President Donald Trump's new tariff policy appears to follow a simple yet controversial formula: dividing a country's trade surplus with the US by its total exports to calculate the percentage of "tariffs charged to the USA," according to bne IntelliNews' analysis of the recently announced rates announced late on April 2.

Globally, reactions have been negative to the Trump administration’s seemingly random allocation of tariffs, which include places such as the tiny French overseas department of St Pierre and Miquelon off the coast of Canada.

However, the formula becomes evident when examining the numbers for several major trading partners with the US government's trade policy seemingly thought up on the "back of a fag packet," to use an 1980s English expression.

The European Union, with a $235.6bn surplus on $605.8bn exports, yields a calculation of 39% (235.6/605.8), close to the claimed tariffs. Indonesia's $17.9bn surplus on $28.1bn exports yields 64% (17.9/28.1), while India's $45.7bn surplus on $87.4bn exports yields 52% (45.7/87.4). Perhaps most striking is Vietnam, where a $123.5bn surplus on $136.6bn exports yields 90% (123.5/136.6).

This calculation method helps explain why countries with large trade surpluses relative to their total exports to the US face higher tariff rates under Trump's plan. The approach treats trade deficits as equivalent to tariffs, regardless of actual trade barriers imposed by these nations.

Israel's 17% tariff rate and Iran's 10% rate reflect this formula rather than political considerations, though the optics of Iran receiving better treatment than Israel could prove politically problematic for the administration which has backed Israel to the hilt.

Trump described his policy as "America Liberation Day" during the White House Rose Garden announcement on April 2. "It's very simple: if they do it to us - we do it to them," he stated.

The policy will begin with a base 10% tariff on all goods imported from countries outside the USMCA agreement this weekend, with additional country-specific tariffs starting on April 9.

Global financial markets have already reacted negatively, with futures on major indices dropping significantly. European markets recorded significant losses on April 3 as investors responded to the new US tariff regime, with financial sector shares particularly affected amid concerns about broader economic impacts.

The pan-European STOXX 600 fell 1.5% in early trading, with German equities experiencing steeper declines of 1.8%. Germany's vulnerability stems from its strong trade relationship with the US, which was ranked as its most important trading partner last year.

US market indicators also showed negative sentiment, with futures contracts dropping 3.1% as capital moved toward traditional safe-haven investments, including government bonds and precious metals.

Following the news, Israeli Finance Minister Bezalel Smotrich said on April 3 that he was convening ministry officials to formulate a path through the sanctions despite the country announcing on April 1 that it would remove all tariffs with the US in expectation of being excluded from the list.

As part of the list, Israel was hit with 17% tariffs while sanctioned Iran was hit with 10% and currently only sends very limited items, including foods and carpets, to the US. The damage to the Israeli economy and tech sector is much more significant.

Smotrich said he would "analyse opportunities and risks and formulate courses of action, both in relation to President Trump and his team and regarding the necessary steps to strengthen Israel's industry".

Trump is confusing trade deficits with actual tariffs, a form of tax, imposed on a country’s imports from the US, which are typically much smaller. For example, as close trading allies the EU only imposes actual import tariffs of 7% on US goods, whereas if you take the ratio of its trade surplus with the US then that is 40%. The Trump team then just halve that number to get to the new “tariff” rate.

This simplistic formula takes no account of the massive differentials in wages between somewhere like Vietnam or Cambodia and the US, which is the source of large trade surpluses both countries have with the US. For example, the US apparel firm Nike has over half a million factory workers in Cambodia working for a pittance making its clothes that are then exported to the US.

This is the essence of globalisation: taking advantage of low wages in emerging markets to produce goods cheaply that can be sold for a high price on the home markets. Cambodia is not taking advantage of the US; the US is taking advantage of Cambodia, yet under the new Liberation Day tariff regime, Cambodia is being punished for running a large trade surplus with America.

Selected Trump’s “reciprocal” tariffs

Country	US "reciprocal" tariff	Average actual tariff imposed on US goods
China	34%	Approx.7%
European Union	20%	Approx.3%
Japan	24%	Approx.2%
India	26%	Approx.13%
South Korea	25%	Approx.5%
Canada	25%*	Approx.0.8%
Mexico	25%*	Approx.0.7%

Source: bne IntelliNews

*Note: Many USMCA-compliant goods from Canada and Mexico are exempt from these tariffs.