Last Friday, we showed that the Trump Administration’s tariff formula contained an error that made its calculated tariffs up to four times too large. The entire premise of the administration’s approach—that a country’s tariff and non-tariff trade barriers can be derived solely from the bilateral trade balance with that country, and that the goal of trade policy should be to avoid bilateral trade deficits altogether—makes no economic sense. But even if one were to take their approach seriously, correcting their formula would have led the highest tariffs to fall from close to 50 percent to under 14 percent, with the vast majority of countries left with a tariff of 10 percent, the administration’s floor.

Yesterday, a White House official disputed our analysis on background, as reported by Fox News correspondent Jacqui Heinrich:

The AEI claim that you’re supposed to use a wholesale price instead of retail price measure for tariff pass through is absurd. Nobody chooses between a BMW or a Chevy based on wholesale prices. They choose based on the retail prices they actually pay. Our calculation is based on this reality of everyday decision-making and the reasoning holds. Moreover, the staff document noted that they used a conservative demand elasticity of 4 even though an elasticity of 2 might be more reasonable. So the tariffs, if anything, would have ended up twice as big if they had used the smaller elasticity instead. This is another case of hyperventilating over tariffs, just as we saw in 2018. Many of the same economists, too.

The White House official’s claim that one should use the elasticity of imports with respect to retail prices is contradicted by their own report, which states: “The elasticity of import prices with respect to tariffs, φ, is 0.25.” The problem is that the correct value of this elasticity is close to 1 (0.945 to be exact), based on the single study they cited. Brent Neiman, one of the authors of that study, published an essay in the New York Times earlier this week pushing back on the Trump Administration’s tariff formula. He also confirmed the accuracy of our critique, stating: “Had the trade office instead used a value closer to the 95 percent number from our work, as I believe it should have done, the computed tariffs would have been as little as one-fourth of what they are.”

The fact that the White House official stated they could just as easily have set the tariffs twice as high by changing a different parameter in their formula—using a demand elasticity of 2 rather than 4—speaks to just how weakly grounded their approach really is.

It is notable that the White House only chose to defend its formula after four days, via a White House official who did not want to be named. The only logical explanation is that no one in the White House is willing to admit they created or implemented the formula in the first place.

The tariff formula was originally credited by the White House to the Council of Economic Advisers, a sentiment later echoed by senior White House adviser Peter Navarro. But in remarks on Monday, Council of Economic Advisers Chairman Stephen Miran deflected responsibility, stating: “At the end of the day, the President chose to go with a formula related to closing trade deficits, suggested by someone else in the administration.” National Economic Council Director Kevin Hassett, meanwhile, pointed to the US Trade Representative as the source of the formula. And yesterday, Treasury Secretary Scott Bessent denied that he was involved.

President Trump’s tariffs, within a week of being announced, have already wreaked destruction on the US economy and the entire world. Americans’ retirement accounts have taken a hit and we are facing a significantly greater chance of entering a recession. Underlying the destruction is a single formula, which we (and many others) have argued is conceptually flawed, and that makes a simple error that inflates the tariffs by a factor of four.

If the Trump Administration wants to argue that essentially all economists are wrong and that its tariff formula makes sense, then whoever developed it should come forward and defend his work, rather than providing anonymous statements on background. And if the administration has realized it committed a major mistake, it should quickly reverse course and limit further damage