The Slow Burn of Tariffs: Why Economists Were Right to Worry (and What Comes Next)
Over $152 billion. That’s the amount the Trump administration’s tariffs have already generated this year, with the figure poised to climb as new levies take effect. But beyond the headline numbers, a crucial question lingers: are we witnessing a fundamental shift in global trade, or simply a delayed reaction to policies economists warned against from the start? The answer, increasingly, appears to be the latter – but the lag time, and the geopolitical implications, are far more complex than initially predicted.
The Inflationary Tide is Turning – Slowly
Initial predictions of immediate, sharp inflation and widespread shortages following the imposition of tariffs haven’t fully materialized… yet. As economist Adam Tooze points out, this doesn’t invalidate the underlying economic principles. Instead, it highlights the complex and often protracted nature of economic consequences. The signs are there: a rebound in inflation, particularly in goods – the sector most directly impacted by trade – is already underway. The Federal Reserve’s reluctance to cut interest rates underscores this concern.
This isn’t a sudden shock, but a gradual creep. Supply chains are intricate, and the effects of tariffs ripple through them over months, even quarters. The “foreigners are going to eat the tariff” narrative – the idea that other countries will simply absorb the cost – is proving largely untrue. Instead, businesses are navigating a delicate balance: passing costs onto consumers, accepting reduced profit margins, or potentially exiting the market altogether. This dynamic, reminiscent of the long-term consequences of Brexit, suggests a similar trajectory for the U.S. economy, particularly for low-income consumers.
Manufacturing’s Mirage: Tariffs and Investment
The promise of a manufacturing renaissance fueled by tariffs has largely failed to materialize in a meaningful way. While the administration has touted large investment announcements – Apple’s $500 billion pledge, Nvidia’s similar commitment, and others – these are often the result of direct presidential persuasion rather than a direct response to tariff policy. Tooze describes these as “glad-handing” and “corporate announcements extracted by a phone call from the president.”
Furthermore, the impact of tariffs on manufacturing is ambiguous. Heavy tariffs on steel and aluminum, for example, raise costs for many American manufacturers who *use* these materials, potentially undermining their competitiveness. The benefit accrues primarily to domestic steel and aluminum producers, creating a windfall for a select few while potentially harming a broader swath of the industry. Genuine, sustained investment requires certainty, something the haphazard nature of recent tariff policy has consistently failed to provide.
Tariffs as Geopolitical Leverage: A Gulliver’s Travels Approach
Perhaps the most revealing aspect of this tariff strategy is the underlying worldview driving it. It’s a vision, as Tooze describes, akin to “Gulliver’s Travels” – the belief that the U.S. is a sleeping giant unfairly exploited by smaller nations. The expectation is that a show of strength will compel these countries to fall into line and return resources to the U.S. This approach has seen limited success.
While tariffs may have exerted some pressure on Europe, the model simply doesn’t translate to larger economies like China, India, or Russia. The case of India is particularly illustrative. The U.S. initially encouraged India to purchase discounted Russian oil as part of its broader strategy against Russia, only to later criticize India for doing so. This inconsistency highlights the inherent flaws in a strategy based on simplistic power dynamics. The attempt to strong-arm Apple into relocating production to the U.S., disrupting a carefully constructed supply chain that leveraged India’s manufacturing capabilities, further exemplifies this disconnect. The Council on Foreign Relations’ Global Conflict Tracker provides further context on these geopolitical tensions.
The Future of Trade: Fragmentation and Uncertainty
The long-term implications of this tariff-driven approach are clear: a fragmentation of the global trading system and increased economic uncertainty. The idea of a swift, positive outcome – a “big flow back of resources” to the U.S. – is increasingly unrealistic. Instead, we’re likely to see a continuation of protracted negotiations, retaliatory measures, and a gradual erosion of the rules-based international order. This isn’t to say that trade policy is without merit, but that the current approach, based on unilateral action and a flawed understanding of global economics, is unlikely to deliver the promised benefits.
The coming months will be critical. Monitoring inflation data, tracking actual investment figures, and observing the geopolitical fallout from ongoing trade disputes will be essential. The initial warnings from economists are proving prescient, and the slow burn of tariffs is likely to have lasting consequences for the U.S. and the global economy. What are your predictions for the future of international trade? Share your thoughts in the comments below!