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The recent Atlantic leak indicates a lack of consistency in US foreign policy, specifically regarding tariff rates. Current tariff calculations appear arbitrary and are derived from trade deficits rather than a comprehensive analysis.
For instance, South Korea’s tariff rate was set at 25% after calculating a $66 billion trade deficit against total imports. Similarly, the trade deficit with China resulted in a 67% rate derived from dividing that deficit by US imports.
Political Basis Of Tariff Determination
The methodology was applied uniformly across countries, with those showing deficits capped at 10%. Notably, services trade, where the US has a surplus, was excluded. Tariffs appear to be influenced by political strategies rather than concrete trade policies.
Country-specific examples, such as those involving the UK and EU, reveal discrepancies in tariff rates despite similar pre-Brexit trade conditions. The chaotic approach to tariffs has led to uncertainty, with Secretary of the Treasury Scott Bessent showing confusion in interviews regarding crucial trade details.
Despite the prevailing disarray, there remains time to revise tariff decisions before their implementation on April 9. The current administration’s focus on the market’s response has shifted, raising questions about how future market declines will be addressed.
What we’ve seen so far paints a picture of a hurried and loosely reasoned approach to trade enforcement, driven more by optics than underlying data. The Atlantic leak essentially confirmed an internal process lacking economic rigour. Instead of basing tariff levels on economic impact assessments or sector-specific analysis, the method selected seems to rely solely on broad headline numbers—namely, trade deficits versus import values. As a result, the imposed rates fail to make distinctions based on complexity, such as the value-added by re-exporters, or multinational supply chains.
Exclusion Of Services And Market Impact
Now that it’s clear the model was applied broadly and mechanically—with each bilateral deficit slammed against total goods imports—it’s no wonder the results were inconsistent. Take South Korea and China: clear examples where each nation received penalties linked to numerical shortfalls with no visibility into industrial segmentation or shifts in multilateral trade flows.
More troubling is what isn’t measured. By excluding services, the administration ignored a region where the United States consistently performs better. That imbalance in consideration distorts the whole mechanism. Nations with whom the US earns billions via licensing, insurance, and consultancy could be unnecessarily penalised in goods because one side of the story is missing entirely.
In the case of the UK and the wider EU, both partners now face uneven tariffs, despite largely parallel trade patterns pre-Brexit. The result has been a fragmentation of existing expectations. Importers and exporters are in limbo, and we’re seeing traders hesitate on forward contracts and price hedging because of the ambiguity.
The Treasury Secretary’s poor grasp on key portions of the scheme adds to the disorder. When the lead policy voice can’t confidently explain mechanisms or answer for rate discrepancies, it undermines any claim the administration might make to transparency or predictability. That has knock-on effects in the derivatives space—where uncertainty in rate policies hardens liquidity constraints, softens bid-ask spreads, and ultimately spooks momentum.
Looking at the calendar, we’ve still got space between now and 9 April. Plenty of room for activity. For those of us watching derivatives based on sector indexes, sovereign yield curves, or import-linked currency pairs—it’s essential to start planning for volatility, not direction. The administration’s recent shift away from market support behaviour means softness in equities may no longer trigger swift reassurance. That alone should prompt an adjustment in risk appetite in the short-dated end.
What we’re watching for now is whether any real recalculations surface—ones that reflect category-level analysis or revised surplus-deficit models that factor in services. But in the meantime, it’s best to build positions around the premise that tariff logic may remain erratic. That means any slope in equity or commodity markets could now be amplified by layers of mispricing across related options structures.
More to the point: with geopolitical motives intruding more regularly into economic channels, the utility of fundamental indicators diminishes, and we’re forced to lean harder on timing and implied volatility. There’s no advantage in waiting for clarification if none is forthcoming before implementation. Instead, hedging across sectors most exposed to transatlantic freight direction, particularly agriculture and heavy industry, should be prioritised.
Interest-sensitive instruments should also begin adjusting for greater spread in forward guidance, in case tariff-linked inflation starts nudging up consumer prices while monetary tone remains off-centre. And any remaining assumptions about policy continuity ought to be drastically reduced in model weighting. Let market signals tell the story first, and wait for confirmation before assuming coherence from policy circles.
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