US President Donald Trump’s sweeping new tariffs are facing fresh criticism, not just for their impact but for the very math behind them. Economists at the American Enterprise Institute (AEI), a right-leaning think tank, say the formula the Trump administration used to calculate the tariffs is fundamentally flawed.

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Trump triggered global chaos last week after unveiling a 10% “baseline” tariff on nearly all imports, alongside much higher rates for around 60 countries, some exceeding 40%. He claimed these “reciprocal” tariffs reflected how those countries tax US goods. But according to AEI, the figures don’t add up.

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“It’s based on an error”

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In a report released Friday titled “President Trump's Tariff Formula Makes No Economic Sense. It's Also Based on an Error,” AEI’s Kevin Corinth and Stan Veuger criticised both the logic and execution of the tariff plan.

They argue that Trump’s formula, a simplified calculation based on dividing the US trade deficit with a country by that country’s exports to America, is misleading. “Even if you accept the logic of the formula, it inflates foreign tariffs by four times,” they wrote.

They also point out that trade deficits aren't just caused by tariffs. Factors like capital flows, supply chains, and geography all play a role. “A trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers,” the authors said.

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Also read: 'Free trade zone': Elon Musk wants 'zero tariff situation' between US, EU after Tesla loses BILLIONS amid Trump's tariff war

Miscalculation explained

The White House later confirmed the tariff numbers were based on a basic model with just two variables. To soften the blow, Trump said he halved the resulting figure to be “kind.”

But the AEI economists say the administration's mistake lies in confusing how tariffs affect retail prices versus import prices. The formula used an elasticity value (how much prices respond to tariffs) of 0.25 when it should’ve been closer to one.

“The elasticity of import prices with respect to tariffs should be about one (actually 0.945), not 0.25,” the report says, citing the original study Trump’s team referred to. That small misstep, AEI warns, throws off the entire calculation.

Also read: 'End of globalisation'? UK PM Keir Starmer's BIG announcement as Trump's disastrous tariffs shake markets

Tariffs spark market turmoil

Despite warnings, Trump remains firm. “There may be some disruption,” he admitted, “but tariffs will ultimately benefit the US economy.” Wall Street, however, isn't convinced. The Dow Jones dropped more than 1,600 points on Thursday, followed by a 2,200-point crash on Friday, its worst two-day loss ever.

Some trade partners are already responding with countermeasures, while others are seeking negotiations to ease the pressure.

Trump insists that his trade strategy will pay off in the long term. “The markets will boom,” he said, standing by his controversial formula.

(With inputs from agencies)