How did Trump determine his tariff figures?

Following President Donald Trump’s “Liberation Day” announcement of reciprocal tariffs on American trade partners this week, a former financial columnist for The New Yorker noticed that something seemed off with the percentages presented in the Rose Garden.

“The numbers on the chart that said the tariff rates that these countries are supposedly charging us were honestly just so weird that it was pretty clear right from the start that something had to be going on,” James Surowiecki, a contributing editor at The Atlantic and author of “The Wisdom of Crowds,” said in an interview with the Deseret News.

Surowiecki dug into the numbers and determined that the Trump team did not use tariff rates and non-tariff barriers to determine their reciprocal tariffs. Instead, he believes they used a formula involving trade deficits and exports. Anthony DeBarros, a data editor for The Wall Street Journal, had also observed, “The numbers don’t necessarily match what foreign countries charge against imports from the U.S.”

Surowiecki walked through his calculations on the social media platform X.

“It’s also important to understand that the tariff rates that foreign countries are supposedly charging us are just made-up numbers,” wrote Surowiecki in a thread detailing his findings. “South Korea, with which we have a trade agreement, is not charging a 50% tariff on U.S. exports. Nor is the EU charging a 39% tariff.”

The scale of the tariffs that Trump detailed, though delivered after the close of the New York Stock Exchange on Wednesday, sent shockwaves through global markets. On Thursday, the stock market lost $2.5 trillion in value, the Dow dropped more than 1,600 points and it became the worst single day for the markets in five years, when the early months of the COVID-19 pandemic drove stocks down.

While the numbers Trump presented were not entirely made up as Surowiecki charged, they did not not track what the Trump administration initially said, which was that tariff and non-tariff barriers would be the basis of the new U.S. tariffs. Those barriers would be things like currency manipulation and value added tax, or VAT.

Surowiecki was among the first to realize that the calculation was made using each country’s trade deficit with the United States, a number then divided by their exports of goods to the U.S, but news of the curious calculations soon spread.

In addition to The Wall Street Journal, the BBC, Newsweek and The New York Times were among news outlets that published similar conclusions or did their own review of Surowiecki’s calculations. Nate Silver, the statistician and political analyst, highlighted the work of the American Enterprise Institute, which published a review of the tariff rates with the headline “President Trump’s Tariff Formula Makes No Economic Sense. It’s Also Based on an Error.” AEI, often described as a center-right think tank, “advances ideas rooted in our belief in democracy, free enterprise, American strength and global leadership, solidarity with those at the periphery of our society, and a pluralistic, entrepreneurial culture,” according to its website.

The White House soon responded. The Office of the U.S. Trade Representative, which is run by Jamieson Greer, an attorney and BYU graduate, issued a statement further explaining its methodology. The statement confirmed that, rather than tariffs charged to the U.S., the trade deficits on goods were the primary marker.

To explain the calculation, Surowiecki referenced Indonesia which has a $17.9 billion trade deficit with the U.S.. On X, he wrote that “its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us.” He added: “What extraordinary nonsense this is.”

The percentages that the Trump administration calculated were then cut in half and applied to imported goods from those respective countries. By the administration’s calculations, China, for example, charged a 67% tariff on all imports from the United States, and the U.S. will now charge a 34% reciprocal tariff on its incoming goods.

After further analysis, Surowiecki determined that service exports, such as legal and financial services — which as of 2022 represented over 30% of American exports, according to U.S. Trade Representative’s office — were excluded. The U.S. is the largest exporter of services in the world, and, according to Surowiecki, the administration’s numbers work only when exported goods, not services, are included in the calculation. “Even though we run a massive services surplus with the world,” he wrote on X, “that didn’t count when they calculated these imaginary ‘tariff rates.‘”

“Which is, itself, conceptually a big problem,” he said later.

“Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners,” read the statement from the Office of the US Trade Representative.

A trade deficit occurs when one country’s imports are greater than their exports. Many economists say it is not inherently a disadvantage for a trade deficit to exist, and, according to a Congressional Research Service report from 2018, “the Trump Administration’s approach [to a trade deficit] contrasts with the views of most economists.” That report said such deficits are the result of larger U.S. policy and that “attempting to alter the trade deficit without addressing the underlying macroeconomic issues will likely be counterproductive and create distortions in the economy.”

Trump, who made tariffs a focal point of his 2024 campaign, said in a “Week 11 Wins” press release issued Friday, the president “seeks to reverse the decades of globalization that has decimated our industrial base.”

“The thing about the formula as it is, is that it really embodies Trump’s view of the world,” Surowiecki said. “It assumes that all trade deficits are the result of trade barriers or tariffs or some kind of manipulative behavior ... any trade deficit, we’re getting ripped off, we are getting taken advantage of.”

But a tariff on a foreign nation will not necessarily bring down a trade deficit, analysts said. According to to the BBC, “the overwhelming view is that while the tariffs might reduce the goods deficit between the U.S. and individual countries, they will not reduce the overall deficit between the U.S. and rest of the world.”

To achieve this goal, Surowiecki said, would require either an increase in citizens of other countries buying American goods and services, or expanding their own manufacturing base.

While some supporters of Donald Trump say they’re willing to wait and see if the strategy works, people on both sides of the political aisle say it’s unclear what will happen now.

Such uncertainty, according to Thomas Sowell, the Stanford economist and senior fellow at the Hoover Institute, can lead to “people hang[ing] onto their money until they figure out what you’re going to do,” he said in an interview on “Uncommon Knowledge with Peter Robinson.” He added that that similar circumstances led to the Great Depression of the 1930s.

“It’s painful to see a ruinous decision from back in the 1920s being repeated,” Sowell said. “If you set off a worldwide trade war, that has a devastating history,” he added. “Everybody loses, because everybody follows suit.”