Trump’s ‘Reciprocal’ Tariffs: The Real Story Behind the Numbers and Trade Deficits
- HNN.WORLD Staff
- Apr 5
- 4 min read
Updated: 6 days ago
President Donald Trump’s announcement of massive tariffs for dozens of trade partners was initially described as “reciprocal.” The idea was to match the taxes other countries place on U.S. products. But the reasoning behind Trump's plan doesn’t align with the actual tariff rates those countries charge the U.S.
Instead, the Trump administration used a very basic formula, which they claimed took into account various factors, like Chinese investment, alleged currency manipulation, and foreign regulations. The math behind it divided a country’s trade deficit with the U.S. by its exports to the U.S. and then multiplied it by 1/2. That was the entire formula.
The president’s approach appears to be a blunt force method, addressing a list of complaints through the trade gap other countries have with the U.S. And this unclear math could bring big changes for countries that the U.S. depends on for goods — and for the foreign suppliers that help meet those needs.
Mike O’Rourke, chief marketing strategist at Jones Trading, pointed out that it doesn't seem like any actual tariffs were used to determine the rate. “The Trump team is clearly targeting nations that have large trade surpluses with the U.S. compared to what they buy from us.”
The real numbers are likely closer to the “average Most-Favored-Nation (MFN) applied tariff rate,” which is the cap on import taxes agreed to by over 160 WTO countries. These rates can vary by industry, and trade deals often lower or eliminate tariffs altogether.
Trump’s trade policy is based on one simple motto: “They charge us, we charge them.” But as it turns out, it’s not as simple as it sounds.
Sarah Bianchi, chief strategist of international political affairs and public policy at Evercore ISI, said that many of the administration’s concerns weren’t really about tariff rates. "A lot of the issues they’re concerned about don’t actually relate to tariffs," she said during a panel discussion at the Brookings Institution.
Trump's Answer to Non-Trade Barriers
The MFN tariff rates were negotiated when the WTO was founded in the 1990s. The European Union’s MFN rate is 5%, but the Trump administration estimated it at 20%, citing concerns that "U.S. exports suffer from uneven customs rules and lack of transparency in EU-level decision-making," according to the U.S. Trade Representative.
Vietnam's MFN rate stands at 9.4% as of 2023, but the Trump administration raised it to 46% due to non-trade barriers. These barriers include import quotas and anti-dumping laws meant to protect domestic industries. Vietnam’s top trade official labeled the new tariffs as “unfair.”
Countries like India and China also have non-trade barriers. For instance, India uses sanitary measures for agricultural imports, while China provides state subsidies to domestic companies. However, experts like Joe Brusuelas, chief economist at RSM, argue that Trump’s tariff formula doesn’t address non-tariff barriers properly.
"If you look at the formula the White House put forward for how they established the new tariff levels, they had nothing to do with non-tariff barriers," Brusuelas said. "It looked to me as if it was an ad hoc effort of punishing countries because they had large trade balances with the U.S."
He explained that the U.S. trade balance with other countries is simply a reflection of U.S. spending and saving habits.
Are Trade Deficits Really an Emergency?
On a call with reporters, a senior White House official referred to the trade deficits as a national emergency that needed to be addressed to keep U.S. factories and jobs. But is it really that bad that some countries run a trade deficit with the U.S.? Not necessarily.
John Dove, an economics professor at Troy University, used a grocery store analogy to explain: "When I go to the store and buy groceries with cash, I run a trade deficit with my grocery store. But does that mean that I’m worse off? Obviously not. Those are goods that I want, and I don’t need to provide a reciprocal good or service in return. It just is."
While the Trump administration sees tariffs as a way to fix trade deficits and generate government revenue, this approach could backfire. John Dove warned that these broad tariffs could provoke retaliation from other countries, leading to a global trade standoff.
“If other countries renegotiate their own trade policies, the U.S. could quickly end up facing 25% of the world economy against the other 75%,” Dove said. “And I can tell you who’s going to come out ahead there.”
Here's How Trump's Reciprocal Tariffs Compare to the Agreed-Upon Rates by the World Trade Organization
Under the World Trade Organization (WTO), over 160 countries have agreed to a Most-Favored-Nation (MFN) tariff, which applies to imports from all WTO member countries. This tariff is typically much lower than the ones Trump is proposing.
Here’s a look at the MFN rates compared to Trump’s proposed tariffs, along with the trade deficits the U.S. has with these countries.
Country | Trump Tariffs (%) | Avg. MFN Rate (2023) (%) | Trade Deficit with the U.S. ($B) |
China | 34% | 7.5% | -$295.40B |
European Union | 20% | 5.0% | -$235.57B |
Vietnam | 46% | 9.4% | -$123.46B |
Taiwan | 32% | 6.5% | -$73.93B |
Japan | 24% | 3.7% | -$68.47B |
South Korea* | 25% | 13.6% | -$66.01B |
India | 26% | 17.0% | -$45.66B |
Thailand | 36% | 9.8% | -$45.61B |
Switzerland | 31% | 5.2% | -$38.46B |
Malaysia | 24% | 5.6% | -$24.83B |
Indonesia | 32% | 8.0% | -$17.88B |
Cambodia | 49% | 9.4% | -$12.34B |
South Africa | 30% | 7.6% | -$8.84B |
Israel | 17% | 3.6% | -$7.43B |
Bangladesh | 37% | 14.1% | -$6.15B |
This table compares Trump’s tariffs, the average MFN rates, and the U.S. trade deficit with these countries.
