An error in the White House’s maths may have overstated the reciprocal tariffs announced on Thursday by 400%, conservative researchers say

US President Donald Trump’s trade officials not only used a flawed theory to design its tariff policy, they also appear to have done the resulting calculations incorrectly.

Researchers at the American Enterprise Institute, a conservative think-tank, claim the Trump administration set its bilateral tariffs four times higher than its own formula required.

The Trump Administration calculated a theoretical tariff on US exports based on the trade deficit with a country and its imports from that country, then applied 50% of that amount as a reciprocal tariff on US imports.

An additional part of the formula calculated elasticities of import demand and import prices, adjusting the tariff based on their sensitivity, but these factors cancelled each other out.

AEI’s researchers said the theory underpinning this formula does not make economic sense, but it also includes an error that overstates the theoretical tariffs four-fold.

Officials used the wrong number to calculate how much import prices would change when tariffs were added. They used 0.25 based on a reaction to retail prices but should’ve used 0.945 based on actual import prices. 

A study cited in Trump’s explanation of the calculation said tariffs were passed through to import prices almost entirely, while the response in retail prices was often muted by sellers reducing margins and the pass through rate was closer to 25%. 

Correcting this error would reduce the tariffs allegedly imposed on US exports to a fourth of the original levels, and therefore slash the so-called ‘reciprocal’ tariffs by the same amount. 

Tariffs on almost all countries would fall to the 10% minimum rate, while tariffs on the few exceptions wouldn’t go much higher than 13% — instead of up to 50%, in some cases.  

“Now, our view is that the formula the administration relied on has no foundation in either economic theory or trade law,” the AEI researchers wrote. 

“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”.