Ellie Park, Multimedia Managing Editor

On April 2, President Donald Trump unveiled a new set of tariffs on all goods imported to the United States. Starting on Saturday, April 5, a 10 percent tariff was imposed on goods imported from all countries. On Wednesday, April 9, certain countries will be hit with even higher, “ad valorem,” tariff rates on goods that will range as high as 50 percent.

During his speech, President Trump displayed a chart listing the “tariffs charged to the U.S.A., including currency manipulation and trade barriers” by select countries, along with “discounted reciprocal tariffs” with which his administration is responding. 

Yale English professor and journalist James Surowiecki was immediately skeptical of the tariff rates supposedly faced by the United States.

“If you knew anything about, and, I mean, barely anything about foreign trade, you knew that the numbers just didn’t make any sense,” Surowiecki told the News. “I thought they had basically made the numbers up.”

Though the tariff rates imposed on the United States by foreign countries are easily accessible, the non-tariff trade barriers supposedly used to limit imports of U.S. goods, such as currency manipulation and value-added taxes, are more difficult to calculate.

At first, Surowiecki believed that the Trump administration had preemptively chosen a reciprocal tariff rate, which is 50 percent of the supposed tariff and non-tariff trade barrier calculation, and then “backfilled” by making up the non-tariff trade barrier number that would result in that tariff rate.

Economist Paul Krugman ’74, in an interview with The New York Times, shared Surowiecki’s skepticism about the validity of the non-tariff trade barrier figure. 

“Who would be doing that careful assessment of other countries’ trade policies, country by country? That’s a massive undertaking,” Krugman said. “And it seemed implausible, basically impossible, that they could have done that.”

After closer analysis and “screwing around on a little calculator function on my laptop,” however, Surowiecki stumbled upon the formula that the Trump administration had used to calculate the combined tariff and non-tariff trade barrier figure — and it didn’t have to do with trade barriers at all.

He found that the administration had simply divided the trade deficit — the goods the United States imports from a country minus the goods it exports to that country — by the total goods the United States imports from that country. Then, to arrive at the “reciprocal” rate with which the countries will be faced on April 9, this figure was halved.

“There is no connection between bilateral trade deficits and trade restrictions imposed by a foreign country on its imports from the United States,” Samuel Kortum, Yale economics professor, wrote to the News.

The official formula’s reliance on the trade deficit on goods reflects the Trump administration’s ultimate goal of establishing a trade balance with each of its trade partners, according to Surowiecki. 

The adoption of reciprocal tariffs claims to operate on the idea that if countries impose no tariffs or trade barriers upon the United States, the United States will respond in kind. Under the formula proposed by the Trump administration, the only way for a country’s supposed tariffs and trade barriers to be calculated to be zero is if the United States has a trade balance of zero with that country. 

“The basic premise of the formula is that any trade deficit has to be the result of trade barriers, manipulation and bad behavior on the part of our trading partners,” Surowiecki said. “The point of the tariffs is to get those tariff rates that are imposed on us down to zero. But the only way to do that is to get rid of trade deficits with every single country in the world.”

A trade deficit is often considered by mainstream economists to be a sign of a productive nation. Yale economics professor Amit Khandelwal emphasized that trade balances must be analyzed in the context of many other relationships in the global market. 

“If you’re a really productive nation, and you have high levels of productivity, you might be having a lot of investment, your savings might be a little bit slower and other countries might want to invest in your country,” Khandelwal said. “That will lead to a current capital account surplus and a current trade deficit.” 

Yet according to Surowiecki, Trump’s “zero-sum” view of the world leads him to see any trade deficit as a sign that the United States is being “ripped off” by a trading partner.

This view, which has been put forward by the president for forty years, Surowiecki said, reflects his psychology more than it does America’s place in the world.

“I think he just sees existence as basically a struggle,” Surowiecki said.

In the case of countries with which the United States does in fact maintain a trade surplus, exporting more goods than it imports, the numerator in Trump administration’s formula is negative, resulting in a non-viable, negative reciprocal rate. Surowiecki realized that the administration had remedied this defect by simply applying a duty rate of 10 percent to these countries.

