Scratching your head at Trump’s ‘reciprocal’ tariffs? You’re not the only one.
Economists are confused by the US president’s latest tariff tirade, but perhaps not in the way you think.
It’s not that the maths doesn’t check out. Rather, it’s the straightforward nature of the tariff calculations – so simple they could be done on the back of a napkin – that has astounded analysts.
So, what is the magic formula?
In simple terms, the Trump administration has started with its trade deficit for each country, using it as a baseline for the tariff calculation.
That deficit is just however much one country sells to the US (the export data) minus how much they buy from it (the import data).
Then, the trade deficit is divided by the same country’s export data to give a percentage, which is further divided by two to determine the reciprocal tariffs (the gold column in the chart below).
A snapshot of the Trump Administration’s tariff decisions. Photo: Donald Trump (Truth Social)
For example, the US's trade deficit with Japan came in at $US68.5 billion in 2024. Divided by the country's exports to the US (valued at $US148.2 billion), you get 46 per cent.
Dividing that percentage by two gives you 23 per cent; the same reciprocal tariff highlighted on Trump’s chart.
China is another example. The US has a $US295.4 billion trade deficit with China. Divided by $US438.9 billion in Chinese exports to the US, and dividing that result again by two, gives you 34 per cent, matching the administration’s calculations.
The method of calculation shows the US has weighed its reciprocal tariff measures against narrowing trade deficits, not the trade measures that the Trump administration claims other countries have in place.
Take the tiny country of Lesotho, which was hit with a 50 per cent reciprocal tariff on Thursday.
A major proportion of Lesotho’s modest economy relies on exports. Diamonds and jeans are central to the African nation’s wealth.
Oxford Economics claims that more than 10 per cent of Lesotho’s $2 billion gross domestic product is tied to US exports, which totalled $US237.3 million in 2024.
Considering a US goods trade deficit of $234.5 million, and using the reciprocal tariff calculation outlined above, you can see how the Trump administration arrived at a 50 per cent tariff.
But the calculation fails to tell the whole story. Lesotho is naturally going to have a trade deficit given its reliance on US exports, and economists say the so-called reciprocal tariff will kill local industry.
Maseru-based analyst Thabo Qhesi said Lesotho’s textiles and apparel industry was the country’s largest private employer.
“If the closure of factories were to happen, the industry is going to die and there will be multiplier effects,” Mr Qhesi said.
“So Lesotho will be dead, so to say.”
Trade consultant Dmitry Grozoubinski believes calling the tariffs reciprocal is inaccurate, because it implies a response to trade barriers that just aren’t there.
“This formula is insane,” Mr Grozoubinski told CBC News on Thursday night local time.
“What they're basically saying is ... if you are selling a lot more to the US than you are buying from the US, you must be doing something unfair.
“[It’s] like if you got to the pearly gates of heaven and St Peter said, 'I am going to evaluate whether you've lived a righteous enough life to get in here.'
“And then all he actually did was divide your speeding fines by your parking fines to arrive at a percentage of righteousness.”
Monash Business School senior lecturer Nicola Charwat is similarly descriptive, characterising the tariff allocation as “mercantile, power-based trade relations”.
“The framing is also problematic. They are reciprocal in the face of perceived unfairness to the US rather than specific economic harms," Dr Charwat said.
“It appears that Trump or the US can redefine any trade policy difference as unfairness and reach for tariffs.
“This gives rise to a high level of uncertainty.”
She said Australia was not immune to this volatility, even though we maintain a $US17.9 billion surplus with the US (according to 2024 data).
“Despite Australian negotiators making logical arguments about the trade relationship, the US administration appears unmoved without concessions of ‘great value’,” Dr Charwat said.
Trump’s simple tariff calculations will have complex, real-world consequences.
And the true impact on global trade relations is yet to be fully realised.
