The formula used to calculate the reciprocal tariffs is highly misleading writes Professor Peter Draper and Vutha Hing from the University of Adelaide.

On April 2, United States President Donald Trump unveiled a sweeping new “reciprocal tariff” regime he says will level the playing field in global trade – by treating other countries the way (he claims) they treat the US.

First, Trump’s plan will impose a “baseline” 10 per cent tariff on virtually all goods imported into the US, effective April 5. Then, from April 9, 57 countries will face higher “reciprocal tariffs”.

These vary by country, according to a formula based on individual trade deficits.

On face value, the new tariff regime might sound like a simple solution for fairness. If a particular country was taxing American imports with a 50 per cent tariff, it might seem fair for the US to tax their imports at 50 per cent as well.

But appearances are deceiving.

These new “reciprocal” tariffs ostensibly aim to eliminate the US trade deficit by making imports more expensive so that Americans buy less from abroad until imports equal exports.

But the Trump administration hasn’t directly matched specific foreign tariffs. Instead, they’ve opted for a crude formula based on bilateral trade deficits between the US and each specific country. Those aren’t the same things.

A country has a trade deficit when the total value of everything it imports from somewhere else exceeds the value of what it exports there. A trade surplus is the opposite.

Trade deficits and surpluses – the balance of trade – can be calculated between specific countries, but also between one country and the rest of the world.

Tariffs are different things altogether – taxes a........

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