It turns out that the numbers on the tariff table don’t have anything to do with tariff rates.
The Trump administration released a table that purports to list the “tariffs charged to the U.S.A.” for nearly every country. It then lists the “U.S.A. discounted reciprocal tariffs” for each.
It’s immediately clear that the “tariffs charged” are not actually tariffs charged, because even countries with which the U.S. has free-trade agreements are listed as having very high tariff rates. It says South Korea, for example, charges 50 percent tariffs on U.S. imports, when in reality, nearly all trade between South Korea and the U.S. is duty-free.
Enterprising folks on X figured out how the White House got these numbers. It turns out that they don’t have anything to do with tariff rates. The administration simply took the U.S. trade deficit in goods with each country, and then divided it by the amount of imported goods the U.S. buys from that country. The U.S. tariff rate is then “discounted” by dividing that result in half.
In 2024, U.S. goods imports from South Korea were $132 billion. The trade deficit was $66 billion. So, $66 billion / $132 billion = 50 percent. Then, divide by 2 to get the U.S. “reciprocal” rate of 25 percent, just like the table says. Ryan Petersen, the CEO of logistics firm Flexport, posted that this methodology predicts the tariff rates just about perfectly for every country (the only differences are for rounding).
The U.S. has a trade surplus with over 100 countries. For those countries, the administration said the tariff rate is 10 percent. The 10 percent rate also applies if the trade deficit is so small that the formula would yield a rate lower than 10 percent. In other words, it’s a 10 percent minimum for every country, then additions beyond that if the trade deficit is large.
After people online had already figured this out, the U.S. Trade Representative website released a document purporting to explain that the formula was actually much more complicated. Rather than the simple formula of (trade deficit / imports), USTR said the formula was really this:
It has Greek letters, so it seems very sophisticated. But it’s really the same thing as (trade deficit / imports).
The xi term is exports and the mi term is imports, so the numerator is exports minus imports, which equals the trade deficit. So that’s exactly the same.
In the denominator, though, things look different. The mi term is multiplied by two other terms: ε, the price elasticity of imports, and φ, the rate at which tariffs are passed through in prices.
If you don’t know what those terms mean, that’s fine, because they cancel each other out. USTR said that it believes ε = 4 and φ = 0.25. That means ε * φ = 4 * 0.25 = 1.
So the supposedly sophisticated formula that is definitely not just (trade deficit / imports) is actually (trade deficit / 1 * imports). The administration did not do any deep analysis of markets or attempt to account for specific trade practices it believes to be unfair. It just picked two publicly available numbers from trade data and divided them, or used 10 percent if that number was too small.
It also only takes into account goods trade, not goods and services. The U.S. has a services trade surplus of nearly $300 billion, but none of that gets counted in the formula, making trade deficits look bigger than they actually are and justifying a higher tariff rate.
This formula was followed for nearly every country, but there is one glaring omission: Russia. Why wasn’t Russia included?
The truth is that Russia was not the only country to be excluded. Belarus, Cuba, and North Korea also do not appear on the list. The reason is that Russia, Belarus, Cuba, and North Korea are the only four countries in the world with which the U.S. does not have permanent normal trading relations (PNTR).
The Harmonized Tariff Schedule (HTS) is the 4,000-plus page bureaucratic document that outlines U.S. tariff policy. It lists thousands of different codes that correspond to types of goods and then has two columns of tariff rates. The first column is the rate charged to PNTR countries. The second column is the rate charged to Russia, Belarus, Cuba, and North Korea.
The Trump administration’s order only modifies the first column, which is why those four countries are not included. Goods from those countries already face significantly higher tariffs.
The U.S. is also party to twelve bilateral free-trade agreements (with Australia, Bahrain, Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru, Singapore, and South Korea) and two multilateral free-trade agreements (the U.S.-Mexico-Canada Agreement and the Dominican Republic-Central America Free Trade Agreement). Those mostly supersede the HTS rates and eliminate most tariffs entirely.
Trump’s order still applies to goods from the countries that are part of those agreements. That’s why countries such as Israel are included, even though Israel has had a free-trade agreement with the U.S. since 1985, had no tariffs on 98 percent of U.S. exports, and made it 100 percent earlier this week by eliminating the few stragglers. But the U.S. still has a trade deficit with Israel, so the administration used the formula and came out to a rate of 17 percent.
The table, and the order on which it was based, both work from the mistaken assumption that trade deficits are inherently bad. The administration basically assumes that all trade with each country would be perfectly balanced if not for other countries’ unfair behavior causing a trade deficit. If that were true, it would also mean that the U.S. is engaging in unfair behavior with the 100-plus countries with which the U.S. has a trade surplus, but the goods from those countries get tariffs too, just because.
It’s one thing to say total trade should be balanced; it’s another thing to say trade with each and every country should be balanced. Both are wrong, but the second is crazier, since it ignores the possibility that different countries will naturally want to buy different amounts of stuff from each other. Even Oren Cass, a tariff cheerleader who believes the total trade deficit does matter, wrote in his 2018 book The Once and Future Worker that trade deficits with specific countries don’t matter. Yet the Trump administration is working off the assumption that they not only matter but are a national emergency requiring presidential usurpation of Congress’s taxing powers.
To borrow a phrase from George Mason University economics professor Tom Rustici, the administration’s tariff plan is stupid-on-stilts with flashing neon lights.