How Trump's import tariff formula works

The Administration of President Donald Trump introduced a new approach to calculate tariffs through a formula that is primarily based on existing trade balances, which often represented a trade deficit for the United States.  The central goal of this methodology is to reduce these trade deficits that the United States maintains, in addition to equalizing the import duty rates that other countries have with the United States.  In a statement released by the United States Trade Representative (USTR) on Wednesday night, it was detailed how the tariffs would be calculated. The formula begins by dividing a country's trade surplus with the United States by its total exports, using data from the U.S. Census Bureau for 2024. Then, that figure is divided by two to produce a "discounted rate". For example, China, which had a trade surplus with the United States of 295 billion dollars over a total of 438 billion dollars in exports in 2024, has a ratio of 68%. Applying Trump's formula, a tariff rate of 34% is obtained.

This calculation was also applied to other major economies such as Japan, South Korea, and the European Union, whose tariffs were calculated similarly. Meanwhile, countries with which the United States has a trade surplus, as well as those with more balanced trade balances, faced a fixed rate of 10%. The USTR statement highlighted that, although it would technically be possible to calculate the exact effects of each tariff, regulatory, or fiscal policy, the proposed methodology would achieve Trump's goal of reducing trade deficits. It was mentioned that, although the individual analysis of each country's trade policies would be complex, the combined effects could approximate the goal of reducing bilateral trade deficits to zero.

Trump's announcement on tariffs was made in the Rose Garden of the White House, where he displayed a table with rates based on the tariffs charged to the United States and an additional column titled "discounted reciprocal tariff," which reflected the rates resulting from his formula. In his February 13 memorandum, Trump had ordered a broad analysis of non-reciprocal trade relations with all of the United States' trading partners, considering not only tariffs but also non-tariff barriers, currency manipulation, and any other practice that impeded fair market access. Although he did not explicitly mention trade balances, he referred to non-reciprocal trade relations as a significant source of the U.S. trade deficit.  In addition to trade balances, Trump's formula incorporated two other parameters: the price elasticity of import demand and the elasticity of import prices in relation to tariffs.