Economists Are Now Asking: “Were we wrong about Trump’s tariffs?”

Tariffs were supposed to tank America’s economy – at least that’s what many of us, including The Economist, predicted after “Liberation Day.” 

Seven months on, Editor-in-Chief Zanny Minton Beddoes convenes a panel – Henry Curr, Edward Carr, and John Prideaux – to ask whether they misread the impact or if a slower, costlier reckoning is still ahead.

Zanny Minton Beddoes opens with a confession and a question.

The Economist warned of “serious trouble” after America’s biggest tariff hike since the 1930s.

Seven months later, no crash. So… were they wrong?

Henry Curr takes the heat directly. He says the alarm wasn’t misplaced – because the policy implemented isn’t the policy promised.

On “Liberation Day,” the administration floated sweeping, across-the-board tariffs. Markets balked, exemptions proliferated, and deals trimmed the edges.

Curr points to the chart The Economist discussed: a huge spike in the announced burden in April. Then a much lower actual burden once revenue at the border is measured.

That gap is the story. And it explains why the apocalypse didn’t show up on schedule.

My read is that the model wasn’t wrong; the input changed. Economics still cares about magnitudes.

The Tariff That Was – and Wasn’t

Curr offers three reasons the realized tariff bite is smaller. First, exemptions: many tariffs hit only after a quota or threshold.

Second, avoidance: firms rerouted supply chains around the worst chokepoints. Third, some evasion – always present at the margins when rules shift fast.

Minton Beddoes emphasizes how striking the gap is between the headline plan and the cash collected. It’s not subtle; it’s the difference between shock therapy and a strong headwind.

This matters for forecasting.

If you simulated the announced regime, you expected a bigger hit.

If you run the realized one, you get slower growth and more inflation – just not a collapse. And that’s roughly what showed up.

Who’s Paying – For Now

Curr brings fresh work from Goldman Sachs: a pass-through breakdown. Roughly 51% of the tariff cost, so far, has been absorbed in business margins.

That doesn’t mean “foreigners are paying.” It means U.S. firms are eating the costs – waiting, hedging, hoping the storm passes.

Minton Beddoes asks the obvious follow-up: is this sustainable? Can companies just swallow margin pain indefinitely?

Curr’s answer is cautious. Pass-through to consumers is rising over time, and in Trump’s first term eventually reached something like 80%.

He doubts it will go that high this time, but expects it to climb from here. Consumers are already noticing, and there’s been a visible inflation bump.

Here’s my take: margins are shock absorbers, not permanent spare tires. Eventually, prices, volumes, or investment adjust – sometimes all three.

Business Quiet; Politics Loud

John Prideaux turns to politics and on-the-ground business pain. Kentucky’s Democratic governor, Andy Beshear, told The Economist tariffs are the worst economic policy of his lifetime.

He cited Kentucky’s auto sector – a complexity nightmare under shifting import costs. Uncertainty alone is killing projects: one major build couldn’t proceed because the price tag might be $1.0 billion… or $1.3 billion.

That 30% range came down to inputs with unpredictable tariffs. No CFO signs off on that.

Minton Beddoes notices how quiet CEOs have been. Prideaux says there’s no upside in complaining publicly – only political blowback.

Silence doesn’t mean comfort. It often means fear.

The Medium-Term Trap

Edward Carr plays the long game – and he’s gloomy. His first worry: tariff entrenchment.

Once companies adjust to protection, they like it. They invest behind it. They lobby to keep it.

Dismantling protection requires old-school tradecraft: build domestic coalitions, swap concessions, and trade foreign market access for tariff relief. But as Carr notes, retaliation abroad has been limited.

That sounds good, Minton Beddoes says – but it’s actually the problem. With little foreign retaliation, there’s less to bargain away later.

Carr’s second worry is arbitrariness. By sidelining most-favoured-nation (MFN) status, tariff policy lost its anchor.

One week Brazil, another India, this week China – Carr says the randomness imposes a constant weight on investment. Companies can manage high costs better than swinging ones.

Curr adds a reality check on growth. Strip out the pandemic, and 1.1% annualized growth in the first half is among the weakest since 2012.

That looks like a policy drag consistent with smaller-than-promised tariffs. Not catastrophic, but material.

Carr underlines the real loss: the counterfactual. You don’t need a recession to judge a policy bad; you just need to compare it to the growth you could have had.

My view: volatility is a tax with no line item. It shows up as projects not started and factories not built.

Fortress America vs. an Integrating World

Minton Beddoes threads two ideas that can get lost in the noise. First, because the rest of the world hasn’t hit back with comparable tariffs, America is effectively building a fortress around itself.

Meanwhile, other blocs keep integrating – tightening supply chains, scaling markets, and refining specialization. Over time, that relative disadvantage compounds.

Second, the political economy calcifies. Prideaux has seen it up close in Brazil: concentrated winners from protection fight hard to keep their gains.

He also notes a new twist – tariff revenue. Settle around, say, a 10% rate, and you’re pulling in meaningful cash. Reversing that means either new taxes or spending cuts.

Prideaux thinks Democrats have become relatively more pro-trade – a notable flip.

But he and Carr agree: it’s hard to go back.

I’ll add one more. Once firms redesign supply chains to avoid tariffs, they won’t spend again to undo that unless they’re sure the old world is back – and stable.

Can the Damage Be Undone?

Minton Beddoes asks the killer question: can we unwind this? Carr says that without MFN discipline or reciprocal concessions abroad, the negotiation terrain is barren.

Curr warns that consumers won’t be spared forever; pass-through rises with time, and the inflation impulse, though smaller than feared, is real.

Growth has taken a visible dent even at the reduced tariff intensity.

Prideaux’s “thermostatic politics” suggests a future swing against tariffs – in theory. In practice, entrenched interests and budget math make that swing shallow.

My take: the fastest repair is procedural, not philosophical. Re-establish an MFN anchor, publish clear tariff schedules, and limit discretionary shocks. Then start swapping targeted relief for verifiable market access abroad.

Even that is slow, unglamorous work.

But credibility is built in inches.

Minton Beddoes framed it bluntly: The Economist predicted disaster. Disaster didn’t come – because the maximalist tariff plan didn’t, either.

Curr shows the actual tariff load is well below the April scare. That’s why the economy bent, not broke.

Carr argues the harm is cumulative: arbitrary rules, entrenched protections, and lost counterfactual growth. That’s not a headline crash. It’s a slow leak.

Prideaux reminds us businesses hate uncertainty more than they hate taxes. Kentucky’s stalled billion-dollar project is the policy’s x-ray.

Were they wrong about Trump’s tariffs?

They were early about the direction and mechanics, and the magnitude changed underneath them.

The reckoning may still be less spectacular than expected – and more expensive than it looks.

Fortresses feel safe until you start measuring the opportunity cost of the walls.

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