Trump wagers the economy on tariffs
The erosion of support for Kamala Harris can be largely attributed to widespread public dissatisfaction with inflation and elevated prices, which has simultaneously facilitated the prospect of Donald Trump’s resurgence. During the campaign, Mr. Trump consistently emphasized this weakness, asserting that prices would decrease in his second term. “From the very first day, we will tackle inflation and restore affordability in America,” Mr. Trump stated to the audience at a rally last August in Bozeman, Mont. While his proposal lacked detailed specifics, he provided the electorate with ample justification to trust in his sincerity. However, six weeks into Mr. Trump’s administration, there was growing skepticism among Americans regarding his commitment to price reduction. A CBS News/YouGov poll conducted in late February revealed that 80% of voters felt inflation should be a top priority, yet only 29% believed that he was adequately addressing the issue.
Treasury Secretary Scott Bessent articulated a robust defense of Mr. Trump’s economic policies in a recent address to the Economic Club of New York. “The availability of affordable products does not constitute the core of the American dream,” he stated. The American dream signifies that every citizen has the potential to attain prosperity, upward mobility, and economic security. Mr. Bessent asserted that advocates of multilateral trade agreements have overlooked this reality, contending that the agreements they have established have ultimately been detrimental to the interests of the American populace. The president’s tariffs aim to address this issue, Mr. Bessent elaborated, by creating a more equitable environment in which the international trade framework incentivizes “ingenuity, security, rule of law and stability,” as opposed to “wage suppression, currency manipulation, intellectual property theft, nontariff barriers and draconian regulations.” In a post-speech Q&A session, the secretary acknowledged that the tariffs are expected to result in a “one-time price adjustment.” However, he expressed confidence, stating, “across a continuum, I’m not worried about inflation.” During his recent address to Congress, Mr. Trump remarked, “There’ll be a little disturbance, but we’re OK with that.”
Some individuals exhibit a lower level of acceptance regarding the matter. Research on historical tariffs indicates that their impacts persisted beyond the removal of these trade barriers. The potential for a swift removal of the Trump tariffs appears limited, particularly if, as Mr. Bessent posits, their objective extends beyond merely enhancing the administration’s negotiating stance regarding the influx of illegal drugs and immigrants into the United States, aiming instead to create a more equitable competitive environment. The Federal Reserve Board is increasingly apprehensive about the rising inflation expectations among Americans, as this could potentially initiate a detrimental price spiral.
The American populace perceives a discrepancy. A recent survey conducted by the Economist/YouGov revealed that 68% of respondents believe that increased tariffs lead to elevated prices, with consumers expected to absorb a significant portion of the costs. They are correct. Tariffs represent a form of taxation levied on goods entering a country, imposed by the nation receiving the imports. Canada, Mexico, China, and the European Union are unlikely to inject substantial financial resources into the United States’ economy. The Trump administration’s decision to impose taxes on American importers will likely lead to a situation where these businesses cannot entirely absorb the heightened costs. Consequently, they will be compelled to pass a portion of this financial burden onto consumers through elevated prices. Notwithstanding his claimed expertise in business, it remains ambiguous whether Mr. Trump possesses a comprehensive understanding of this matter.
The attainment of the American dream is significantly impeded when the rate of price increases outpaces wage growth. The current administration has not provided sufficient justification for Americans to expect that wage growth will keep pace with, much less surpass, the inflationary pressures that the America-first tariff strategy is likely to impose. The administration indeed possesses a coherent rationale underpinning its endorsement of tariffs. The rationale for tariffs can be articulated as follows: While low-cost imports provide advantages to U.S. consumers, they simultaneously pose challenges for domestic producers, who find it difficult to compete effectively. The actions of these producers to curtail production or cease operations result in the loss of valuable manufacturing employment opportunities. Even when displaced workers secure new employment, these positions often offer lower wages, thereby escalating the financial burden on government programs like nutrition assistance and Medicaid. The decline of the manufacturing sector in certain communities is correlated with increased levels of crime and substance abuse. Low-priced imports produce unintended adverse effects—often referred to as “negative externalities” in economic terminology. By increasing import prices, tariffs compel the system to factor in these expenses.
Mr. Trump appears to hold the view that, following a brief period of disruption, his approach will rejuvenate U.S. manufacturing and compel foreign producers to relocate their operations to the United States, thereby creating quality employment opportunities for American workers. He anticipates that increased wages will sufficiently offset rising prices, resulting in an overall improvement in welfare for all parties involved. However, Mr. Trump faces a deficit in widespread public backing as he endeavors to implement this strategy. Americans exhibit a readiness to confront China; however, they express opposition to increased tariffs on Canada, Mexico, and the European Union. Their tolerance may wane if prices escalate rapidly while the anticipated higher-paying jobs take time to emerge, if they materialize at all. This represents a significant risk, as Mr. Trump’s presidency and the trajectory of America-first economic policies are at stake.
