In the quarter after the Inflation Reduction Act was passed by Democrats in 2022, the United States economy grew at a 3.2% annualized rate, beating expectations. The Chicken Little economists and Republicans who warned the massive spending bill would fuel inflation had been proven wrong, Democrats pointed out. Then-President Joe Biden bragged that the bill was “already delivering” results.

Economists might be terrible at making precise predictions. There are simply too many factors in play. But the basic rules of economics? They’re undefeated. Throwing billions into an overheated economy was going to help spike inflation. Just as slapping taxes on imported goods will, one way or another, be paid for by Americans. The cost is yet to be determined. 

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After a second quarter GDP report outperformed expectations, growing at 3%, MAGA protectionists began gloating about the effects, or perhaps the lack of effects, tariffs had on the economy. Where is this recession we were promised? Where is the inflation? “It’s almost like the economics profession doesn’t fully understand tariffs,” Vice President JD Vance gloated on X after Producer Price Index numbers came in under expectations in June.

Now, any good economist will admit they don’t “fully” understand everything that happens in a massive global economy that entails billions of decisions every minute (it’d be nice if politicians had a modicum of humility, as well.) All of them, though, understand that PPI excludes imports and duties in its calculations. The cost of tariffs isn’t measured by year-over-year spikes in prices, which is good to know if you’re planning to dunk on economists on X. 

Then again, when it comes to protectionist demagoguery, voters are easily duped. Most Americans, for example, have surely been led to believe that foreign nations pay our tariffs. The other day, a Fox Business News headline noted that the administration’s tariff revenue hit a historic high with a “staggering $150 billion from foreign countries since implementing the policy.” Even in the most tariff-friendly framing imaginable, the headline is factually incorrect. 

And consumer spending was weak last quarter. Private domestic investment fell by 15.6%, the largest drop since COVID-19 hit. It is likely driven by uncertainty over tariffs. Not exactly optimal for “reindustrialization.” 

Let’s grant that some foreign companies are eating the costs associated with tariffs (for now) to appease Trump or to stay competitive. Still, foreign countries do not pay the United States Treasury any duties. The entirety of the $150 billion in import taxes is collected from American businesses. Either those companies pass those costs on to consumers, hire fewer people, take pay cuts, or invest less in their operations. 

Of course, it is difficult for economists to make predictions regarding President Donald Trump’s protectionism when they don’t even know what it’s going to look like. Last week, the president hiked tariffs to 35% on Canada and instituted new ones for a dozen other countries. Those haven’t kicked in yet. Trump has suspended the deadline on China, which he initially promised would be 146%, at least three times, as his fans keep oscillating between arguing that we must entirely disengage from that country to arguing that Trump is a genius deal-maker who will strike a fairer deal. 

Is international trade good or bad? Depends on the hour.

If Trump had followed through on his across-the-board “Liberation Day” tariff schedule, we would likely be in a recession. The president pulled back the most destructive tariffs. Trump’s initial tariff threat against the European Union was 30%. It ended up being 15%. Imports, despite the populist hysteria over globalization, only account for around 11% of GDP. Trump’s taxes will be just enough not to tank the economy, but not enough to make any real difference in American industrial policy. I guess we should be happy considering the alternative. 

The market has largely stopped paying attention to the unpredictable White House, as it anticipates a deal being made. So, when Trump drops a 25% tariff on India for purchasing Russian oil, everyone likely assumes it won’t stick. We are wealthy and powerful enough to do this sort of maneuvering. That doesn’t mean there isn’t a long-term cost. 

Expectation bias has helped Trump. But not tanking the economy isn’t really something to brag about. Protectionism makes us less dynamic, not poor. Because there is no evidence that recent good economic news has anything to do with protectionism. Politics has little room for counterfactuals, but the U.S. saw slower average growth in the first half of 2025 (1.2% average) than it saw in all of 2024 (2.8%). Without the trade uncertainty, it is likely the economy would be stronger. 

That’s not to say companies are already struggling to deal with tariffs. Ford says profit will fall as much as 36% this year. General Motors reported a 35% profit decline last quarter. A slew of other companies have similar problems. If they complain, the president threatens them. In the end, big business will readjust supply chains and costs. Small ones will have a lot harder time dealing with the massive regulatory burden. How can companies plan decades in advance when trade barriers can be unilaterally lifted or expanded at the whims of the president?

Just make it in America! That will almost surely make things more expensive here and slow growth. If you start throwing around terms like “comparative advantage,” though, social media mobs will accuse you of being a pinheaded traitor. But sometimes we can’t make things cheaper. Maybe automation will. And even if American companies can, why would they bring down their prices when they don’t have to compete? The Trump administration, for example, has slapped $80 tariffs on goods consumers buy from Europe on the internet, which only incentivizes American companies to raise their prices to $79.  

ECONOMY BOUNCES BACK TO 3% GROWTH IN SECOND QUARTER

The more honest protectionist simply argues that tariffs are an act of patriotism worth paying to save America’s soul. The theory is that tariff costs are important to revitalize antiquated factories and “bring back” good, relatively low-paying work for the working class. What we’d actually be doing is sacrificing high-end manufacturing to satiate our misleading romanticism with the past. But at least this faction implicitly admits that there are trade-offs. Me? I buy whatever is cheapest and best so I can spend the savings on new products that continue to grow the most impressive and innovative economy the world has ever known. Like Democrats, protectionists are technocrats who prefer central state control over the economy. They just have different ideas on how to go about it.

We can agree, I’m sure, that the grousing and sudden turn on tariffs by Democrats, fans of every other tax hike imaginable, is hollow. It is also likely temporary. They won’t be anti-tariff when they’re back in power. Soon enough, both parties will become addicted to tariffs, an easy source of revenue that the president can implement unilaterally. The American economy is wealthy and resilient enough to overcome bad economic policy. We’ve seen that happen numerous times over the decades. But tariffs will have a cost. One decent quarter doesn’t change reality.