A frequently overlooked error in the Trump administration’s tariff calculation has been exposed, revealing a shocking 400% inflation in impact estimates. The formula, established with the Council of Economic Advisers, simply divided the U.S. trade deficit with individual countries by the value of imported goods from them, making it largely ineffective. Economists highlight a significant flaw where two key variables effectively nullify one another, rendering the formula meaningless.
Economists Kevin Corinth and Stan Veuger from AEI examined the tariff calculation and identified a critical variable: the lasticity of import prices concerning tariffs. This variable gauges how much import prices change with the application of tariffs. The administration employed a value of 0.25; however, this figure inaccurately reflects retail price changes instead of import price impacts. Corinth and Veuger assert that the correct value should be 0.945 to understand tariff effects at the import stage.
Using the appropriate elasticity in calculations would drastically reduce estimated tariffs, such as lowering Vietnam’s hypothetical tariff from 46% to just 12.2%. They criticise the administration’s reliance on the flawed formula, stating, “Our view is that the formula the administration relied on has no foundation in either economic theory or trade law.” Furthermore, they insist that calculations for U.S. trade policy must be conducted with care and rigor.
Economists uncovered a significant mathematical error in the Trump tariff formula, inflating its impact by 400%. Two crucial variables in the formula cancelled each other out, leading to misleading calculations regarding tariff effects. Using incorrect values for elasticity, the administration likely overstated potential tariffs, raising concerns about sound economic policy. Experts stress the need for careful calculations in trade decisions.
The miscalculation in Trump’s tariff formula highlights the dire need for rigorous economic analysis in national trade policy. The inflated tariff impacts, influenced by misapplied elasticity concepts, reveal vulnerabilities that could lead to widespread trade chaos. It underscores the importance of accurate economic foundations in policymaking, ensuring that officials rely on robust methodologies for the nation’s trade strategies.
Original Source: m.economictimes.com
