This is the 18th piece I have written on tariffs over the past 18 months. Not by coincidence, last week marked the 18-month anniversary of Donald Trump’s second term as president.
He can’t help himself in playing the tariff card and, as a duly certified economist, neither can I. As long as the President continues to act out his McKinleyesque infatuation with what he has dubbed the “most beautiful word” in the dictionary, you can expect more of the same from me.
Why bother? Three reasons: Firstly, the economics I practice continues to judge this as a policy blunder of historic proportions. Secondly, Trump’s political MO is repetition; he tries to beat us down with a steady drumbeat of misguided policies on a multitude of fronts — from tariffs and alliances to Iran and the “rigged” 2020 presidential election. I am just as stubborn as him. Lastly, the title of this Substack is “Conflict.” It still focuses mainly on the on the US-China conflict, but thanks largely to President Trump there are plenty of other opportunities to broaden the scope.
Most of the tariff debate has focused on the first point, impact — or lack thereof. The Golden Age spiel of the President claims the impact is zero. By his reckoning, a low unemployment rate and sustained GDP growth, to say nothing of record stock market froth, only add to the gilt that has now transformed the Oval Office. Never mind that inflation and long-term interest rates have moved higher as most conventional tariff modeling would suggest. In Trump’s view, those are nothing more than the blips of a temporary “excursion.” As Maggie Haberman and Jonathan Swan document in Regime Change, it infuriates him to hear anything else.
Academics have written numerous serious papers on the impacts — both theoretical and empirical — of Trump’s tariffs. Believe it or not, an LLM search of peer-reviewed journal articles and working papers (NBER and CEPR) puts the number of these papers since January 2025 also at 18. (For what it’s worth, in Chinese culture, the number 18 symbolizes great wealth and prosperity — or, alternatively, the 18 levels of hell! Take your pick on the hidden message from Trump’s tariff fixation.)
The research shreds Trump’s view that tariffs are paid by other nations. It generally concludes that about 95% of the costs of Trump’s tariffs are borne by US consumers and businesses, with the bulk of that falling on consumers. For a CPI inflation rate running 3.5% in the year ending this June, the annualized tariff impact is about 0.7 percentage point, costing the average American family about $1,100 per year, according to the latest (July 24) estimates of the Yale Budget Lab.
These are meaningful but not devastating impacts. They are significant enough to influence monetary policy and boost the inflation premium embedded in the term structure of longer-term interest rates. Moreover, with tariffs having been changed more than 50 times under Trump, the uncertainty factor weighs heavily on the decision making of businesses and consumers, alike. And, of course, they have an impact on affordability, the big issue in the upcoming midterm elections.
So far, the high-flying AI-driven equity market has been immune to any resulting valuation pressures arising from the recent run-up in bond yields. Moreover, the lack of serious retaliation from most of America’s trading partners has been important in tempering Smoot-Hawley-like comparisons with the global trade war of the 1930s. On that point, I plead guilty … at least, for the time being. There are, however, still good reasons to worry about the increasingly global risks of protectionism; while my recent concerns have focused more on China and the massive export-led imbalances of its producer economy, the latest round of Trump tariffs is also ground for concern.
That brings me to the second reason for writing yet another piece on tariffs. While July 23 was not another April 2, 2025, Liberation Day fiasco, it is a clear sign that the Trump Administration is far from giving up on its signature international economic policy gambit. True to its promise after losing the emergency IEEPA tariff battle in the US Supreme Court five months ago, the Trump team has opted for a Section 301 back-up; the US Trade Representative investigated over 60 economies for unfair trading trade practices related to their alleged failure “to impose and effectively enforce a prohibition on the importation of goods produced with forced labor.” Finding all 60 countries guilty as charged — a rather remarkable coincidence — the USTR has concluded that a new tariff of 10% to 12.5% is appropriate for the full sample of investigated economies.
By Yale Budget Lab calculations, this will bring America’s average statutory tariff up to 11.1% immediately and to 11.8% by the end of this year. This is close to six times the average tariffs rates relative to those prevailing at the end of the Biden Administration in late 2024 and, yes, the highest since the 20% effective tariff rates in the Smoot Hawley days of the early 1930s. The latest announcements do, however, fall well short of the initial Liberation Day threat of 22.5%.
We learned two important lessons from Liberation Day: One, Trump’s trade policy pronouncements are hardly set in stone. As the markets swooned in early April 2025, his TACO instincts took over and he chickened out; the combination of a tariff pause and partial rollback limited overall tariff rates to about 10%, less than half the original “bluster rate” of Liberation Day. The actions of last week, which replace the temporary (and now expired) Section 122 tariffs that were put in place after the SCOTUS rejection of IEEPA tariffs, ups the ante only slightly from overall tariff rates prevailing at year-end 2025. Two, his latest Section 301 actions are more serious than the ludicrous emergency attempts under IEEPA. While there will undoubtedly be court cases testing the slippery legality of the forced-labor violation that all 60 investigated countries are being charged with, the US judicial system has normally granted presidents broad authority on Section 301 actions.
Finally, my Substack speaks for itself. We live in a world in conflict — whether we want to admit it or not. It is not just the United States and China. The Uppsala Conflict Data Program indicates that in 2025 there were 65 active state-based kinetic conflicts in the world, the highest reading since 1946 (see chart above). That is not exactly a heart-warming comparison. There is more than enough food for thought to keep me going for a long time.