University of Chicago professor Brent Neiman – whose work helped form the basis of Donald Trump’s tariffs – has warned the White House’s rates should be up to “one fourth” lower
An economics expert whose work Donald Trump and his administration used to form the bedrock of the disastrous new tariff rates has said the White House got his research “very wrong”.
Brent Neiman, a professor of economics at the University of Chicago, was one of millions of people left bewildered by the size of the new rates being ordered against nations that export to the US when “Liberation Day” came last week. The tariffs, unveiled by Mr Trump on comically oversized charts on a stage in the White House Rose Garden, have caused financial shockwaves that have knocked stocks on their heads all over the world and sparked fears of a wider financial collapse.
While hundreds of millions of people have good reason for their alarm, Professor Neiman has more cause than most, as one of his papers was used as the basis for the rates decided by Mr Trump on that fateful Wednesday. The economist has warned the US President and his trade officials got he and his colleague’s conclusions “very wrong”.
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Writing in an opinion piece for the New York Times, realised the day after the tariffs were unveiled that they had “personal” implications for him. He wrote: “The Office of the US Trade Representative released its methodology and cited an academic paper produced by four economists, including me, seemingly in support of their numbers.
“But they got it wrong. Very wrong.” The paper cited by the White House in its explanative notes for the tariffs – Tariff pass-through at the border and at the store: Evidence from US trade policy – was co-authored by Professor Nieman and his colleagues Alberto Cavallo, a professor of business administration at Harvard Business School, Gita Gopinath the deputy managing director of the International Monetary Fund, and Jenny Tang, the Vice President of the Federal Reserve Bank of Boston.
The professor explained the Trump administration had incorrectly used the formula he and his colleagues used to calculate tariff totals placed on other nations, adding 25 percent. He questioned where the 25 percent came from, asking: “Where does 25 percent come from? Is it related to our work? I don’t know.”
He suggested the rates imposed on exporters should be “dramatically smaller”, potentially one quarter less than they are currently. He said: “I disagree fundamentally with the government’s trade policy and approach. But even taking it at face value, our findings suggest the calculated tariffs should be dramatically smaller – perhaps one-fourth as large.”
The tariffs have sparked worldwide panic over the last few days, with stocks almost universally plunging as exchanges see massive several-point reductions. On Monday, the Dow Jones Industrial Average dropped by 2,230 points, or 5.5 percent, at closing, while the S&P 500 plunged by six percent.
In Europe, the FTSE 100 closed at -4.4 percent, Germany’s Dax closed at -4.1 percent and France’s Cac40 closed at 4.8 percent down.
But Mr Trump has resolved to keep pushing despite advice from top economic minds, threatening to retaliate to China’s 36 percent tariff retaliation. He has threatened the country with another 50 percent on top of the 20 and 34 percent tariffs already in place – potentially leaving US importers and consumers on the hook for a massive 104 percent price increase.