Trump’s new tariffs are profoundly unpopular

So why is he going there, and going there bigly?!

When the topic of tariffs come up, most economists, myself included, quickly dive into their theoretical and empirical impacts, starting with the classic econ 101 supply-demand graph showing how they hurt consumers but help domestic producers (and raise revenues, and distort trade leading to new inefficiencies—deadweight losses). I personally add the point that targeted tariffs can be a useful tool to discipline unfair traders, but sweeping tariffs, the type favored by the Trump administration, have consistently been shown to do more harm than good.

But this morning, I think we’re past that. Because I can’t help it, I’ll say a bit on the economics. But l want to start with this: the Trump tariffs are deeply unpopular. That doesn’t mean they’re a mistake. We could all be wrong. But I’m confident that we’re right about these tariffs hurting consumers, businesses, and markets a lot more than they help them, which raises the question of why they are doing this.

As of this morning, “this” refers to the activation of new tariffs of 25% on most imports from Canada and Mexico, along with another 10% on China. Here’s a handy list from the NYT:

And here are some reactions from disparate sources:

International trade expert and former Biden trade official Brad Setser called the new tariffs: “a move that is likely to be considered one of the most self-destructive economic policy steps in recent history.”

The Wall Street Journal Ed board, echoing a new piece I published yesterday, wrote yesterday that “Tariff uncertainty and business caution are hitting growth.” These developments are giving rising to concerns about the “Trump Slump.” Today, they doubled down: “Trump takes the Dumbest Tariff Plunge,” wherein they argue that “the 25% tariff will raise the cost of a full-sized SUV assembled in North America by $9,000 and a pickup truck by $8,000. Is this how the new Republican Party plans on helping working-class voters?”

Equity markets sold off yesterday on the news that Trump was planning to follow through, with the Dow off 650 points and the S&P down almost 2%. Futures are poised to open lower today. The 10-year Treasury rate was 4.14% this morning, sliding down on growth concerns.

Polls show consumers to be worried about price effects; 7-in-10 think tariffs raise costs (and this is despite being told otherwise by team Trump). Businesses are also spooked. A survey out yesterday of US manufacturers stated that demand, production, and staffing are all experiencing “the first operational shock of the new administration’s tariff policy.”

You can’t pick up a newspaper without seeing a column on consumer price effects.

“For American families, the likely result is higher prices nearly everywhere they turn — in grocery aisles, at car dealerships, at electronics stores and at the pump.”

“…individuals are likely to see higher prices at the grocery store and car dealerships. Cherry tomatoes, Tonka trucks, maple syrup, tequila and avocados are among the long list of items that could get more expensive. Home renovations might also take a hit.”

“One of the first places shoppers may feel the impact of increased tariffs is in the grocery aisle. The United States imported $9.9 billion worth of vegetables and more than $11 billion worth of fruit and frozen juices from Mexico in 2023.”

On the economics, I’ll make two quick points, slightly technical. Something like 40%-45% of our imports are inputs into domestic manufacturing. That’s an essential fact and it’s why you have domestic manufacturers already asking for exemptions from the tariffs. You cannot understand the impact of these tariffs without understanding this fact, which, ftr, is missing from the econ 101 presentation on tariffs (the fact of imported inputs cuts into any “producer surplus” gained from the tariffs).

Second, the Goldman Sachs (GS) macro-research team has done excellent work on all economic aspects of the Trump tariffs, including their inflationary impacts (paywall). The figure below is crowded but just eyeball the delta between the no tariff baseline and the Mexico-Canada grey line—it’s the widest difference in 2025. If they’re right, and I’m certain they’re in the ballpark, this is going to continue to smack consumer confidence, real incomes, and especially as GS is simulating the deflator the Fed watches most closely (the core PCE), potentially lead the central bank to be even more cautious about lowering rates. BTW, it’s true and important that tariffs’ impact on inflation eventually fades, as you see in the figure, but my personal experience, and I’ve got the scars to show it, is that people are a lot less comforted by less inflation than they are profoundly annoyed by higher prices (remember, lower inflation just means prices grow more slowly—it doesn’t mean they fall).

We are thus left with question we started with: why do they keep doubling down on such unpopular policy?

You can listen to Trump officials try to explain it, but they do not come close to answering the question. There’s the claim that he’s bluffing to gain leverage, but Trump knows that stops working if you always bluff. Treasury Sec’y Bessent consistently argues some version of “don’t worry: exporters will eat the higher prices such that US consumers won’t feel them.” But a) the facts show otherwise, and b) it contradicts what other team members say.

Which is some version of: our trading partners have taken advantage of our large, acquisitive markets for decades, selling us more than we sell back to them (i.e., creating large and persistent US trade deficits in goods—they say a lot less about our services surpluses—though to be fair, the former swamp the latter), and thereby accelerating deindustrialization and hurting working-class communities.

That’s a more resonant argument but the problem is that sweeping tariffs have never, over at least the last 100 years, been shown to help (btw, the reason this contradicts Sec’y Bessent is that if there are no price effects, there’s no incentive for domestic import substitution). I’ve written extensively about this contradiction, most recently here, pointing out that Trump 1 tariffs didn’t help in this regard at all, every advanced economy, even those with large, persistent trade surpluses (e.g., Germany), continue to shift from manufacturing jobs to services, the trade deficit isn’t the scorecard they think it is, and tariffs tend not to change the trade balance very much anyway.

To be clear, that doesn’t mean we should abandon Biden-era industrial policies intended to stand up more domestic production in key sectors, both for national and economic security. It just means that we shouldn’t expect those actions to have large effects on the trade balance or the sectoral composition of employment.

One reason these tariffs won’t work goes back to econ point above—almost half of our imports are inputs into domestic production—or as I like to say: you can’t unscramble the globalization omelet. The tariffs will hurt many of the very industries they’re allegedly trying to help. But if you point that out to members of the administration, they just won’t hear it.

Look, I really don’t mean to make this unnecessarily complicated. The President loves tariffs because they make him sound tough and that’s by far his favorite look. Many of his constituents feel the same way. America First increasingly seems to mean America By Itself, and tariffing the crap out of our trading partners seems fully consistent with that thrust.

But here’s the rub: if markets, businesses, and consumers are all (or even mostly all) hurt by these tariffs, there’s a long-held view that President Trump is sensitive to that and will adjust. Relative to standard politicians, he’s immune to a lot but the record shows he doesn’t like tanking markets and consumer/business confidence, he ran on lowering prices, and should the Trump Slump become a thing—and people are already talking about it—surely he won’t like that. He and his team appear to have convinced themselves that none of those outcomes will occur, but occurring they are, in real time.

Of course, it’s possible these actions will get reversed in short order, but I doubt it. So what happens when an unstoppable force (Trump’s love for sweeping tariffs) meets an immoveable object (the reality of their impact)? I hate to say it, but it looks like we’ll find out.