When it comes to the economic damage from President Trump’s trade war, I am among the more serene analysts.
When it comes to the economic damage from President Trump’s trade war, I am among the more serene analysts.
Why? Two reasons. First, because the economy is quite strong and is well positioned to absorb the damage that is likely to come its way from Trump’s tariffs. Employers are adding jobs each month at a healthy pace, the number of layoffs each month and the number of new claims for unemployment benefits each week are not trending up, and the unemployment rate is low. Household balance sheets are strong, as is consumer spending. On the inflation front, the biggest risk is a reacceleration, indicating that overall demand for goods and services is relatively robust.
It is of course true that data on sentiment are quite worrying — but we should pay more attention to what consumers and businesses do rather than how they say they feel.
Second — and most important — is my view that the laws of political gravity have not been suspended. From my recent Project Syndicate column:
Political success must ultimately rest on a foundation of policy success, and Trump’s policies are not succeeding. More than 60% of Americans disapprove of his handling of tariffs, and over half disapprove of his handling of the budget and his management of the federal government. Until Trump changes course, those numbers will continue to climb. The higher they go, the easier it will be for congressional Republicans and corporate executives to speak out against Trump.
If the president wants his party to do well in the 2026 midterm elections, he will be under enormous political pressure to rein in the chaos, resolve policy uncertainty, and govern more responsibly. Indeed, Trump has already responded to political pressure and publicly placed limits on Musk and DOGE, tipping power away from them and toward cabinet secretaries. The same will happen with his tariff plans.
Tariffs will raise prices, and a CBS News/YouGov survey conducted between March 27-28 found that 64 percent of Americans believe the Trump administration is not focusing enough on lowering prices, while 55 percent believe it is focusing too much on increasing tariffs. The share of Americans in that poll who think Trump’s policies are making them better off financially plummeted to 23 percent, down 19 percentage points since January. Perhaps most politically damning, 34 percent of respondents believe that Trump’s policies are mostly responsible for today’s inflation rate, close to the 38 percent that assign most of the responsibility to former president Joe Biden.
Given the level and the trend of these public opinion numbers, if Trump is concerned about the 2026 midterms, then he will quickly change course on trade policy.
The risk: If President Trump has already concluded that the House is lost in 2026 and genuinely (though incorrectly) believes that massive tariffs will strengthen economic outcomes for workers and households following a period of near-term economic pain. Then, Trump’s (again, faulty) calculation could be: Go for broke now, 2026 is a lost cause anyway, and the pain felt in 2025 and 2026 will lead to political victory for the GOP (or for himself!) in 2028 after the positive economic effects from the trade war have materialized.
This is a bad strategy because positive economic effects from the trade war will never materialize. Trump’s trade war will fail at its goals of reviving domestic manufacturing employment, boosting output in the manufacturing sector, and reducing the trade deficit. We know this from many sources, including the results of his first-term trade policies.
The president doesn’t agree.
Still, I’m betting on political gravity: Economic damage from the trade war will lower Trump’s approval rating, emboldening senators and members of the House — particularly those who might lose their seats over this in 2026 or 2028 — to push back against the president. Business leaders and voters will do the same.
Economic pain from the trade war could imperil Trump’s goal of extending his tax cuts in 2025 — even if the president has given up on the 2026 midterms, he surely hasn’t given up on that crucial policy objective.
I could be wrong. Trump is more emboldened — and more MAGA — than during his first term. His advisers are more compliant and a greater share are true believers.
But if the president can avoid the effects of political gravity by writing off 2026, then the damage to the GOP in 2028 will be even greater.