Almost immediately after President Trump announced his tariff scheme earlier this month, pundits and economists called foul, saying that the White House used the wrong formula for calculating the tariffs.

The American Enterprise Institute, after studying the White House formula, found the Trump Admin. measured retail-price elasticity rather than import price-elasticity. That mistake, says AEI, means the tariff outputs announced by Trump are about four times higher than they would have been had the formula followed the president’s intent.

The formula the White House used to calculate the recent tariffs, says the conservative think tank, is based on a huge error.

Two scholars at the AEI, Stan Veuger and Kevin Corinth, found the White House used the wrong value when assessing the rate at which prices would change because of tariffs. The correct formula, says the AEI scholars, uses price changes in the cost of imports – meaning how much it costs a U.S. company to buy goods from a foreign seller. The White House factored in the retail price change, which is what consumers pay.

“Our view is that the formula the administration relied on has no foundation in either economic theory or trade law,” Corinth and Veuger say in the AEI report. “But if we are going to pretend that it is a sound basis for U.S. trade policy, we should at least be allowed to expect that the relevant White House officials do their calculations carefully.”

Another AEI economist, Derek Scissors, went even further, saying the administration hadn’t made a mistake so much as intentionally fudged the math to get the outcome officials wanted.

“This whole thing was rigged,” Scissors tells CNBC. “It was a manipulated way to get very high tariffs because President Trump wanted to announce very high tariffs.”

Automakers are still strategizing how to manage the tariffs, but billions of dollars in profits could be lost as they consider bringing production back to the U.S. to avoid high levies that tax automotive parts that cross borders multiple times before final assembly.

The stock market reacted positively on Tuesday to rumors that the White House was negotiating with leading trading partners to reduce or delay tariffs. But that early optimism gave way to pessimism, and the market finished in the red after massive selloffs last Thursday, Friday and Monday.

The calculations used by the White House last week were already controversial, with news reports stating the White House math was the first item industries and foreign countries were complaining about. The “reciprocal tariff” amounts were based on a formula of dividing the U.S.’s trade deficit with a foreign country by that country’s total exports to the U.S. The resulting number was then divided by two and used as the tariff rate for each country.

Tesla Motors CEO Elon Musk, a close advisor to Trump in his role to work with the administration to reduce the size of the federal government, broke ranks with the president, criticizing both the policy and the administration’s trade czar Peter Navarro who pushed the formula.

Navarro, who served a prison sentence after Trump’s first term for contempt of Congress, wrote a 30-page policy paper two years ago titled “The Case for Fair Trade” that urged the next Republican president to take aim at “those countries that have relatively large trade deficits with the U.S. and apply relatively high tariffs.” Navarro, whose paper was the basis for a section of conservative playbook, "Project 2025," wrote that China, India, Vietnam, Thailand, Taiwan, Japan and Malaysia all belonged in this category and should be targeted with big levies.

Japan, however, for example, while having a trade surplus with the U.S., actually has no tariffs on foreign autos, but the country has been inhospitable to Detroit automakers and Tesla because of unique regulations and vehicle testing, as well as the tastes of Japanese consumers who prefer smaller vehicles and domestic brands.

Japanese automakers have significantly invested in U.S. manufacturing over the past four decades. As of 2024, their cumulative manufacturing investment reached approximately $61.6 billion, encompassing 24 manufacturing plants across 27 states, according to The Japanese Automobile Manufacturers Association. This investment has led to the direct employment of over 109,000 U.S. workers and the production of over 3.2 million vehicles in 2023 alone, representing nearly one-third of all vehicles produced in the U.S.

Japan Automakers Faces $24 Billion in Tariffs Despite No Tariffs i Japan.