The Trump administration used a new approach to calculating tariffs that would affect U.S. trade relations around the globe in a major way. The calculation, which was essentially the country’s trade deficit divided by its exports to the United States, multiplied by one-half, targeted nations with large trade surpluses relative to their exports to the U.S. Journalist James Surowiecki originally proposed this idea in a post on X. It has since caught the fancy of Wall Street analysts, who hail its promise for global trade.
These tariffs were supposed to create a regime of “reciprocal” fees. They equalized the playing field by leveling the tariffs other countries place on American goods, dollar for dollar. Analysts contend this calculation was not truly mutual and really emphasized surplus targeting. In 2022, China’s trade surplus with the U.S. made up 67% of their total exports. In 2024, this led to an amazing $295.4 billion deficit for America, while China exported $439.9 billion worth of goods to us.
The approach taken by the Trump administration was to target countries with high trade surpluses. Such a strategy would be deeply counterproductive, with significant backlash from countries that export vital supplies to the US. We factored non-tariff barriers, such as costs associated with additional inspections, into our calculations as well. These complex trade challenges include value-added taxes and other non-tariff regulatory barriers.
Mike O’Rourke, a leading analyst, sounded the alarm over this tariff strategy’s unintended consequences.
“While these new tariff measures have been framed as ‘reciprocal’ tariffs, it turns out the policy is actually one of surplus targeting,” – Mike O’Rourke
O’Rourke emphasized just how bad these tariffs could get. They could have a major impact on those countries that are critical links in U.S. supply chains.
“Knowing how these rates were calculated highlights that they are generally going to be most severe on the nations that US companies rely heavily upon in their supply chain,” – O’Rourke
As he stated in his testimony, he was concerned about the cumulative effect on multinationals.
“It is hard to imagine how these tariffs would not wreak havoc upon the profit margins of major multinational corporations.” – O’Rourke
That’s a calculation with profound implications. It would hit some of the largest global firms that provide components to countries that are facing tariffs and therefore roiling trade relationships on a deeper level. As each country grapples with these developments, the fallout will assuredly be felt across global markets and supply chains.