Conservative Think Tank Reveals the Massive 'Error' in Trump's Tariff Formula [View all]
Source: Daily Beast
Updated Apr. 6 2025 10:27PM EDT
Published Apr. 6 2025 6:23PM EDT
The math in President Donald Trump’s tariff formula isn’t adding up—and even conservatives are confused. The American Enterprise Institute, a prominent conservative Washington think tank, said the Trump administration appears to have missed a crucial distinction made in a 2021 paper cited as one of the bases of its tariff formula, causing the final levies to be about four times higher than what they should have been.
“The formula for the tariffs… does not make economic sense,” AEI senior fellows Kevin Corinth and Stan Veuger wrote. “But even if one were to take the Trump Administration’s tariff formula seriously, it makes an error that inflates the tariffs assumed to be levied by foreign countries four-fold.”
Under the Trump administration’s formula, the reciprocal tariff is equal to the U.S. trade deficit divided by U.S. imports from a given country, divided by two. One variable in the formula relates to the “elasticity of import prices with respect to tariffs” and was assigned a value of 0.25.
AEI said, however, that this value should have actually been 0.945. “Their mistake is that they base the elasticity on the response of retail prices to tariffs, as opposed to import prices as they should have done,” the think tank said. “The article they cite by Alberto Cavallo and his coauthors makes this distinction clear.”
Read more: https://www.thedailybeast.com/conservative-think-tank-reveals-the-massive-error-in-trumps-tariff-formula/
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