Economists, stock market analysts and even Elon Musk are criticizing the formula used to calculate President Trump’s worldwide tariffs — and a former San Diego politico is in the crosshairs.
Peter Navarro, Trump’s senior counselor for trade and manufacturing, hasn’t admitted to being the source of the formula, but fingers are being pointed at the Harvard PhD who long taught at UC Irvine and ran unsuccessfully for mayor, city council, county supervisor and Congress here in the 1990s.
“A PhD in Econ from Harvard is a bad thing, not a good thing,” tweeted Musk late Friday, “Results in the ego/brains>>1 problem.”
Economists Kevin Corinth and Stan Veuger at the respected American Enterprise Institute published an article on the institute’s website Friday detailing problems with the tariff calculations announced Wednesday.
It turns out that the formula has nothing to do with reciprocal tariffs, as Trump promised. It’s just the trade deficit with a given country divided by imports from that country and then divided by the number two. There are two additional figures in the formula, but they cancel out.
For example, if the U.S. imports $500 million while exporting $250 million, then the tariff is calculated at (500-250)/500/2 = .25 for a 25% tax on the country’s imports.
“The formula for the tariffs, originally credited to the Council of Economic Advisers and published by the Office of the United States Trade Representative, does not make economic sense,” the two economists wrote.
They added that while the formula “has no foundation in either economic theory or trade law,” the Trump administration compounded the error because two figures used for elasticity — the effect of price changes on quantity — canceled out and had no effect.
The calculation resulted in extremely high tariffs — 20% for Europe, 24% for Japan, 31% for Taiwan –prompting the stock market to crater on Thursday and Friday, losing a record $6 trillion in value.
Navarro told CNBC that the calculations were “based on very sophisticated analyses in the trade literature for decades.”
But stock market analyst Jim Cramer disputed that, telling CNN on Friday, “I went deep on the numbers today and the numbers do not make any sense.”
“Peter Navarro is someone I’ve known for five decades,” said Cramer. “I know he knows what reciprocal tariffs really are and he didn’t deliver on that.”
Cramer said he believes in reciprocal tariffs — the same for both sides — and initially backed Trump, but now “I feel like a sucker.”
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