I am probably more open to tariffs and industrial policy than most folks at National Review, but I think there could be a significant structural vulnerability in the new tariff schedule announced by President Trump on “liberation day.” Rather than being based on actual trade barriers, the “reciprocal tariffs” levied under this proposal are in fact based on a nation’s trade deficit with the United States. This means that the tariff schedule — if actually implemented — would introduce a system of bilateral trade arbitrage that would involve major economic distortions and could in fact imperil onshoring manufacturing at home.

As many analysts have now shown, the “reciprocal tariff” rate for each country is half of the trade deficit in goods divided by imports from that nation. Israel (even though it has slashed tariffs on American products) therefore faces a 17 percent “reciprocal tariff” rate because it had a $7.4 billion trade surplus with the United States and $22.2 billion in exports to the U.S. in 2024 (7.4 divided by 22.2 is 0.33; cut that in half, and you get 17 percent). As a result of this method  for calculating “reciprocal tariffs,” this tariff schedule is less about retaliating for trade barriers and more about punishing nations for a large bilateral trade surplus with the United States. More than encouraging onshoring, it may encourage the transfer of commerce from nations with a high trade surplus with the United States to nations with a lower trade surplus.

For instance, Vietnam has become a major exporter of textiles, electronics, and other goods to the United States, in part because of decoupling between the Chinese and American economies. As a result of this, the United States has a large trade deficit with Vietnam and Trump has slapped a 46 percent tariff on the developing nation. Its regional neighbor Singapore has only a 10 percent tariff, so a business (especially one in a high-value manufacturing sector) would reap enormous financial advantages by relocating from Vietnam to Singapore. A textile factory would enjoy a major tax windfall by relocating from Vietnam to India (which has a tariff rate of 26 percent). Madagascar faces a punishing 47 percent reciprocal tariff rate, so why not relocate to Kenya for a 10 percent tariff?

Gaming this tariff system would involve significant distortions in global supply chains, often to no clear benefit to the United States or American manufacturing. Brazil’s average tariff rate on American products is higher than Vietnam’s or the European Union’s, but Brazil enjoys a much lower “reciprocal tariff” under the new tariff schedule. Moreover, this system could also be self-undermining in the way that it redirects commerce. As factories move from Vietnam to Singapore, India, and elsewhere, Vietnam’s trade surplus with the United States might fall, but American trade deficits with those other countries could also rise (or, if there’s a surplus, it could change to a deficit). If, over the long term, tariff rates do not change in response to this, a nation would be indefinitely rewarded or punished for its 2024 trade balance with the United States. Conversely, if tariff rates were adjusted in response to new trade balances, that would introduce another round of distortionary effects. Businesses would be unable to make any long-term plans, which would make them more averse to investment.

If the past is any guide, this announced tariff schedule is an opening bid, and the White House could very well revise the tariff rates in response to various policy adjustments from its partners. But the administration should be clear (at least in its internal deliberations) about the structural limitations of this newly announced trade schedule. Rebuilding American manufacturing means moving beyond bilateral trade arbitrage.