AEI finds major math error in Trump tariff formula, slashing economic credibility

A key formula used by the Trump administration to justify sweeping new tariffs is being criticized as mathematically flawed, with the American Enterprise Institute (AEI) asserting the approach overstates tariffs by a factor of four. The conservative think tank’s analysis adds a new dimension to the political and economic debate over former President Donald Trump’s revived tariff strategy, rolled out last week.

The formula—unveiled alongside the administration’s new tariff policy—is designed to apply reciprocal tariffs based on the US trade deficit with each country. However, AEI economists Kevin Corinth and Stan Veuger say it contains a fundamental miscalculation. In a paper published Friday, they argue that the White House used the wrong elasticity value in its formula, conflating the elasticity of import prices with that of consumer retail prices.

“If calculated correctly, tariffs on countries like Vietnam would be around 12.2% instead of the 46% the administration proposed,” Corinth and Veuger wrote. The variable in question measures how much import prices respond to tariffs, and AEI says the administration mistakenly used a figure appropriate for retail pricing.

Axios first reported the AEI critique, noting that two of the formula’s key variables effectively cancel each other out—rendering the final tariff value entirely dependent on the US trade deficit and import value. Harvard Business School economist Alberto Cavallo, whose research was cited by the U.S. Trade Representative (USTR), also raised concerns that his work was misapplied.

The White House has not commented on the analysis; however, AEI’s critique lands especially hard given the source. “If we are going to pretend that it is a sound basis for US trade policy,” Corinth and Veuger wrote, “we should at least be allowed to expect that the relevant White House officials do their calculations carefully.”