How does the Trump administration select tariff percentages?

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Timothy Rupel from Tucson, Arizona asks: 

How is the administration coming up with tariff percentages on goods? Is there a strategy or reason behind the numbers they choose? They seem to always use 25%.

Since President Donald Trump first took office a decade ago, he’s imposed sweeping tariffs on countries around the world and on critical imports like steel and aluminum.

The administration has sometimes favored round rates like 25% or 50%, but it’s also chosen to impose very specific rates. When Trump first announced reciprocal tariffs on other nations, his plan included a 49% tariff on Cambodia and an 18% tariff on Zimbabwe (rates that have since been lowered).  

The White House has put forth a series of justifications for its tariff rates, which include shoring up domestic production of a good, protecting U.S. companies from unfair competition and addressing trade imbalances between the U.S. and other nations.

But experts told Marketplace that they question the rigor of the White House’s methods. Even in the cases where they know the calculation that the administration used, they say their tariff policies won’t be able to help its purported policy objectives, like balancing trade deficits. 

Rates on specific products

Brian Kelly, an emeritus associate professor of economics at Seattle University, said he thinks tariff rates like 10% or 25% are designed to be large enough so that the White House can tell American companies that they’re bringing back domestic manufacturing, but still restrained enough to allow in some imports. 

During the first Trump administration, the White House imposed a 25% tariff rate on steel and a 10% on aluminum. Although the Biden administration lowered tariffs on these imports from some countries, President Trump announced last February that he would reimpose the full 25% tariff rate on steel and raise the aluminum tariff rate to 25%. In June, Trump announced that he would double the tariff rates for both of these imports to 50%. 

Section 232 of the Trade Expansion Act of 1962 gives President Trump the authority to institute tariffs on steel and aluminum, but it doesn’t dictate the specific percentage, said Andrew Wender Cohen, a history professor at Syracuse University. 

In his first term, Trump based his steel and aluminum rates on findings from the Commerce Department. The Commerce Department said that global oversupply of steel and aluminum weaken America’s economy and are therefore a threat to national security.

It recommended rates of at least 24% and 7.7% on steel and aluminum, respectively, so that production for each could reach 80% capacity. The Commerce Department said that this level would provide both industries “with long-term viability.”

The Trump administration then rounded those figures up. A fact sheet from the White House’s website at the time said that these rates would protect domestic steel and aluminum companies and help them maintain or ramp up production. 

Over the past year, steel and aluminum tariff rates have risen even higher. The Trump administration decided to double them to 50% back in June, although it made an exception for the U.K., allowing the rates to remain at 25%. The White House website justified these percentages by stating that these rates would go up “to protect our national security.” 

In some cases, Trump has threatened astronomical rates on other countries to put pressure on their leaders to carry out his objectives. 

Trump recently threatened to place 200% tariffs on French wine and champagne “in an apparent effort” to get French President Emmanuel Macron to join Board of Peace, an initiative Trump launched to resolve global conflicts, Reuters reported. 

Trump also recently threatened to impose a 100% rate on Canada if it finalizes a trade deal with China. However, Canadian Prime Minister Mark Carney said it does not plan to strike a free trade deal with China and that the two countries have agreed on a narrower trade deal that reduces tariffs in some sectors. 

Reciprocal tariff rates

In April, Trump announced he would impose reciprocal tariff rates on countries around the world, which included figures that were more specific than his tariffs on aluminum and steel. 

The White House chose a country’s tariff rate by looking at whether there was a trade deficit between the U.S. and that country. They divided that figure by the total imports from that country, and then multiplied it by 100 to get a percentage. That percentage was then divided by two, Kelly explained. 

Let’s say the U.S. is importing $100 billion worth of goods from one country, and exporting $40 billion worth of goods to that country. That’s a trade deficit of $60 billion. If you divide $60 billion by $100 billion, that’s 60%. Then, if you cut that figure in half, that’s 30%, which is the tariff rate the other country would face under this formula. 

“So there was a calculation behind it, but to economists and to many others, it's a calculation that makes no sense,” Kelly said. “The tariffs aren't reciprocal. They aren't based on the other countries’ tariffs.” 

There’s also no reason these tariff rates would solve the trade deficit between the U.S. and another country, Kelly said. 

Under the World Trade Organization’s most-favored-nation rule, a country generally can’t discriminate between trading partners (although there are some exceptions).

“This is one of the fundamental planks of the post-war system, which is that you don't charge different tariffs to different countries. You charge everyone the same. How come? So that comparative advantage can work,” Kelly said. 

If the same tariff rate is placed on everyone, then production will occur where it makes the most economic sense, Kelly said. 

“Perhaps the most radical thing about the tariffs that Trump has introduced is he's dropped the most-favored-nation aspect,” Kelly said. 

Now, production may be partly based on a country’s tariff rate, which means “the world is going to lose some of its efficiency,” Kelly said. 

Take wine production, for example. France makes a lot of it, partly because they have a long tradition of doing so and they’re good at it, but it’s also partly because they have the right soil and the right climate, said Syracuse University’s Andrew Wender Cohen. 

“There's no point in Florida focusing on wine production,” Cohen said. 

The United States is placing tariffs on other countries for making successful products – not because they’re acting unfairly toward the U.S., Cohen said. 

“Imagine there's a country that's producing something very inexpensively that people make a lot of use out of. You're basically saying, ‘Well, we want to punish you for that,’” Cohen said.