Looks like ‚assuming‘ values for those greeks in the formula used is a little too generous. But hey, who cares? Let’s just bulldoze our way through, surely our friends will understand:
However, the elasticity of import prices with respect to tariffs should be about one (actually 0.945), not 0.25 as the Trump Administration states. Their mistake is that they base the elasticity on the response of retail prices to tariffs, as opposed to import prices as they should have done. The article they cite by Alberto Cavallo and his coauthors makes this distinction clear. The authors state that “tariffs [are] passed through almost fully to US import prices,” while finding “more mixed evidence regarding retail price increases.” It is inconsistent to multiply the elasticity of import demand with respect to import prices by the elasticity of retail prices with respect to tariffs.
Correcting the Trump Administration’s error would reduce the tariffs assumed to be applied by each country to the United States to about a fourth of their stated level, and as a result, cut the tariffs announced by President Trump on Wednesday by the same fraction, subject to the 10 percent tariff floor. As shown in Table 1, the tariff rate would not exceed 14 percent for any country. For all but a few countries, the tariff would be exactly 10 percent, the floor imposed by the Trump Administration. …
Even with the additional explanation, some economists dismissed the exercise as blatantly amateurish. (Douglas Holtz-Eakin of the conservative American Action Forum called it “malpractice”). Meanwhile, some of the professors who found their own studies cited went public to express their bafflement. Alberto Cavallo, an economist at Harvard Business School who co-authored one paper included in the administration’s bibliography, tweeted that if Trump officials had applied his research correctly, the tariffs would have “come out about four times smaller.”