On April 2, 2025, U.S. President Donald Trump announced a large set of tariffs, or taxes on imported goods, on basically every other country in the world. In his announcement, Trump described the tariffs as "kind [and] reciprocal," suggesting the rates were lenient, tailored for each individual country, and meant to equalize the country's import taxes with rates other countries place on U.S. goods. (As Trump put it, "Reciprocal. That means they do it to us and we do it to them.")
However, according to some posts on the social media site X, Trump's tariff rates had nothing to do with equalizing the U.S. rates to foreign tariff rates. Instead, the posts claimed, the new rates were calculated by taking a country's trade deficit with the U.S. (how much it exported to the U.S. minus how much it imported from the U.S.) and dividing it by how much the U.S. imported from that country — in other words, the calculations were not based on foreign tariff rates at all.
The posts were correct, despite White House Deputy Press Secretary Kush Desai replying to one of them, "No we literally calculated tariff and non tariff barriers." Here's an explanation:
Trade Economics 101
First, a basic refresher of some definitions: Imports are goods shipped into a country, and exports are goods shipped out of a country. These two values can be used to calculate a country's trade balance by subtracting exports from imports.
For instance, according to the website of the U.S. Trade Representative, in 2024, the U.S. exported $143.5 billion worth of goods to China and imported $438.9 billion worth of goods from China. That's a trade balance of -$295.4 billion.
If, as in the example above, the value is negative (meaning a country imported more than it exported), the importing country (the U.S.) has a trade deficit. If the value was positive (meaning a country exported more than it imported), the importing country has a trade surplus. Based on that calculation, the U.S. has a trade deficit with China and China has a trade surplus with the U.S.
The actual formula, according to social media posts
Social media posts claimed the new tariffs were actually calculated by taking, for example, the U.S. trade deficit with China and dividing it by how much the U.S. imported from China: $295.4 billion over $438.9 billion equals about 67%.
The White House X account posted tables that can be used to check the work: The percentage matches up with the column "Tariffs charged to the U.S.A. including currency manipulation and trade barriers."
Then, the "U.S.A. discounted reciprocal tariffs" column divided those numbers in half and rounded up to the baseline of 10% for countries where the number was smaller. (The discount is likely what Trump is referring to when he said the tariffs were "kind").
Another example: The U.S. trade deficit with Norway was $2 billion ($4.6 billion of exports vs. $6.6 billion of imports). Dividing $2 billion into $6.6 billion equals 30% — the number on the White House's chart under "Tariffs charged to the U.S.A."
The Trade Representative's formula
The U.S. Trade Representative's website posted the formula used to calculate the tariffs. In order to show that the social media posts were correct, we will attempt to simplify the following formula into "trade deficit divided by imports."
(website of the U.S. Trade Representative)
The website also included the following explanation of what each variable represents:
Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies:
The top (xi - mi) equals "total exports" minus "total imports," according to the formula. That's the exact definition of a trade deficit. Step one complete.
The bottom (epsilon (ε) * phi (φ) * mi) equals the "elasticity of imports" times "the passthrough of tariffs to import prices" times "total imports." In other words, it's the total imports, multiplied by two factors. This is already pretty close to our goal of simplifying the equation, as we have imports on the bottom. So what are these other two factors?
There's a lot of complicated economics here, but we can avoid it all. Based on the information on the trade representative's website, epsilon equals 4 (although based on economic papers, it should be -4) and phi equals 0.25. Because 0.25 * 4 = 1 (or -1, if epsilon is -4), the passthrough and elasticity cancel out and don't have an effect on the formula. In other words, the only thing in the denominator that matters is the imports — meaning the overall formula is effectively the same as what users on social media posted.
For a slightly more detailed explanation, Bloomberg opinion columnist Matt Levine broke it down as follows (brackets ours):
Don't worry about the delta in front of the tau, or the subscript i's; those are just decoration. More substantively, the USTR has added an epsilon and a phi to the denominator of the equation. What do those parameters represent? Well, epsilon represents "negative 4," and phi represents "0.25." If you multiply them together you get negative 1. So it's the same equation as I wrote — surplus divided by exports — but with some extra Greek letters.
Why did the USTR write a minus sign as "epsilon times phi"? Well, there is an explanation. Epsilon is "the elasticity of imports with respect to import price," phi is "the passthrough from tariffs to import price," and they happen to exactly offset: A 1% increase in tariffs increases import prices by 0.25% [passthrough], which reduces import demand by 1% [elasticity]. So a tariff equal (in percentage terms) to the country's trade surplus with the US will exactly eliminate that surplus. The USTR cites some studies not finding those results, and then makes up numbers for convenient arithmetic.
Levine chose to swap the perspective from the U.S. to the foreign countries, meaning he used the terms "surplus" and "exports" instead of "deficit" and "imports." The math, however, is identical.
So what are the tariffs actually doing?
According to the Trade Representative's explanation, the tariff rates were calculated to "drive bilateral trade deficits to zero." In more simple words, the economic policy was designed to make the U.S. export just as much as it imports.
The Financial Times spoke to economic experts who found the rationale "deeply flawed economically," and said the tariffs "would not succeed in its stated aim of 'driving bilateral trade deficits to zero.'"
Oleksandr Shepotylo, an econometrician at Aston University, Birmingham, told The Financial Times that the tariffs had "a sense of being linked to economic theory," but were unjustifiable in practice. "The formula … gives you a level of tariff that would reduce [the] bilateral trade deficit to zero. This is an insane objective. There is no economic reason to have balanced trade with all countries," he said.