the tariffs in order to respond to the national emergency that I think we all agree about," he said.
Ziv said this logic does not fit with any modern definition of trade deficits.
"When economists study trade deficiency, they don't find any evidence for this rationale," he said.
Ziv noted that trade deficits are determined in part by financial markets, not just demand for imports and manufacturing.
Ziv said the formula is not very likely to yield the results that the administration is seeking.
"Since World War II, most industrial countries have followed a consistent set of rules of trade policies. Essentially, they learned that trade wars don't help anyone," he said.
