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The conservative think tank AEI says the tariff formula makes no sense -- AND a math error made the numbers even worse.
The formula for the tariffs, originally credited to the Council of Economic Advisers and published by the Office of the United States Trade Representative, does not make economic sense. The trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.
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. As a result, the “reciprocal” tariffs imposed by President Trump are highly inflated as well.
. . . . Correcting the Trump Administration’s error would reduce the tariffs assumed to be applied by each country to the United States to about a fourth of their stated level, and as a result, cut the tariffs announced by President Trump on Wednesday by the same fraction, subject to the 10 percent tariff floor. As shown in Table 1, the tariff rate would not exceed 14 percent for any country. For all but a few countries, the tariff would be exactly 10 percent, the floor imposed by the Trump Administration.
Now, our view is that the formula the administration relied on has no foundation in either economic theory or trade law. But if we are going to pretend that it is a sound basis for US trade policy, we should at least be allowed to expect that the relevant White House officials do their calculations carefully. Hopefully they will correct their mistake soon: the resulting trade liberalization would provide a much-needed boost to the economy and may yet help us stave off a recession
. https://www.aei.org/economics/president-trumps-tariff-formula-makes-no-economic-sense-its-also-based-on-an-error/
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. As a result, the “reciprocal” tariffs imposed by President Trump are highly inflated as well.
. . . . Correcting the Trump Administration’s error would reduce the tariffs assumed to be applied by each country to the United States to about a fourth of their stated level, and as a result, cut the tariffs announced by President Trump on Wednesday by the same fraction, subject to the 10 percent tariff floor. As shown in Table 1, the tariff rate would not exceed 14 percent for any country. For all but a few countries, the tariff would be exactly 10 percent, the floor imposed by the Trump Administration.
Now, our view is that the formula the administration relied on has no foundation in either economic theory or trade law. But if we are going to pretend that it is a sound basis for US trade policy, we should at least be allowed to expect that the relevant White House officials do their calculations carefully. Hopefully they will correct their mistake soon: the resulting trade liberalization would provide a much-needed boost to the economy and may yet help us stave off a recession
12 replies
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= new reply since forum marked as read
Link to tweet
John Oliver: "[Trump's chart] features an estimate of 'Tariffs Charged to the USA' by other countries that nobody could figure out, until a financial journalist realized it was just how much we export to that country, minus how much we import, divided by how much we import."
