Trump's tariff formula confounds the world, hitting the poor hardest

Ridiculed for imposing trade tariffs on frozen islands largely inhabited by penguins, U.S. President Donald Trump's formula for calculating those levies has a serious side: it is also hitting some of the world's poorest nations hardest.

The math is simple: take the U.S. goods trade deficit with a country, divide it by that country's exports to the U.S., and turn it into a percentage; then cut that figure in half to produce the U.S. "reciprocal" tariff, with a floor of 10 percent.

That's how the Australian territory of Heard Island and McDonald Islands, located near Antarctica, ended up with a 10 percent tariff.

But Madagascar, one of the poorest nations in the world with a GDP per capita of just over $500, faces a 47 percent tariff on the modest $733 million in exports – such as vanilla, metals and apparel – that it sent to the U.S. last year.

"Presumably, no one is buying Teslas there," said John Denton, head of the International Chamber of Commerce (ICC), making an ironic reference to Madagascar's inability to placate Trump by buying upmarket U.S. products.

Madagascar is not alone. The bluntness of the formula, when applied to economies that cannot afford to import much from the U.S., inevitably leads to a high reciprocal tariff: 50 percent for Lesotho in Southern Africa, 49 percent for Cambodia in Southeast Asia.

"The biggest losers are Africa and Southeast Asia," said Denton, adding that the move "risks further damaging the development prospects of countries already facing worsening terms of trade."

Southeast Asian nations hit far harder than expected

Vietnam, slapped with a 46 percent tariff, called for talks with Washington to reconsider the "unfair" U.S. duties, and Thailand's prime minister said she would pursue negotiations to try to reduce the 37 percent rate her country faces, far greater than the 11 percent it had expected.

"We have to negotiate and get into details," said Thai Prime Minister Paetongtarn Shinawatra. "We can't let it get to where we miss our GDP target."

Six of the nine Southeast Asian countries listed by Trump were hit with much higher-than-expected tariffs, ranging from 32 percent to 49 percent. By comparison, the European Union's tariff level was 20 percent, Japan's was 24 percent and India's was 27 percent.

Vietnam, where companies like Apple, Nike and Samsung Electronics have large manufacturing operations, appears particularly exposed. Its exports to the United States were worth $142 billion last year, nearly 30 percent of its gross domestic product.

Vietnam's benchmark stock index slid 6.7 percent, on course for its biggest one-day drop since January 2021, while its currency, the dong, lost 0.7 percent to hit an all-time low.

Vietnam's trade minister, Nguyen Hong Dien, sent a diplomatic note to the United States on Thursday and said he was seeking talks with the U.S. trade representative to revisit a decision he deemed unfair, according to a report on state media.

"Vietnam's export-driven growth model has been highly successful, attracting multinational companies ... However, a 46 percent U.S. tariff would directly challenge this model," said Leif Schneider, head of international law firm Luther in Vietnam.

Internationale Nederlanden Groep estimates that the tariffs put 5.5 percent of Vietnam's gross domestic product at risk.

Moreover, Cambodia, Laos, and war-torn and earthquake-hit Myanmar – the three least developed countries in the Association of Southeast Asian Nations on the UN list last year – are on track to face tariff rates of 49 percent, 48 percent and 44 percent, respectively.

Expert: Highest tariff will kill African kingdom of Lesotho

A 50 percent reciprocal trade tariff on Lesotho, the highest levy on Trump's long list of target economies, will cripple the tiny Southern African kingdom, an economic analyst there said on Thursday.

Lesotho, which Trump described in March as a country "nobody has ever heard of," is one of the world's poorest nations, with a gross domestic product of just over $2 billion.

It has a large trade surplus with the United States, mostly made up of diamonds and textiles, including Levi's jeans. Its exports to the United States, which totaled $237 million in 2024, account for more than 10 percent of its GDP.

In Africa, the U.S. move signaled the end of the AGOA (African Growth and Opportunity Act) trade deal, which was designed to help African economies develop through preferential access to U.S. markets, trade experts said.

"The 50 percent reciprocal tariff introduced by the U.S. government is going to kill the textile and apparel sector in Lesotho," said Thabo Qhesi, a Maseru-based independent economic analyst.

Oxford Economics stated that the textile sector, with some 40,000 workers, is Lesotho's biggest private employer and accounts for roughly 90 percent of its manufacturing employment and exports.

"Then you have retailers selling food, and residential property owners renting houses to workers. If factories were to close, the industry would die, and there would be multiplier effects," Qhesi said. "So Lesotho will be dead, so to say."

Lesotho scrambled to put together a delegation on Friday to head to Washington to engage with the United States on tariffs that risk wiping out nearly half of its exports, its trade minister said – a move seen by analysts as potentially devastating for the small Southern African economy.

Trade Minister Mokhethi Shelile told parliament on Friday that officials had already contacted the U.S. embassy "to clarify how and why Lesotho was included in the list of such high reciprocal tariffs.”

He added that Lesotho was assembling a high-level delegation to the United States "to try to maintain the current market dispensation."

(With input from agencies)