To calculate reciprocal tariffs, import and export data from the U.S. Census Bureau for 2024. Parameter values for ε and φ were selected. The price elasticity of import demand, ε, was set at 4.
Recent evidence suggests the elasticity is near 2 in the long run (Boehm et al., 2023), but estimates of the elasticity vary. To be conservative, studies that find higher elasticities near 3-4 (e.g., Broda and Weinstein 2006; Simonovska and Waugh 2014; Soderbery 2018) were drawn on. The elasticity of import prices with respect to tariffs, φ, is 0.25. The recent experience with U.S. tariffs on China has demonstrated that tariff passthrough to retail prices was low (Cavallo et al, 2021).
Can someone please provide the context what epsilon and phi suppose to represent and why they are 4 and 1/4?
Direct from USTR.gov:
Thanks
Ah but you see, 0.25 is only the inverse of 4 in base 10 … Checkmate atheists!
The symbols represent smarts, and they are 4 and 1/4 because that mean multiply by 1.
It’s a made up formula to make trumpsters look smarter than they are.