An American think tank has revealed a tariff miscalculation by the Trump administration: The actual tariff rate for Taiwan, Japan, and South Korea should be 10%. The EU urges negotiations between the US and China to resolve trade disputes.

On April 2, President Trump of the United States announced the imposition of "reciprocal tariffs" on several countries around the world. However, Brent Neiman, an economist from the American Enterprise Institute and the University of Chicago, revealed that the Trump administration made errors in tariff calculations, resulting in the tariff rates for countries like Taiwan, Japan, and South Korea being overestimated by four times, when they should actually be 10%. European Commission President Ursula von der Leyen and Chinese Premier Li Qiang had a call, urging the resolution of trade disputes caused by U.S. tariffs through negotiations and expressed support for a fair and free international trade system.

Error in Tariff Formula Exposed: Taiwan, Japan, and South Korea's Rates Overestimated Fourfold

U.S. President Trump recently announced the implementation of a "reciprocal tariff policy" on 185 countries and regions worldwide, imposing tariffs of 32% on Taiwan, 24% on Japan, and 25% on South Korea. However, the American Enterprise Institute (AEI) released a report on April 4 stating that these figures were derived from an incorrect calculation formula, and the actual tariff rate should be 10%.

According to AEI's analysis, the tariff calculation formula used by the U.S. Trade Representative (USTR) has the numerator as "export value minus import value" (i.e., trade deficit), and the denominator as the product of two coefficients and the import amount. The issue lies in the setting of these two coefficients: USTR set the "tariff-induced change in import price" at 0.25 and the "elasticity of import demand to price" at 4. Multiplying these gives 1, simplifying the overall formula to "trade deficit divided by import amount," then divided by 2 to get the final tariff rate.

AEI researchers pointed out that the first coefficient should be 0.945, not 0.25. The incorrect value was due to the Trump administration mistakenly using "tariff elasticity on retail prices" as the "tariff-induced change in import prices." This error led to the tariff rates being overestimated fourfold.

Brent Neiman, an economist at the University of Chicago Booth School of Business, also wrote in The New York Times that the Trump administration cited a research paper he co-authored with three other scholars in 2021 but used the data incorrectly. He stated, "When I first saw these numbers, I thought, 'Wow, how is this possible?'" He emphasized that correctly using the parameters from the research should yield rates far lower than those announced by the Trump administration.

According to recalculations by AEI and Neiman, the actual tariff rates for Taiwan, Japan, South Korea, China, and the EU should be 10%, rather than the 32%, 24%, 25%, 34%, and 20% announced by the Trump administration.

EU Calls on China to Address U.S. Tariffs Through Negotiations

Amid rising U.S.-China trade tensions, European Commission President Ursula von der Leyen spoke with Chinese Premier Li Qiang on April 8, urging both sides to resolve disputes through negotiations to prevent further escalation. Von der Leyen emphasized that as two of the world's largest markets, Europe and China have a responsibility to support a "trade system based on fair competition."

The EU stated that both sides discussed establishing a mechanism to track trade shifts potentially caused by U.S. tariffs. The EU is concerned that China might redirect inexpensive goods originally intended for the U.S. to the European market, impacting European industries.

During the call, von der Leyen noted that the EU has proposed a "zero-tariff" plan to the U.S., willing to mutually eliminate tariffs on American automobiles and industrial goods to avoid escalating a trade war. She also stressed that the EU is prepared to take countermeasures but still hopes to resolve the issue through negotiation.

Li Qiang expressed that China is willing to enhance communication and coordination with the EU, expand mutual openness, and resolve concerns through dialogue and consultation. He emphasized China's confidence in maintaining stable economic development and its commitment to further opening up and sharing development opportunities with countries worldwide.

EU and China Reaffirm Support for a Fair Trade System

Both parties agreed during the call that in the face of current global economic uncertainties, stability and predictability are of utmost importance. Von der Leyen pointed out that the EU and China should jointly maintain a free and open trade and investment environment and promote reforms in the multilateral trade system. She stated that the EU and China should establish a strong and reformed trade system based on fair competition.

Additionally, both sides discussed cooperation opportunities on the 50th anniversary of EU-China diplomatic relations and plan to hold high-level dialogues in the future covering economic and trade, green transformation, and digital fields.

References

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