Even the Respectable Argument for Trump’s Tariffs Is Dead Wrong
Furman was less skeptical. “My guess is he has some study,” he told me. “I would have guessed 5 percent, and I recently asked a few top international macro people, who thought about 5 percent was reasonable. But I wouldn’t quibble with 4 percent—albeit it is overly precise.” Blustein took a middle view. Maybe the 4 percent figure appeared in some study, he said, and maybe it didn’t: “Remember, I’m not an academic economist.”
But both Clausing and Furman agreed that Bessent’s calculation assumes that tariffs won’t invite retaliation, which of course they will. That’s true of the 10 percent across-the-board tariff threat, which at this point is merely theoretical; it’s also true of Trump’s threatened tariffs on Canada, Mexico, China, and yet-unnamed countries, which are not. Because the latter tariffs aren’t global, whatever impact they had on the dollar would be much smaller, making their impact on prices much greater. And, Clausing pointed out, we aren’t just talking about import prices because when prices on imports rise, prices on domestic goods that compete with those imports rise too. “That means the effect on consumers could easily be twice as high.”
But let’s stick to the 10 percent tariff, because Bessent did, and because it’s the simplest way to illustrate cause and effect. Let’s further assume Bessent is right that the dollar appreciates 4 percent, and that by some miracle other nations fail to retaliate. In this Bessentian universe, two things would happen. With a 10 percent price increase offset by a 4 percent rise in the dollar’s value, consumers would still pay 6 percent more, which is a lot. The other thing that would happen is that the rise in the value of the dollar would cause U.S. exports to decline.