Donald Trump’s “reciprocal tariff” formula was simple: divide the bilateral trade deficit by total imports from a country, halve the result, and call it a tariff.
By this arithmetic, if the U.S. imports $434bn from China but runs a $292bn deficit, the ratio is 67% — yielding a proposed tariff of 34%. In short: they calculated the trade deficit as a % of imports, called it China’s “tariff,” and then halved it to get the U.S. tariff.
Mathematically, this creates an auto-adjusting mechanism. Improve the trade balance, and the tariff ticks down accordingly.
Yet the underlying economics is flawed. Trade deficits are not tariffs, nor do they behave like them. Deficits stem from macroeconomic fundamentals: low U.S. savings, high investment, and a strong dollar. Tariffs will not reliably narrow them. They may simply divert imports from China to Vietnam or Mexico.
The formula’s flaw is not its arithmetic — that works — but its logic. It mistakes an accounting identity for a policy lever. Worse, it provides the illusion of calibration without the substance.