Could Trump’s ideology, backed by primary school maths, cause a market meltdown?
Could it be possible that the markets are tumbling because Trump and his team can’t add, or worse, lied to hide a warped ideology?
President Donald Trump’s administration has rolled out sweeping “reciprocal tariffs” targeting over 180 countries in a move that has sent shockwaves through global financial markets and trade networks. Announced with typical Trump fanfare in the White House Rose Garden on 4 April 2025, Trump wielded a chart (Table 1) to underscore his point, claiming his measures would level the playing field and end decades of the U.S. being “ripped off” by its trading partners.
Consequently, countries have been hit by additional tariffs of as much as 50 per cent. These have been calculated (I use that description loosely) with a formula that effectively charges a country for having a goods trade surplus with the U.S. According to analysts, the tariffs imposed have increased the average tariff rate in the U.S. to 22 per cent – up from 2.5 per cent last year. Southeast Asian nations and some of the world’s weakest economies – those that don’t import much from the U.S. because they can’t afford to – will be hit the hardest by the reciprocal tariffs.
Trump claims the stock market will boom, yet, as markets tank, supply chains buckle, and the world edges closer to a global recession, a growing chorus of critics are questioning not just the economic fallout, but the very numbers underpinning this policy. The reality, it seems, is far more chaotic – and far less calculated – than the administration would have us believe.
As an aside, Wall Street stocks recently fell the most in a single day in almost five years. The S&P 500 ended the day down 4.8 per cent, its biggest daily decline since June 2020, the Nasdaq slumped down 6 per cent and the U.S. dollar experienced its biggest daily decline since 2022, declining 1.6 per cent. Since Trump was inaugurated the U.S. stock market has slipped 10 per cent, which is the worst 10-week start to a presidency since George W Bush twenty-four years ago.
Table 1. Trumps tariffs
Source: Trump Administration
The introduction of these tariffs has unleashed global mayhem. Stock markets worldwide have plummeted as investors grapple with the prospect of disrupted supply chains and soaring consumer prices. From Asia to Europe, countries are scrambling to assess the damage, with retaliatory measures already being floated by China and others. The U.S., a linchpin in global trade, now risks sparking a full-blown trade war, if not a military one – all based on a policy that is built on shaky, if not outright fabricated, foundations.
The promise of “Liberation Day” has instead delivered a nightmare for businesses and consumers alike, with the ripple effects threatening to destabilise an already fragile post-pandemic economy.
In recent ABC coverage of Trump’s tariff announcement, a picture of confusion and scepticism is justifiably painted. Brandishing his “Reciprocal Tariffs” chart, Trump outlined a system where the U.S. would match – or “discount” – tariffs allegedly imposed by other nations on American goods. The chart listed countries alongside supposed tariffs they charge the U.S., followed by the retaliatory rates America would impose. For instance, Australia was slapped with a 10 per cent tariff, despite Prime Minister Anthony Albanese’s insistence that Australia levies no tariffs on U.S. goods. Indonesia faced a 32 per cent rate, derived from a mysterious 64 per cent figure the White House attributed to Jakarta.
The ABC notes the administration’s vague justification: the tariffs account for “currency manipulation and trade barriers” in addition to actual duties. In Australia’s case, this might mean biosecurity restrictions or even its 10 per cent Goods and Services Tax (GST) – a domestic levy applied equally to local and imported goods – are being misconstrued as trade barriers.
Yet, as Albanese pointed out, “a reciprocal tariff would be zero, not 10 per cent.” The lack of transparency has fuelled doubts about how these numbers were derived.
Plunging the world into a trade war on fake math.
Analysts, like Rabobank’s Michael Every, suggest the figures stem from a simplistic formula: dividing a country’s trade surplus with the U.S. by the value of that country’s exports to America, then halving it for the “discounted” U.S. tariff. It’s a method that raises more questions than it answers.
This alarming explanation has also surfaced on Reddit and has since been corroborated by others: the Trump administration didn’t base these tariffs on actual trade data, economic models, or even negotiated deals. Instead, they leaned on a crude arithmetic shortcut that equates trade deficits with tariffs – a move one observer called “insane” and “insulting.”
Here’s how it works. Take China: in 2024, the U.S. had a US$270 billion trade deficit with Beijing, importing US$401 billion worth of goods. Divide 270 by 401, and you get approximately 67 per cent. Have a look at Table 1., sure enough Trump listed China as charging the U.S. a 67 per cent tariff.
The White House claimed China “charges” the U.S. this amount, then set a “discounted” tariff of 34 per cent. Switzerland offers another glaring example: Trump’s chart suggests Switzerland charges a 61 per cent tariff in U.S. imports, yet their actual average tariff is around 2 per cent.
Why 61 per cent? As one observer noted, the 61 per cent number that Trump said is a tariff is actually the result of the U.S. importing more chocolate and watches from Switzerland than it exports cheese and tech to Switzerland, creating a deficit that the administration morphed into a fictional tariff or tax rate.
And in fact the Office of the United States Trade Representative confirmed as much here, where they say; “Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing”, adding, “Tariffs work through direct reductions of imports. To conceptualise reciprocal tariffs, the tariff rates that would drive bilateral trade deficits to zero were computed.”
I agree with those who suggest this is not sound policy. A trade deficit isn’t a tariff; it’s simply the difference between what the United States buys and what they sell.
By this logic, your local grocery store is imposing a 100 per cent tariff on you because you’ve never sold anything to them. The absurdity is matched only by its global consequences: massive tariffs justified by fake numbers, threatening to upend global supply chains and provoke retaliatory trade wars.
Deception over data
The administration sold this as a tough, fair response to unfair treatment, but the reality is a deceptive shortcut dressed up as national policy. The White House’s chart, with its tidy columns and bold claims, masks a process that ignored the complexity of global trade for a soundbite-ready solution. Trump’s assertion of “reciprocal – that means they do it to us and we do it to them” falls apart when the “they” part is a fiction born from lousy maths.
And why did they do this? Trump’s argument is that other countries have treated the U.S. unfairly, and the renewed strength of the American economy will make up for imports. The truth is the pain of higher prices will be felt long before the onshoring of U.S. manufacturing can be built out.
For 40 years, Trump has believed tariffs are an economic panacea. In the Rose Garden of the White House, Trump lamented the commencement of the implementation of income taxes in 1913. He would have preferred the U.S. continue to rely tariffs imposed on foreign countries to meet the cost of budget deficits.
While everyone else agrees that the Smoot-Hawley Tariff Act deepened and extended the 1930s depression, Trump believes they just weren’t enough.
If he keeps going, you can safely expect a recession and a deep one. In that scenario the stock market sell-off is only just getting started. And Gold has way higher to go too.
The fallout is already evident. Markets are tanking as investors realise the policy’s flimsy foundation. Consumers face higher prices as tariffs ripple through supply chains. And allies like Australia, caught in the crossfire despite zero tariffs on U.S. goods, are left questioning America’s reliability as a partner. This isn’t just bad policy – it’s a reckless gamble with the global economy, all based on masquerading maths.
Trump’s tariff gambit was meant to project strength and fairness, but it’s delivered chaos and exposed a troubling truth: the numbers driving this upheaval are little more than a mirage. As many begin to dig into the discrepancies, and as their investigations peel back the curtain, the administration faces a reckoning. Global trade is a complex beast, not a playground for simplistic math tricks. Unless cooler heads prevail, the calamity we’re witnessing may only just be beginning.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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