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US President Donald Trump speaks during an event announcing new tariffs in the Rose Garden of the White House.
Mark Schiefelbein/AP/dpa
A miscalculation with billions in consequences: A renowned US economist accuses President Trump of grossly misreading his scientific paper - with dire consequences for consumers, businesses and the global economy.
A miscalculation with gigantic consequences: In a guest article for the New York Times, renowned US economist Brent Neiman, former Vice President of the US Treasury Department, accuses President Donald Trump of having grossly misinterpreted his academic work. And thus imposed tariffs that are four times higher than necessary.
Neiman and his team investigated how strongly foreign companies react to US tariffs. Their key finding: almost 95 percent of the tariffs are passed on to American importers - and therefore indirectly to consumers.
This means that if, for example, a 20 percent tariff is imposed on Chinese goods, prices in the USA will rise by around 19 percent. This is a direct burden on US consumers - and not, as is often claimed, on Chinese exporters.
However, according to Neiman, this is precisely the point that the Trump team ignored - or simply misunderstood: Instead of using the realistic figure of 95 percent pass-through, Trump's government calculated with just 25 percent. The result: far too high tariffs. Neiman says: "Trump is wrong, very wrong."
Brent Neiman is Professor of Economics at the University of Chicago Booth School of Business.
chicagobooth.edu
Neiman does the math: If the calculations had been correct, the current punitive tariffs should be at most a quarter as high as they now come into force from Wednesday - with some 34 percent surcharges for China, 26 percent for India and 20 percent for the EU.
The consequence: average US tariffs will rise to a historic high - the highest level in over a century. And this, warns Neiman, is not only jeopardizing the global trade partnership, but is above all damaging the US economy itself: Consumers are paying more, companies are suffering from higher import costs.
"An inaccurate methodology can have devastating economic consequences," warns Neiman. And: "Where the figure of 25 percent comes from is completely unclear. Maybe the White House thought they understood our work - but they didn't."
An embarrassing miscalculation with potentially trillion-dollar consequences - and another example of how political wishful thinking can distort economic reality.
