- A conservative reflection group Found the White House measured the elasticity of retail prices when it should have used the elasticity of import prices. This error meant that pricing outlets were about four times higher than they should have been.
The formula used by the White House to calculate its recent price is based on an error that has roughly quadrupled the rates of what they should have been.
Two scholars of the American Enterprise Institute (AEI), a conservative reflection group, found that the White House used poor value when evaluating the rate at which prices would change as a result of prices. The correct version of the formula uses price changes in the cost of imports, which means how much it costs an American company to buy a property from a foreign seller. Instead, the White House has taken into account the change in retail price, which consumers pay.
This meant that the formula was disabled by a factor of four, because the White House evaluated the elasticity of import prices at 0.25 when it should have been 0.945, according to AEI.
“It’s the pretty Bush League,” said Stan Veuger, one of the AEI scholarships, said Fortune on a telephone call. “For such a policy, you expect a much higher level of professionalism.”
The use of poor value has made the formula inaccurate, according to Veuger and its co -author Kevin Corinth.
“Now, our opinion is that the formula on which the administration has relied has no basis in economic theory or commercial law,” wrote Corinth and Veuger. “But if we want to claim that it is a solid basis for American trade policy, we should at least be allowed to expect that the managers of the White House allow their calculations carefully.”
Another AEI economist, Derek Scissors, went even further, saying that the administration had made no mistake, as long as mathematics failed to obtain the result they wanted.
“All of this was rigged”, scissors said Monday CNBC. “It was a manipulated way to get very high prices because President Trump wanted to announce very high prices.”
In their initial report, Corinth and Veuger said they hoped that the White House would reduce its rate rates because of their discovery. “I hope they will soon correct their error: the liberalization of the resulting trade will give a boost well necessary for the economy and could still help us avoid a recession,” they wrote.
The three days of negotiation since President Donald Trump announced that the new tariff regime of the United States has experienced markets across the global tank. In the United States, the Dow Jones, S&P 500 and Nasdaq composites are all stretched. In Asia, actions in Japan and Hong Kong flowed again on Monday after Trump swore intensify The current trade war. In Europe Stocks dropped around 4.5% Monday, after a lamentable performance last week.
The calculations used by the White House were already somewhat controversial after it became obvious that the reduced amounts of “reciprocal prices” were based on a simple formula of division of the United States trade deficit with a foreign country by total exports from this country to the United States, the resulting number was then divided by two and used as rate rate for the country.
Even without the error, the formula was doubtful, said Corinth and Stan Veuger. The formula “does not have an economic meaning”, they wrote. “The trade deficit with a given country is not determined only by non -pricing prices and barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.”
Since the Trump administration’s prices were presented as reciprocal prices, analysts and investors expected that they were based on a careful examination of the commercial and non -commercial obstacles of a country with regard to American manufacturing goods. Instead, they were based on the formula, that the Washington Post reports President Donald Trump personally insisted to use.
Trump’s personal opinions on prices were, according to Veuger, the main reason for the recent pricing policy.
“What stimulates politics is that since the 1980s, Trump has been a protectionist, and he thinks that trade deficits are losses and that trade surpluses are profits,” said Veuger. “He just likes prices. Then you can fill them with various rationalizations a little more sophisticated and intellectualized. But that’s what it is – it is rationalization.”
The White House said that the use of retail prices instead of import prices was justified because consumers make purchase decisions according to retail prices rather than wholesale prices. A spokesperson added that, in their opinion, the rate rates should have been greater.
Corinth and Veuger have underlined research From the Harvard Business School, Professor Alberto Cavallo quoted in the American commercial representative (USTR) note On the way in which the pricing formula, as proof, the calculations have misinterpreted the difference between retail prices and import prices. Cavallo’s work “makes this distinction clear”, they wrote.
Cavallo himself also discussed the fact that his work was referenced in the USTR report.
“It is not quite clear how they use our results”, Cavallo Written on x Last week. “Based on our research, the elasticity of import prices for prices is closer to 1. If this figure was used instead of 0.25, implicit reciprocal prices would come out about four times smaller.”
If this version of the formula was adopted, this would considerably reduce the rate rates imposed on countries. For example, the rate of 49% of Cambodia would drop to 13% and Vietnam would drop from 46% to 12.2%. The vast majority of countries would end up being subjected to the price at 10% minimum the White House which is part of the new White House policy.
This story was initially presented on Fortune.com
