The Hidden Decisions Behind Trump’s Tariff Formula
President Trump’s new tariffs on more than 100 countries used the same simple formula to calculate the rate for each of them.
The formula’s central value is the trade deficit, the difference between imports and exports between each country and the United States, for the year 2024.
The slightly more detailed math looks like this:
Mr. Trump has said these tariffs will reduce trade imbalances and level the international playing field.
But his one-size-fits-all formula is blunt: It applies the exact same math to countries whether they have hefty trade barriers or wide-open markets. It considers only the size of a trade deficit, not why the deficit exists.
And it has some key choices hidden within it. Change any one of those choices, and the resulting tariffs would look very different.
Here, we take you through these variables so you can see how different choices might yield big changes for the countries that trade with the United States.
Goods and services
The Trump administration calculated the trade deficit using only goods — physical items that can be shipped — and not services, such as technology, media, banking and tourism. (A DVD counts; a Netflix subscription doesn’t.)
That’s great news for Bermuda, the archipelago nation that exports few goods but plenty of financial services to the United States (thanks to its favorable tax laws, American companies like to bank there). Under the current rules, it pays a 10 percent tariff. If its service dollars were counted, it would pay 37 percent.
But it’s bad news for most of America’s other trading partners. The United States imports more goods from the European Union than it sends. But it exports more services than it buys. If you counted services in the trade gap in Mr. Trump’s formula, the tariffs on the E.U. would shrink almost in half.
Many countries are in the same boat as the European Union, because the United States is the world’s largest exporter of services. Switzerland, in particular, would see its tariffs drop quite a bit if services were taken into account.
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