Ego economics

Several weeks ago, not long after Donald Trump was sworn in as President of the United States, I remarked to my wife that, judging by the noises he was making, he would likely have upset every country in the world by the end of his four-year term. As it turns out, I was being overly generous—he didn’t even need three months. After weeks of nervous anticipation among countries trading with the United States, Trump finally unveiled what he called his “discounted reciprocal tariffs” on over 200 nations. I said discounted, because apparently, when you’ve invented your own brand of economic logic, it only makes sense to dress it up with a catchy sales label too.

Most countries were handed a base tariff rate of 10%, but for others, the rates were calculated using a formula that Trump claimed would make things “fair.” This formula was supposedly rooted in the idea of reciprocity—but not the kind that makes actual economic sense. No, this was Trump’s own unique brand of trade justice.

The US Trade Representative then published an overview of how it was all calculated. At first glance, it looked like the kind of equation that would give even a seasoned economist pause—Greek letters like delta (Δ), tau (τ), epsilon (ε), and phi (φ) tossed in for dramatic effect.

But dig just a little deeper and the whole thing turns absurd. Strip away the Greek and you’re left with a very basic formula: (exports from the US – imports to the US) ÷ imports to the US. Then, for good measure, Trump "generously" halved the result and imposed a 10% minimum. The variables epsilon and phi were assigned values of 4 and ¼, which conveniently cancelled each other out. 

Take China, for example. In 2024, the US exported USD 143.5 billion worth of goods to China and imported USD 438.9 billion in return. Run that through Trump’s magic mathematics, apply the 50% discount, and you get a 34% tariff slapped onto Chinese goods. Add that to the existing 20% tariff, and you’ve got a grand total of 54%—which was later arbitrarily increased to 145%. To China’s credit, after they responded with a 125% tariff on US imports, they announced they wouldn’t dignify Trump’s irrationality with any further retaliation.

Was this formula dreamed up by Trump himself, or was it the work of his backroom “yes-men” and economic whizkids? Either way, it’s a new kind of economic reasoning—one that most economists glance at, frown deeply and mutter, “What in the actual hell is this?”

At the heart of the formula lies Trump’s obsession with trade deficits. If the US buys more from another country than it sells to them, that is cheating in Trump’s world. Never mind that trade deficits are shaped by a dozen different factors—savings rates, currency valuation, investment flows, interest rates, and yes, the small matter of Americans too lazy to work in factories. But in Trump's eyes, if the balance sheet isn’t in America’s favour, someone’s playing dirty.

The term “reciprocal” is in itself a complete joke. The formula doesn’t compare the tariffs other countries impose on US goods. It just punishes them based on how much more they sell to the US than the US sells to them. So you could have a country with low actual tariffs but a trade surplus—and it gets hammered. Meanwhile, a country with steep tariffs but balanced trade gets off almost scot-free with 10%. That’s not reciprocity. That’s arithmetic revenge.

The consequences of this mess means higher prices for American consumers, supply chains in chaos and retaliation from trading partners who are understandably not in the mood to be pushed around. And that’s exactly what happened.

And those weird flourishes in the formula—the halving of the outcome, the mandatory 10% minimum tariff—don’t come from any known economic textbook. They were probably scribbled on the back of a Mar-a-Lago cocktail napkin, because Trump wants it so.

So, what we’re left with is a trade policy that (1) ignores how global trade actually works, (2) uses the wrong metrics to define “fairness”, (3) inflicts real damage on both US consumers and trading partners, and (4) was clearly made up with no real economists in the room.

It’s simplistic, flawed and dangerous. But if the goal was to stir chaos, rattle markets, confuse diplomats and light trade fires that’ll take years to put out, then it's mission accomplished for Trump and his loyal band of yes-men.