Who really pays? The tariff myth that just won’t die

As we’ve learned from Trump, if you repeat a lie often enough, a good number of people will come to believe it. That phenomenon gets amplified, however, when the media fail to call out the lie. With some lies, the media divides. For instance, thankfully, we still have media organizations that push back on Trump’s claims that the 2020 election was rigged or stolen. When it comes to tariffs, however, even mainstream media have succumbed to parroting Trump’s representations; and in so doing, they’ve immunized the policy from the criticism that it deserves.

In the latest White House fact sheet on tariffs published on July 7, the text states, “President Trump sent letters to many countries explaining that, starting August 1, they will be subject to new reciprocal tariff rates designed to make the terms of our bilateral trade relationships more reciprocal over time and to address the national emergency caused by the massive U.S. goods trade deficit.”

Let me start with the notion that we have trade deficits that are reflective of a national emergency or that, somehow, we’ve been systematically victimized by our trading partners and across-the-board action is needed to remediate this situation. Nothing could be further from the truth. The flip side of running a trade deficit is that we’ve been enjoying the benefit of more capital inflows into our country relative to outflows to other countries. These conditions are what they are, but they’re neither bad nor good. Admittedly, some specific policies on the part of certain trading counterparties in certain product categories constrain the ability of some US exports to sell abroad, but those instances are limited. I would endorse any effort to expand those market opportunities further, but imposing tariffs is absolutely the wrong way to proceed.

Raising tariffs is a shotgun approach that will dampen trade and limit our economic opportunities for US-sourced goods, as our trading partners react to our heavy-handed and unilateral efforts to set the terms of trade. We’re already on pace to lose billions of dollars on tourism, alone, and that’s just one industry. Our efforts should be to dismantle trade barriers, not to erect them.

Also in the news this week was the sharp decline in profits reported by General Motors even as their revenues have held up. This pairing is largely explained by GM’s effort to absorb the impact of tariffs. Clearly, not passing on higher import costs to ultimate consumers is not sustainable. Something’s gotta give. It’s also fanciful to expect our trading partners to roll over in the face of Trump’s bullying and not seek out alternative, non-US trading partners, with China likely to be the primary beneficiary.

Turning to the reference to “national emergency”: The assertion of a national emergency is critical to serving as Trump’s authority to impose tariffs, which otherwise would fall under the jurisdiction of Congress. In fact, it’s dubious that we’re facing such an emergency. In any case, Congress is sitting on the opportunity to challenge this contention. Two bills designed to do just that are stalled in House Committees awaiting review — the Congressional Trade Authority Act of 2025 (H.R. 1903) and the Prevent Tariff Abuse Act (H.R. 407). Either or both would restore authority to Congress to set tariffs. Clearly, Speaker Johnson is doing nothing to get these bills on the floor for a vote, leaving Trump in position to continue to pursue an unjustified and destructive tariff policy that shoots us in the foot while at the same time alienating needed trading partners.

In the meantime, we and the media could stand to be reminded that language matters. Tariffs are paid for by the entities that are importing the goods. That is, US businesses and individuals directly pay tariffs when they are applied. Whether or to what extent those higher costs get passed on to ultimate consumers or whether the exporting entities reduce their prices to moderate the effects of the tariff is another question, but it’s critical to appreciate that tariffs are imposed on the purchaser of the imports. They are not imposed on the exporting country. It’s one thing for the White House to perpetrate this misdirection, but it’s maddening that papers like the NY Times, the Wall Street Journal, and other media outlets fail to recognize this reality and, in doing so, allow this misrepresentation to gain credence.

At the Times, in a July 23 article by Ana Swanson, the subtitle to the article reads, “The president imposed tariffs on Japan, one of America’s closest allies…” Later in the article, she correctly reports that these tariffs are on Japanese products, but the impression made by the subtitle that Japan, alone, is bearing these costs likely persists for all but the most discerning readers. A similar assessment can be made with respect to the Journal’s reporting. In her article on July 22, Chelsey Dulaney writes, “Trump has already sent letters to more than two dozen trading partners this month, outlining the tariff rates they will face…” They aren’t facing the tariffs; we are!

While, collectively, America seems unwilling to constrain a president who would cheerlead and effort to overturn an election, who uses executive orders to defy the provisions of the Constitution giving Congress the authority to control the power of the purse and to oversee executive branch activities, and who flagrantly violates the emolument clause and uses his position to enrich himself and his family, the prospective Achilles heel in his capacity to maintain his authority and the subservience of duly elected Republican officials under his sway may be concerns about affordability.

Americans seem willing to tolerate the degradation of civil liberties and the deliberate dismantling of the checks and balances that our Constitution requires, but their tolerance for a compromised standard of living may be less forgiving. “It’s the economy, stupid” still has resonance. If the Democrats were smart, they’d take every opportunity to emphasize just how detrimental tariffs are to US households. Both Congress and the media have the responsibility of educating the electorate about the fiction that tariffs only punish our trading partners without imposing considerable costs on us; and they’re both failing in that regard.

One word about the distinction between affordability and inflation: Unquestionably, tariffs on imported goods will raise prices and exacerbate concerns about unaffordability. It remains to be seen how quickly those prices will adjust, but you can be sure that in short order, those higher prices on imported goods will be reflected in measures of inflation. That spike in inflation, however, might very well be short-lived if tariffs are raised to new levels and don’t continue to move higher from there. That is, once we get new equilibrium prices, inflationary measures could very well abate. A one-shot price hike would foster an extended bout of inflation only if those higher prices end up raising inflationary expectations — which may or may not happen. It should also be understood that if tariffs are first raised and subsequently reduced, that lowering of tariffs — even at historically high level — would themselves be deflationary.

I expect an initial round of higher inflation to be a foregone conclusion over the next several months if Trump fulfills his promise to impose sharply higher tariffs on August 1 across the board, as he’s threatened to do. Given Trump’s on-again/off-again history, however, whether that higher inflation will persist remains to be seen. We’ll just have to wait and see — which happens to be exactly what the Fed is doing. Thank goodness one element of our economic policy apparatus appears to be operating reasonably. Heaven help us if the Fed’s independence were to get compromised.