Were we wrong about Trump's tariffs?

Tariff Magnitude vs. Implementation Reality

• Current tariffs represent the highest level in 90 years and the largest rise since the 1930s.
• The actual effective tariff rate imposed is significantly lower than the "Liberation Day" promises; revenue data shows a "gulf" between announced rates and collected rates.
• Factors reducing the effective rate include supply chain reorganizations, tax evasion, and negotiated exemptions that apply only after specific thresholds.
• Goldman Sachs estimates 51% of current tariffs have been absorbed by U.S. business margins rather than passed to consumers.
• The pass-through to consumer prices is accelerating slowly; projections suggest it could eventually reach ~80%, though perhaps not as high as 1930s levels.

Economic Impact and Growth Data

• U.S. economy growth slowed to an annualized 1.1% in the first half of the year, the weakest half-year performance since 2012 (excluding the 2020 pandemic).
• Inflation has increased, aligning with earlier predictions that assumed a reduced tariff scale.
• Businesses have absorbed costs due to policy chaos and uncertainty, hoping to "wait out" the administration's volatility.
• Critics argue the primary damage is "lost opportunity" and a structural drag on growth rather than an immediate recession.
• The U.S. is described as building a "fortress" around itself while the rest of the world integrates and becomes more competitive without tariffs.

Political Economy and Business Sentiment

• Both major U.S. political parties face shifting dynamics: the Democratic Party is increasingly adopting a pro-trade stance, while protectionist interests are gaining influence within both parties.
• Bipartisan opposition exists; for example, Republican Senators Mitch McConnell and Rand Paul oppose tariffs, as does Kentucky Governor Andy Beshear.
• Business leaders remain silent on the issue due to fear of retaliation and a lack of upside in public criticism.
• Uncertainty regarding input costs (e.g., a construction project ranging from $1 billion to $1.3 billion) is halting investment decisions.
• Once established, tariffs create concentrated interest groups (companies lobbying to keep protection) and government revenue streams (~10% tariff levels generate meaningful income), creating political inertia against removal.

Structural Risks and Forward-Looking Outlook

• Policy is now arbitrary and lacks an anchor (Most Favored Nation status has been effectively removed), leading to unpredictability across markets like Brazil, India, and China.
• A lack of foreign retaliation has temporarily masked the damage; the long-term risk is that the U.S. becomes increasingly isolated as global markets integrate without U.S. protection.
• Future administrations will face a "thermostatic" political environment where removing tariffs is difficult due to the revenue requirements and entrenched industry lobbies.
• Economists warn that while a recession may not occur immediately, the sustained drag on potential growth and the loss of competitive efficiency will result in immense long-term harm.