Hedge fund moguls are hotly discussing this tariff formula, Trump's formula was wrong by 4 times, which also explains the sharp decline in the US stock market

Wall Street tycoons warn that Trump's latest tariff policy is based on a formula with a serious calculation error, inflating the tariff levels of other countries by four times. Notable Wall Street investors Bill Ackman, Daniel Loeb, and Jim Chanos have collectively voiced that this error could lead to unnecessary trade wars and has already significantly impacted global stock markets.

Wall Street Tycoons Warn of Market Turmoil Caused by "Mathematical Error"

According to CCTV News, on April 2nd, Eastern Time, U.S. President Trump signed two executive orders regarding so-called "reciprocal tariffs" at the White House, announcing a 10% "minimum benchmark tariff" on trade partners and imposing higher tariffs on certain trade partners.

However, renowned hedge fund manager Bill Ackman warned on social platform X that the formula used by the Trump administration to calculate tariffs makes "the tariffs of other countries appear four times larger than they actually are."

While sharing an analysis article from the American Enterprise Institute (AEI) posted by hedge fund mogul and Third Point founder Daniel Loeb, Ackman emphasized:

Trump "is not an economist," and therefore relies on advisors to make these calculations to determine policy.

The global economy is struggling due to poor mathematics,

The president's advisors need to acknowledge the error and correct the course by April 9 to avoid the president making significant mistakes based on erroneous math.

The Fatal Flaw of the Tariff Formula: Miscalculations Inflate Trade Barriers

According to the analysis from the American Enterprise Institute (AEI), the U.S. government mistakenly equates trade deficits with foreign "tariff barriers."

The U.S. government believes that a trade deficit with a certain country (imports > exports) is due to that country imposing high tariffs on U.S. goods, and thus calculates the "implicit tariffs" of other countries using "deficit ÷ import amount," then halves it as the U.S. "reciprocal tariff."

However, the reality is that trade deficits are determined by various factors such as capital flows, savings rates, and industrial structures (for example, the long-term U.S. deficit is due to the dollar being the global currency, with other countries using dollar reserves to purchase U.S. Treasury bonds, leading to the U.S. having to import more than it exports), and there is no direct linear relationship with foreign tariffs.

Even if the U.S. has a trade surplus with a certain country (exports > imports), it still imposes a 10% tariff, which is not "reciprocal" at all, but rather unilateral trade protection.

Moreover, the U.S. government made a basic error in its specific calculations. The government formula used two elasticity parameters:

• Import demand elasticity (ε=4): assuming that import demand is sensitive to price changes;
• Tariff transmission elasticity (φ=0.25): assuming that only 25% of the tariff is reflected in import prices (i.e., importers bear 25%, consumers bear 75%).

However, research shows that tariffs are almost 100% transmitted to import prices (φ≈0.945). The government mistakenly used "retail price" data instead of "import price" data, leading to an overestimation of foreign "implicit tariffs" by 4 times. After correction, tariffs in most countries would plummet from 30%-50% to a minimum of 10%.

The tariff strategy may be "maximum pressure" rather than precise calculation

It is noteworthy that under Daniel Loeb's social media post, many commenters pointed out that this formula may not have been designed for scientific calculation from the beginning, but rather as a "maximum pressure" strategy against trade partners. These comments suggest that the Trump team may have intentionally used this exaggerated formula to create stronger negotiation leverage.

Famous short-seller Jim Chanos commented that this tariff formula error is precisely the logical basis for the recent sharp decline in U.S. stocks, and pointed out that "import entities must 'bear' part of the tariff by lowering profits, which may explain the severity of the sell-off."

For investors, the key question is whether this tariff formula error will be corrected before April 9. As AEI stated, "If the error is corrected, the resulting trade liberalization will provide the much-needed boost to the economy, potentially helping us avoid a recession."

If Trump insists on the original formula, investors may need to prepare for a broader trade war and global supply chain restructuring, which will have far-reaching impacts on multiple industries, especially technology, manufacturing, and retail that rely on international trade