US President Trump's announcement of reciprocal tariffs caused a sensation in the economics community immediately upon its release, leaving everyone puzzled by Trump's calculation method.
This included the economists whose papers were cited by the White House to calculate the tariffs. Brent Neiman, an economics professor at the University of Chicago Booth School of Business, recently published an article to clarify his position, stating that although the US Trade Representative's Office referenced his co-authored paper to calculate the tariffs, their calculations were completely wrong!
In the US Trade Representative's Office's explanation of reciprocal tariffs, they referenced a paper co-authored by Neiman in 2021 with three other authors regarding the parameter selection of import prices relative to tariff elasticity. Interestingly, this paper was not listed in the references at the end of the agency's explanation.
However, Neiman might not care about the attribution; he even wishes to distance himself entirely from the White House's tariff calculation method. He stated that he does not want to hear in the future that his paper and academic results led to the introduction of Trump's tariff policies, as he believes these policies are very detrimental to Americans.
White House "Fails"
Neiman frequently posed "soul-searching questions" in his article: How did the White House calculate such high tariffs?
He pointed out that the principle of reciprocal tariffs is to treat other countries as they treat the US, but in reality, the tariffs imposed by foreign countries on US goods are far lower than what Trump has claimed.
Neiman further explained that he could not understand the White House's idea of setting the elasticity of import prices relative to tariffs at 0.25. In his paper with three other economists, they studied the tariffs on China in 2018 and 2019 and found that this elasticity was around 0.95, meaning that the price increase of US imports was almost the same as the tariff rate.
Neiman emphasized that if his paper were truly used to calculate US reciprocal tariffs, all of Trump's tariff rates should be reduced to one-quarter of their current levels, as the US government's calculation method is not valid.
The economics professor painstakingly corrected that the emergence of trade imbalances between two countries may have many reasons, unrelated to protectionism. Trade deficits may reflect differences in natural resources, comparative advantages, and development levels, and deficit numbers can never prove the existence of unfair competition.
Martin Eichenbaum, an economist at Northwestern University, also agreed, stating that the US engages in both goods and services trade. The White House clearly only calculated the goods deficit, but the US also exports many services, such as finance, entertainment, healthcare, education, etc.
Guntram Wolff, an economist at the research institution Bruegel, mocked that the Trump administration's method of calculating reciprocal tariffs would not pass in any international economics course.