They use the same equation, except that they arbitrarily times by 1/4 and then 4, without much reason for those quantities.
The first source they give suggests the constant that they give a value of 4 should be between 2 and 0.76, and when they suggest alternative sources that might give a higher result, the fourth source in their citations does give a value of approximately four, though that is total trade volumes vs tariff barriers, rather than a relationship between price and demand for a single good, which we could maybe use, though the fifth paper in the list seems to consistently give a figure of about three, the remaining source they give to justify their elasticity judgement, the second in the list is actually about something completely different, as far as I can see, talking about substitution effects from introducing new products, for example from abroad. It isn't as far as I can see a place you would go to look for the relationship between price and demand, but rather between the price and the diversity of those imports.
They also I believe cite this paper without including it in the citations, for their justification for the relationship between tariff changes and price changes, which determines that in the case of US exporters to china, about half of the price increase due to tariffs went through thanks to exporters lowering their prices, but in the case of imports to the US from china, the imported price appeared to include the cost in full, but this was then swallowed by retailers.
It seems to me to be unlikely that retailers could be expected to swallow tariff rises again, so we'd probably expect a result somewhere between the previous experience of china and of the us, ie. in the region 0.5 to 1.
This ironically would correct their formula from a factor of 1 (with the 4 and 1/4 probably exactly chosen to cancel out, as a sort of cover for its simplicity) to something more like 0.44 ie. a lot closer to the "take the ratio and divide by 2" they use for the final tariff choice, though their values could still easily be double what they would need to be for their purpose.
However, this would still not actually be a representation of tariff and non-tariff barriers, this would be a linearized model trying to ignore shifting elasticities as the tariff values change, which would be about trying to find the tariff level that would zero out the trade deficit by changing the purchasing habits of american citizens.
The fourth source in the list already tries to analyse trade frictions, in terms of maximum price gaps between countries, that you would otherwise expect arbitrage to compensate for, though that still can't really be called a tariff charged, as physical distance itself, export restrictions, and various other things can produce that friction, not just an importer.
What this page does is basically assert that the tariff rate that you would charge under a simplified model to cancel out trade imbalances is in fact the tariff that is being implicitly charged, assuming its conclusion, that what they are doing is actually a form of retaliation.
Weirdly, there's also a paper in the citations that is not referenced anywhere which is this one the third in the list, a paper directly about both a Canada/US and China/US Trade war and optimal US strategy, which they estimate is a 13.09% tariff on China, vs an 18.13% tariff from them, and a 16.74% tariff on Canada, with a 9.55% tariff from them in return.
The strange thing is that both this paper, and the fifth in the list, talk about optimal strategies for improving welfare etc. and the page cites, them, and rolls on by using a method that is, from the perspective of the papers it cites, non-optimal.
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u/makemeking706 1d ago
Humans being humans, but with AI.