ON ANNOUNCED USA TARIFFS: ISOLATION IS KEY (but it is not what you...
Gianluca c1 bis@gianlucac1bis
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Apr 05, 2025
~2 min read
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1
ON ANNOUNCED USA TARIFFS: ISOLATION IS KEY
(but it is not what you think ).
3d
MY TAKE: the biggest technical bullshit i have ever seen in my life
The suicidal method for calculating reciprocal tariffs by the "crack team" are explained here
1/n
ustr.gov/issue-areas/re…
(but it is not what you think ).
3d
MY TAKE: the biggest technical bullshit i have ever seen in my life
The suicidal method for calculating reciprocal tariffs by the "crack team" are explained here
1/n
ustr.gov/issue-areas/re…
2
you have probably seen the formula that these geniouses used to calculate the tariffs
The 2 key parameter are epsilon and phi, aka
Epsilon= elasticity of imports to 1% tariff increase
Phi= pass through of price increases due to tariffs
Xi exports
M1 imports
2/n
The 2 key parameter are epsilon and phi, aka
Epsilon= elasticity of imports to 1% tariff increase
Phi= pass through of price increases due to tariffs
Xi exports
M1 imports
2/n
3
in order to calculate the reciprocal tariffs
epsilon was established at 4
Phi was established at 0.25
The result is that reciprocal tariffs are set at (exp-imp)/imp, aka trade defict/imports
why 4 and 0.25??
3/n
epsilon was established at 4
Phi was established at 0.25
The result is that reciprocal tariffs are set at (exp-imp)/imp, aka trade defict/imports
why 4 and 0.25??
3/n
4
EPSILON
The 2 papers taken as a reference are
papers.ssrn.com/sol3/papers.cf…
sciencedirect.com/science/articl…
Papers state that tariffs can improve wealth of the deficit country.
Unfortunately they are papers on bilateral trade
Specifically on the trade deficit between china and USA
4/n
The 2 papers taken as a reference are
papers.ssrn.com/sol3/papers.cf…
sciencedirect.com/science/articl…
Papers state that tariffs can improve wealth of the deficit country.
Unfortunately they are papers on bilateral trade
Specifically on the trade deficit between china and USA
4/n
5
Papers says that tariffs to China should be between 10 and 25%, BUT NO TARIFF SHOULD BE IMPOSED TO EU AND ROW
Papers look at a "two-country model", not at global trade imbalances of the USA, or global trade
basically what is said is that if
1) i import a lot from you
and
5/n
Papers look at a "two-country model", not at global trade imbalances of the USA, or global trade
basically what is said is that if
1) i import a lot from you
and
5/n
6
2)you dont import a lot from me,
if i put tariff AND YOU DONT (variable isolation) i win
If we both put tariffs, we are both worse off
Like many papers the result are due to isolation of variables (partial equilibrium) hence real life occurrences could be very different
6/n
if i put tariff AND YOU DONT (variable isolation) i win
If we both put tariffs, we are both worse off
Like many papers the result are due to isolation of variables (partial equilibrium) hence real life occurrences could be very different
6/n
7
As debatable as result can be, the authors didnt even dream to advise the USA universal reciprocal tariffs to all the world
In essence the papers assumes no retaliation, so they isolate to obtain results
7/n
In essence the papers assumes no retaliation, so they isolate to obtain results
7/n
8
To fence off possible theorethical opposition ( NB i am ironic) the "crack team" also said that elasticity could be 2 instead of 4 (yeah you read it well)
The way i read it is that in case of retaliation, "Team Crack" would be happy to double the tariffs
nice no?
8/n
The way i read it is that in case of retaliation, "Team Crack" would be happy to double the tariffs
nice no?
8/n
9
PHI
The other work cited in the "crack-(pot) team" manifesto is this
Phi is established at 0,25 by the "crack team"
what does the paper say on elasticity of prices to tariffs?
Phi is 0,943 in the paper
9/n
aeaweb.org/articles?id=10…
The other work cited in the "crack-(pot) team" manifesto is this
Phi is established at 0,25 by the "crack team"
what does the paper say on elasticity of prices to tariffs?
Phi is 0,943 in the paper
9/n
aeaweb.org/articles?id=10…
10
so a 20% tariff according to Cavallo, Gopinath et al would translate in a 18.8% price increase
But according to the "crack team" it would be 5%, citing the same paper
UH????
10/n
But according to the "crack team" it would be 5%, citing the same paper
UH????
10/n
11
MY FINAL TAKE
"Isolation" is needed when your "Team" smokes "crack"
But in that case it is better not to be involved in international trade
@ThManfredi @CrossWordsCW @MarastiMattia @chiadegli @Phastidio
11/11
"Isolation" is needed when your "Team" smokes "crack"
But in that case it is better not to be involved in international trade
@ThManfredi @CrossWordsCW @MarastiMattia @chiadegli @Phastidio
11/11
12
cc @BrankoMilan @CliffordAsness @RealJimChanos @AndreaRoventini @ChristosArgyrop @degiorgiod @AttilioGeroni @carloalberto