Here's how Trump evaluated tariff rates for each country: The formula and Math explained

US President Donald Trump launched a new tariff regime on April 2 imposing what he has referred to as "discounted reciprocal tariffs" on more than 200 nations.

The majority of countries received a standard tariff rate of 10%, while others were imposed tailored rates according to a given formula created by the US Trade Representative (USTR).


This equation, designed to balance trade imbalances, establishes tariffs based on import, export, and demand elasticity factors.

The following is a detailed explanation of how the Trump Tariff equation operates and what it implies for international commerce, as mentioned in a report by USA Today.

Understanding the Trump Tariff Formula

The USTR made a step-by-step explanation of how tariff levels were calculated based on the following mathematical formula:

Δτ颈 = (xi - mi) / (ε * φ * mi)

Where:

Δ (Delta) indicates a change in the tariff rate of imports.

τi (Tau) is an import tariff rate.

xi represents exports from the U.S. to a country.

mi represents imports from that country into the U.S.

ε (Epsilon) is the price elasticity of import demand, fixed at 4 by the USTR.

φ (Phi) is the elasticity of import prices with respect to tariffs, fixed at 0.25.

Change in tariff import rate = (exports - imports) / (4 * 0.25 * imports)

By simplifying the equation, since 4 multiplied by 0.25 equals 1, the formula reduces to:

Change in tariff import rate = (exports - imports) / imports

This formula is used as a basis for setting tariff rates on specific countries.

Using the Formula: Case Study of China

To use the formula in context, let's take the U.S.-China bilateral trade relationship in 2024:

U.S. exports to China: $143.5 billion

U.S. imports from China: $438.9 billion

Using the formula:

(143.5 - 438.9) / 438.9 = -0.673 (or -67.3%)

This result corresponds to a 67% tariff increase on Chinese imports, as indicated by the tariff percentage on a chart carried by Trump at the time of the announcement.

Global Implications

Although the formula supposedly seeks to balance the playing field, it has been controversial among economists and trade specialists.

Critics say that this approach disproportionately punishes nations with large trade surpluses with the U.S., especially developing nations that cannot afford to import American products at higher levels.

A Reuters report says that the formula essentially boils down to a ratio of the trade deficit to overall exports

FAQs:

What is the Trump tariff regime?

The Trump administration introduced a new tariff system on April 2, imposing "discounted reciprocal tariffs" on over 200 nations. Standard tariffs are set at 10%, with some countries receiving customized rates based on trade imbalances.

Why is this tariff policy controversial?

Critics argue that it disproportionately penalizes countries with trade surpluses, particularly developing nations, and could disrupt global supply chains. Some economists claim it unfairly targets nations that import fewer U.S. goods.