As far as I have understood, it doesn’t matter, because the complicated stuff cancels out due to their assumptions.
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“passthrough…” tells how much prices increase because of tariffs.
“elasticity…” tells how much imports are reduced because of increased prices.
So the equation seems to make sense, except that
- The administration probably picked wrong values for those two factors
- The equation assumes the effect of increasing tariffs is linear
- I find it doubtful that these two factors are the same for every product and every country
- The equation tells that the governement wants to balance imports and exports with each country; there is no reason to do so, as gennan pointed out.
- The equation also assumes that countries won’t react in retaliation.
Anyway the math is probably just here to provide a justification that looks serious, and almost nobody is able to refute the math anyway.
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Taking apart the equation and other weirdness/craziness of these tarrifs:
About the 90 day pause:
As for those 75 countries that Trump claimed to be “kissing his ass” to get some relief, has anyone seen a list of which countries those were? Or has even just one of those countries been named?
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You don’t have to, they later just define ε to be 4 (despite previously stating that ε<0), and φ to be 0.25. Also, this implies that ε * φ = 1, so the term just disappears.
In math, you don’t care how complicated the name of something is, you just look at its definition and use that.
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I haven’t seen a list, but some countries have started to negociate. Vietnam would be hit hard if the US actually applied 46% tariffs.
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Some economists say that the value φ is wrong, the administration used retail prices whereas they should have used import prices, and that φ should have been 0.945.
Anyway I found the “let ε<0” funny, it sounds like a math joke.
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Indeed, I had read over it first time I read it, and only found out about it after someone else pointed it out
Even more basic than that, I believe a lot of confusion comes from people not clearly stating what the percentage refers to. 10% doesn’t mean much on it’s own, you need to define of what (i.e. what’s 100%).
So the question “What happens if you substract 10%, then add 10% again” lacks crucial information, and can have different results depending on your interpretation.
One way to think about it, that both instances of 10% refer to the quantity that you start with. Then of course you end up with 100% of the original quantity again.
A different interpretation is that the second instance of 10% refers to the result after subtracting 10%. Then you end up with 99% of the original quantity.
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A funny youtube comment exchange on that:
A: As a Nobel winning economist once said, “I have a chronic trade deficit with my barber, who doesn’t buy a darned thing from me.”
B: That’s a service. Trump only cares about goods, like all the hair you are sending your barber, according to Trump, it’s a trade deficit but the other way around!
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Blaspehmy!
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math has a namespace problem
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It seems Vietnam offered 0% import tarrifs on US goods, but that’s not good enough for the White House, because they also considers domestic VAT as a form of import tarrif (even though it applies to all goods, imported or not).
This just shows that it’s quite impossible to reach any sort of trade agreement with the White House as it is today, even if you “kiss Trump’s ass”.
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Vietnam has the third largest reserves of rare earths. That could be part of the negociation.
Then again, the US could just buy more rare earths from Canada.
However, the US imposed 25% import tarrifs on all minerals from Canada!
(Although I’m not sure if that is in full force currently)
Either way, it’s all so random and inconsistent.
Uh this was (is?) actually a hard problem for LLMs.
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Certainly is
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Honestly the way LLMs are maybe Bladerunner wouldn’t be too far off
Just some funky prompt engineering to trigger them.
Well if you don’t think too hard about it, it’s probably thinking about money coming in vs leaving the country.
If you imagine that having a trade deficit means that somehow you’re losing money on average to other countries then sure balancing that out could be an idea to stabilise movement of capital.
The problem is, even if the money stayed in the country, if you don’t tax the highest earners who hoard money and buy up all the assets and don’t get taxed on those either, you never see enough government revenue anyway from it.
Instead you just circulate the money from low earners until it inevitably funnels upward, and probably out of the country depending on the best way to dodge even the low tax rates.
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But the whole point of money is to be exchanged. Any meaningful transaction leaves one of the parties with less money than they started with.
When US imports steel, it loses money, but it now has steel (which can be used to make something technologically advanced and export it for more money that the US started with).
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I did say
Otherwise we might be thinking more about it than they did 
You also want money to keep changing hands so you can tax it with VAT and other taxes on earnings, inheritance etc.
At the end of the day they want to reduce the national debt overall
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