Jared Bernstein on Trump's Tariffs and the US Economy

Tariffs and Consumer Costs

• 💡 Tariffs are an import tax, and research indicates the lion's share of the increased cost is passed on to consumers.
• ⚠️ New tariffs on auto imports and parts could raise the average car price by $5,000 to $10,000.
• 🎯 The idea of tariffs leading to lower consumer costs is described as "upside down" analysis.

The Goal of Trade Policy

• ❓ The president's goal of ending trade wars and achieving zero tariffs is considered admirable, but starting a trade war is questioned as the means to achieve it.
• 🧠 The administration's argument of "pain first, gain later" to re-industrialize America is disputed, with evidence suggesting the opposite.
• 📉 The op-ed in The Wall Street Journal suggests that even if trade deficits were closed and employment grew proportionally, the manufacturing workforce share would only increase from 8% to 9%.

Alternative Industrial Policy

• 📈 The Biden administration's industrial policy, focusing on "carrots and sticks" rather than broad tariffs, has seen success.
• 🏗️ There has been a doubling of factory construction on U.S. soil, particularly in clean energy, electric vehicles, and battery production.
• 💰 This approach has attracted significant foreign direct investment, proving more successful than broad-based tariff strategies.
• 🎯 While targeted tariffs might have a role, broad-based tariffs have not historically lowered trade deficits or directly translated into more factory jobs.

Economic Outlook and Recession Fears

• ⚠️ The argument that current policies might be recessionary but "worth it" is dismissed as lacking historical or theoretical backing.
• 📊 Current hard data, such as low UI claims, suggests the economy is still solid, with no immediate recessionary conditions indicated.
• 📉 However, a recent downgrade in Q1 GDP estimates to 1% signals a deceleration that could become problematic for the labor market.