What if USTR’s Reciprocal Tariffs Formula were applied to U.S. services exports?

On 2 April 2025, the United States announced reciprocal tariff increases on goods imports. The stated concern was that persistent goods trade deficits constitute a threat to the national security of the United States. USTR published a formula used to compute the country-specific individual tariff increases.

Let’s set aside the controversy over whether this formula has any serious economic foundation (it does not). Instead, let’s focus on the fact that the U.S. has a persistent services trade surplus that other countries might conclude is a threat to their national security. If USTR’s formula were applied by foreign governments to U.S. services exports, how large would the resulting import taxes be? And how large are those import taxes on U.S. services exports when compared to the additional tariffs levied on U.S. goods imports?

To be clear, we are no fans of trade retaliation. However, among certain U.S. officials and trade analysts there appears to be the view that they “hold all the cards.” In which case, reminders of what is at stake economically from the United States are in order. Moreover, we know that import tariffs aren’t normally applied (or can’t be applied) to services exports. But in desperate times, we don’t rule out some governments figuring out how to hit foreign service providers. 

We pulled the 2024 U.S. services imports and exports data from the relevant report on the U.S. Census website. Such data is not provided for every U.S. trading partner—but many of the economies hit with large reciprocal tariffs on 2 April 2025 were included, so we proceeded. We applied the same USTR formula and decision rules for applying reciprocal tariffs followed by the Trump Administration—but in our case to U.S. services exports. 

The Figure on the next page summarises the results of applying the USTR’s formula to U.S. services exports and benchmarks the implied tariffs with those announced in the Rose Garden for U.S. goods imports. The main findings are:

• Based on USTR’s formula, ten trading partners might feel entitled to levy import taxes on U.S. services exports far above 10%. Brazil and Saudi Arabia could impose three-digit import taxes on U.S. services exports.

• Such are U.S. services export flows that application of USTR’s formula would mean that the EU and eight other economies could apply a minimum 10% import tax rate.

• For Saudi Arabia, Brazil, Singapore, Australia, China, Vietnam, Malaysia, South Korea, and Switzerland, the import taxes they might feel entitled to apply to U.S. services exports are much larger than the reciprocal tariffs the U.S. intends on applying to their goods imports.

• Strict application of the USTR formula would result in the EU, Japan, Israel, and Taiwan applying import taxes to U.S. service sector exports well below the import tariffs their goods exporters may soon face in the USA.

The introduction of a deficit-based formula to determine tariff rates is a recent innovation by the Trump Administration—the merits of which deserve scrutiny before being adopted more widely. That formula was applied selectively to goods trade, where the United States runs a deficit. This invites the application of the same formula by foreign governments to services trade, where the U.S. has a persistent surplus. While taxing services imports has been considered impossible or impractical in the past, perhaps necessity will be the mother of invention?  Add this evidence to the list of reasons why the U.S. “hand” in global trade matters is weaker than many in Washington, DC, routinely assert.

Simon J. Evenett and Fernando Martin are Founder and Associate Director & Head of Analytics, respectively, of the St. Gallen Endowment for Prosperity Through Trade. Evenett is also a Professor at IMD Business School and Co-Chair of the World Economic Forum’s Trade & Investment Council.

Figure: Potential exposure of U.S. services exports to USTR formula-driven reciprocal taxes.