‘Completely misinterpreted,’ economist criticizes Trump’s 'reciprocal' tariffs

The Donald Trump administration's "reciprocal" tariff rates are based on misinterpreted ideas and incorrect values, Brent Neiman said in an opinion piece published by The New York Times on Monday.

Neiman is a Treasury official in the Biden administration and co-author of trade-related academic research cited by the Trump White House in reciprocal tariff rates.

In the article, Neiman publicly rebutted the government's interpretation of his paper, saying that his research had been "completely misinterpreted."

Neiman stated, “It got it wrong. Very wrong. I disagree fundamentally with the government’s trade policy and approach. But even taking it at face value, our findings suggest the calculated tariffs should be dramatically smaller — perhaps one-fourth as large."

Neiman explained that his research found that tariffs of around 20 percent led domestic importers to pay nearly 19 percent more, reflecting a pass-through rate of about 95 percent into import prices, which is the value he would have plugged into the government’s tariff formula. It implies that the price paid for US imports would rise almost as much as the tariff rate.

He also added that "I would strongly prefer that the policy and methodology be scrapped entirely. But barring that, the administration should divide its results by four."

Neiman's estimate was backed up by calculations by the American Enterprise Institute.

"The reciprocal tariff rates calculated by the (Trump) administration are four times larger than they would have been if the administration's economists had used the correct parameter value from the paper," AEI economists Kevin Corinth and Stan Veuger wrote in an article published on the think-tank's website.

Corinth and Veuger's calculations using the administration’s formula and the correct parameter values, suggest 10 percent tariff on imports from key allies such as Taiwan, South Korea, Japan, Israel and the European Union.

According to the AEI economists, the problematic variable is the "price elasticity of imports due to tariffs," which measures how much the price of imported products changes when a tariff is imposed. The Trump administration set the value of this variable at 0.25.

AEI pointed out that "The elasticity of import prices with respect to tariffs should be about one (actually 0.945), not 0.25, as the Trump administration states. Their mistake is that they base the elasticity on the response of retail prices to tariffs, rather than on import prices."