Surowiecki took to X — formerly Twitter — where he posted his findings and wrote, “the tariff rates that foreign countries are supposedly charging us are just made-up numbers.” He expressed later in an X post, “What extraordinary nonsense this is.”

Surowiecki’s post on X quickly gained notoriety, and as of April 6 has garnered 19.1 million views and almost 30 thousand reposts. The shock generated by the calculation’s simplicity prompted a reposted response from the Trump administration’s deputy press secretary, Kush Desai, who told Surowiecki, “No we literally calculated tariff and non tariff barriers.”

The Office of the United States Trade Representative posted an official formula, which was included in Desai’s tweet, that appears much more complicated than the calculation proposed by Surowiecki. However, when one multiplies the values representing different price variables, the formula ultimately simplifies to Surowiecki’s formula: trade deficit divided by goods imported.  

The Budget Lab at Yale sprang into action as soon as Trump announced the tariffs on April 2, publishing a comprehensive report with an eye to the impact the new tariffs would have on the global economy.

“We had invested in setting up our tariff modeling ahead of time, which allows us to respond quickly in the moment,” said Budget Lab Representative Kelly Friendly.  

The study predicts the April 2 tariffs will cause a -0.4 percent reduction in the domestic GDP, reflecting a loss of over $100 billion from the United States economy. Additionally, the anticipated rise of consumer product prices will effectively reduce the average disposable income of American households by over $2,000. And because lower-income households spend a larger proportion of their income on disposable goods, these tariffs disproportionately harm the poor — in other words, they are regressive. 

The experts at the Budget Lab commented on the confusion around the relationship between the April 2 tariffs and the tariffs announced in March. Chinese products have already been hit with 20 percent tariffs, and the country faces 34 percent tariffs based on the April 2 announcement. 

“Overall this policy is highly unusual,” Friendly wrote to the News. “Would the rate on China be 34 percent or 54 percent? Would the rate for products dominate or the rate for the country? One of the reasons markets are reacting as they are is because of the chaos in the announcement – not just on the substance.”

Since Wednesday’s announcement, the stock market has been thrown into mayhem, with the S&P 500 experiencing its worst two-day plunge since the pandemic began in March 2020. Yet the impact of the April 2 tariffs, should they remain in effect, will not be limited to these short-term market effects.

According to Khandelwal, the effects of the newest tariffs are twofold. 

“One is kind of the direct effect of the tariffs, which is that prices are likely to rise,” Khandelwal said. “When you have a magnitude of tariffs or taxes that is so high, my guess is that they would get passed to consumers pretty quickly. But then there’s the secondary thing, which is what you’re seeing in the stock market. Even companies like Facebook, which is a service company not affected by tariffs, is also collapsing.”

Surowiecki emphasized that the Trump administration’s tariff calculations only concern the goods imported and exported from a country, leaving out the services that are considered in the calculation of a full trade deficit. Services provided to foreign consumers by domestic companies like Facebook, for example, are not considered in the deficits used to determine reciprocal rates.

This choice is a deliberate one, according to Surowiecki, reflecting Trump’s larger motivations for implementing such sweeping tariffs.

“We specialize in digital services. We specialize in entertainment,” Surowiecki said. “So Trump is basically reading the numbers to suit his particular view of the world, like only these dollars are real, or whatever it is. And obviously this is connected to the fetishization of manufacturing.”

Aside from the goal of attaining a trade balance with each of its foreign partners, the Trump administration has aimed its efforts at reshoring manufacturing. 

However, preliminary estimates do not foresee the April 2 tariffs as meaningfully increasing the share of the U.S. workforce employed in manufacturing jobs.

“I saw one estimate that suggested that even if the tariffs worked relatively well, that the share of the U.S. workforce that was in manufacturing and employment would rise from 8 percent to 9 percent,” Surowiecki said. “Is that really worth overturning the global economic order?”

The Yale Economics Department is located at 28 Hillhouse Ave.