I don't quite understand the error this article is pointing out and how it could lead to a four fold inaccuracy. Can someone try explain with an example?
They used a 0.25 constant in a formula and the article is arguing they should have used 0.945 instead (difference of ~4x). The constant the Trump administration used seems to have been the one for estimated effect of tariffs on retail prices (ie, consumer facing) and it was more appropriate to use the one for the effect on prices at the border.
I assume that is similar to me being a computer company importing chips, a 25% tariff on microprocessors will make the imported cost of microprocessors go up by ~24% (because some really expensive ones don't get bought) but it would increase the price of the computers I build by ~5% because most of the computer isn't a microprocessor.
It is an exciting time to learn about the country of Lesotho.
My understanding is they are saying the elasticity of the price (what can be absorbed by tariff increase) comes from the transaction in the retail market it ultimately sells to, yet the "equation" was using elasticity of the import costs.
In other words, Trump's equation thinks that import price will absorb (elasticity) the tariff's impact, but that's not true. It's passed on almost entirely (the 0.945 number, so 0.055 may be absorbed).
So it's using wrong numbers to justify the effective tariffs. IMO, I don't think Trump cares. I think the equation was a "straw-man".
