Liberation Day
How to calculate reciprocal tariffs
IT’S FAIR TO say that Liberation Day delivered some surprises—not least the rather elegant way USTR calculated their reciprocal tariffs.
Indeed, there was some head-scratching when President Trump presented his scoreboard of “tariffs charged” by other countries on the US. But as quickly pointed out by James Surowiecki on the platform formerly known as twitter, the calculation of the effective tariff and non-tariff barriers was a rather simple: linked to the bilateral trade balance-to-imports.
The US reciprocal tariff was then set at roughly half this bilateral balance—with 10% as a lower bound.
The reciprocal tariffs therefore bear little relation to perceived barriers. For example, this is what the WITS-data based reciprocal tariff + OECD VAT rate increase would imply vs what was announced:
In other words, there isn’t any logic to the announced reciprocal tariffs when compared with standard metrics of “trade distortions.”
And the focus on bilateral balances is quite remarkable it itself.
With tariff rates set in proportion to bilateral trade deficits, it seems clearer now that the goal is simply to reduce such deficits (in line with Trump's long-standing rhetoric).
This in turn may mean that negotiations should not be expected to deliver any quick tariff reductions—something many still hope for.
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