Is the formula for US trade tariff correct?
Is the formula for US trade tariff correct?
US government’s tariff formula for a balanced trade is
dT = (x – m)/(e*f*m)
Here x: export
m: import
e: elasticity of imports with respect to import prices
f: price pass through
dT: additional tariff that will balance trade
Suppose an import tariff dT is applied. New import should be equal to export. Now we will calculate the amount of new import. Suppose the original import price is 1 and the original import volume is 1. The total new import would be
m*(1+f*dT)*(1+e*f*dT) = m*(1+f*dT)*(1+ (x-m)/m) = x*(1+f*dT) > x
The total import will still be higher than export. The formula is not correct.
Is there anything wrong with my derivation?