Trade economists have criticized the simplistic approach employed by Donald Trump in formulating the list of “reciprocal” global tariffs introduced by his administration.
According to the US president’s plan unveiled on Wednesday evening, a base tariff of 10 percent will be imposed on all imports from countries other than Canada and Mexico, while nations with larger trade deficits with the US will face significantly higher tariffs.
The method used to determine these tariffs, disclosed by the US trade representative, relied on the US’s trade deficit in goods with each nation as an indicator of allegedly unfair practices, and then divided that figure by the total volume of goods imported from that country into the US.
This calculation results in a tariff that is half the ratio of the two variables, which means countries like Vietnam and Cambodia—who export substantial amounts of manufactured goods to the US while importing minimal quantities—face punitive tariffs of 46 and 49 percent, respectively.
In contrast, the UK, with which the US enjoyed a goods trade surplus last year, will only be subjected to the baseline 10 percent tariff that applies to all nations except Canada and Mexico.
Economists contend that the USTR’s methodology is fundamentally flawed and will not achieve its stated goal of “driving bilateral trade deficits to zero.” They argue that trade balances are influenced by various economic factors, not solely by tariff levels, despite the White House’s assertions that “tariffs work.”
Thomas Sampson, an associate professor of economics at the London School of Economics, described the formula as “a fig leaf for Trump’s misguided fixation on bilateral trade imbalances,” emphasizing that there exists “no economic rationale” for these tariffs.
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Furthermore, Sampson pointed out that tariffs will not address the underlying macroeconomic factors driving the US trade deficit. “As long as the US doesn’t save enough to fund its own investments, it needs to borrow from the rest of the world, necessitating a trade deficit. Tariffs won’t alter this reality,” he explained.
The USTR’s calculations also seemingly overlook prior indications from the administration that reciprocal tariffs would be based on thorough evaluations of bilateral trade relationships, including taxes, regulations, and other non-tariff obstacles to trade.
Instead, George Saravelos, head of FX research at Deutsche Bank, remarked that the choice to impose heftier tariffs on nations with larger nominal trade deficits appears “highly mechanical,” likely resulting in “freewheeling and open-ended” negotiations with the administration as countries seek to negotiate lower tariffs over the coming months.
Economists further criticized Trump’s fixation on reducing bilateral trade deficits to zero as economically uninformed, noting that certain goods cannot feasibly be produced domestically—such as the US’s inability to grow bananas on a significant scale.
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Oleksandr Shepotylo, an econometrician at Aston University, Birmingham, which recently modeled the implications of a global trade war, noted that the economic formulas merely lent a façade of plausibility to the USTR document, while being disconnected from the realities of trade economics.
“The formula … yields a tariff level that would reduce [the] bilateral trade deficit to zero, which is a ludicrous goal. There is no economic justification for achieving balanced trade with all countries,” he asserted.
“In this context, this policy is quite unconventional and cannot be defended at all.”
The impact of the tariffs, John Springford, a trade economist at the Centre for European Reform think-tank, observed, would not be to eradicate trade deficits but to cause hardship for both poorer countries and US consumers.
The formula produces significantly varying results depending on the sizes of countries’ trade surpluses and deficits with the US. Vietnam faces an additional tariff of 46 percent, whereas Australia, despite reporting a deficit with the US, is similarly subject only to the minimum 10 percent rate, like the UK.
“This will disproportionately affect poorer countries with substantial trade surpluses with the US without eliminating these deficits. Their surpluses will merely shift to other developing nations that manufacture T-shirts and consumer electronics,” Springford warned.
“It will also negatively impact US consumers, as the effect of tariffs is greater than the USTR asserts. Additionally, a stronger dollar will likely counteract this by reducing US exports. In summary, this approach is both misguided and harmful.”
Innes McFee of consultancy Oxford Economics concurred: “Tariffs are not an effective means of reducing any country’s trade deficit. The only outcome of this policy will be a significant income shock for US consumers,” he remarked.
Analyzing the administration’s strategy, Barret Kupelian, chief economist at consultancy PwC, suggested that the “formula” merely reflects Trump’s ambition to bolster the US manufacturing sector and lessen dependency on imported goods.
He noted: “The question is whether Trump aims for a genuine transformation or is simply engaging in transactional maneuvering to extract concessions from trade partners, and whether he is truly ready to endure transitional hardships.”
