Were we wrong about Trump's tariffs?

We've had the biggest rise in tariffs. since the 1930s. Lots of predictions. including from us of serious trouble. ahead. In fact, you Henry really worried. about I want to uh embarrass you and. remind you of your uh Tik Tok Instagram. uh success which I think reached 7. million people. But let's have a look at. you here complaining after liberation. day about President Trump's tariffs. >> President Trump's tariffs are one of the. most harmful and unnecessary mistakes of. the mon. so dismissive. >> So, you were pretty unequivocal, but um.

you know, here we are 7 months on nearly. uh the US economy hasn't crashed. Were. you wrong? >> So, I I don't think so. And I would I. would stand by what we said uh in that. what I said in that video uh for for a. few reasons. One is that the tariffs we. have in place are very significant, the. highest in 90 years, but they're not. actually anything like what was promised. on Liberation Day. And I think we've got. a chart on this. So if you uh look at. the top line there, that's what. economists are saying is going to happen. to the US economy after the.

announcements by President Trump and you. can see that in April it absolutely. spikes up. But of course markets reacted. badly. The administration pulled back. somewhat. There have been trade deals. There are big exemptions in place for. different countries. So the tariffs only. apply after a certain amount. There's. evasion. Supply chains have adjusted. So. if you look at the the red line at the. bottom there, which is the actual rate. that's being imposed uh calculated from. the revenue raised at the border, yes, it's a big shock, but it's significantly. lower than after liberation day. Uh.

>> that's so striking. Just just before you. go on, that's really striking because. you know the the overall one is lower. than was promised we thought would be in. March, but then the actual amount paid. is is much lower than that. I mean, is. that because people are just, you know, evading tariffs? I mean, how come it's. so much lower? I think I think there's a. little bit of evasion going on. Uh. there's also the avoidance effect which. is just supply chains uh reorganizing. but it's also because there are a lot of. these exemptions that have been granted. by the administration whereby the tariff. only applies after a certain amount and.

uh those have been negotiated gradually. over time and so you do end up with this. gulf certainly between what was promised. on liberation day and had that gone into. effect I I think we would be looking. >> so one reason is the actual tariffs are. lower than anticipated but also they. haven't been passed on Right. Ye. >> Yes. Not to the same degree yet. The. pass through through to consumer prices. has been slow. And that's not because. foreigners are paying an enormous.

amount. Uh it's because US businesses. have been willing to absorb tariffs in. their margin. And this uh next chart. we've got is the estimate this week from. Goldman Sachs economists which shows. this breakdown. 51% of the tariffs so. far absorbed by businesses in their. margins. And I think part of the reason. for that is that the tariff policy has. been been so chaotic and unclear that. businesses haven't have have been trying. to wait it out to a certain degree. >> So so far, you know, it hasn't, I guess, been the tax on consumers at least as. much as uh people had feared. But is.

that sustainable? Can can can businesses. carry on swallowing this in their. margins? And if so, shouldn't that be. hitting their stock prices? >> Well, that's a good point. Of course, the stock prices are driven more by the. tech firms than by the importers who. would be directly affected by the by the. tariffs. In general, the amount that's. being passed on to consumers is ticking. up over time, and I think eventually in. Trump one, it reached something in the. region of 80%. I I think it might not. get that that high this time for a. variety of reasons, but I still think. it's going to go higher than this. And. but even at this level, I think. consumers are noticing it. There has.

been an impact on inflation as well. >> Okay, we've had our economic orthodoxy. Thank you. John, tell us tell us about. the politics of this. I mean, we had a. really interesting conversation this. week with Governor Andy Basher, who came. in to see us, the uh Democrat governor. of Kentucky. He was pretty unequivocal. about how bad tariffs were. >> He was he said to us that it was the. worst economic policy he's seen in his. lifetime. And he cited the fact that the. two Republican senators for the state of. Kentucky, sorry, the Commonwealth of. Kentucky, um Mitch McConnell and Ran.

Paul, are both very opposed to tariffs. I mean, the story he told, which I found. pretty persuasive, was less about the. consumer and more about what it was. doing to businesses, that Kentucky is a. big car manufacturing state. People. don't think of it as such, but but but. it is. And of course, the Trump tariffs. have made supply chains really. complicated in the auto industry. And. also he was explaining that for a lot. of, you know, medium or small. businesses, just the uncertainty around. the cost of their inputs is making life.

very hard for them. I mean he described. a construction project that was maybe. going to go ahead in the state or maybe. not where the people behind it were not. sure whether it would cost a billion. dollars or a billion three and the. uncertainty and the uncertainty there. was around the cost of the inputs and. they just couldn't go ahead on that. basis. >> It is having an effect I think it's. having an effect on consumer sentiment. I also think that business leaders are. being remarkably quiet. >> They want to keep their heads down. There's no upside to them as far as they. can see of you know standing up and. saying this is a disaster for us cuz. they're worried they'll just get. flacked. So, let's bring in resident.

Uber optimist here. Are you as upbeat. about tariffs? Do you think that they. will continue not to have such an. impact? Or do you think this is more. problematic for the US in the medium. term? >> Well, I'm much more worried about. tariffs. I'm gloomy about tariffs. Um, and there are two reasons for that. One. is that I just don't see how you get rid. of these things. um partly because when. companies adjust to the tariff. protection then they don't want to give. it up because it is represents a cost to. them. The other is that if you look at.

the history of negoti negotiating away. tariffs it requires you to build a. domestic consensus where you give some. groups of interest groups uh tariff. relief and and you protect and you give. others gains in foreign markets and you. try and match these things up to build. domestic support. Well, that one of the. reasons tariffs haven't been so damaging. is that there hasn't been much. retaliation. So tariffs abroad remain. very very low. What is there to. negotiate with? The other thing that.

Trump has done is not just put up. tariffs, he's also basically got rid of. most favored nation status, which means. there is no anchor to US tariff policy. at all. It's completely arbitrary. Sometimes you see him imposing a tariff. on Brazil, sometimes on India. This week. he's threatening huge tariffs on China. That uncertainty while there is no. anchor no MFN that that acts as a. discipline means that there's a kind of. randomness and arbitrariness to tariff. policy which makes it completely. unpredictable and that acts as a. constant weight um on on on the US.

>> Go ahead. C. >> can I I make one more point as well. which is I think we have to be a bit. careful saying you know it doesn't seem. to have had much impact. In the first. half of the year the US economy grew at. an annual rate 1.1%. If you ignore the. 2020 pandemic, you have to go all the. way back to 2012 to find a half that's. as weak as that. So you do have a growth. hit from some combination of these. policies, you do have an inflation bump. and it's roughly in line with what you. might have predicted in April if you'd. said the actual tariffs are going to be. half as big. So you you combine that. short-term hit which I do think is.

visible with your point said and I don't. think that's a happy picture. And and. the and the other thing is that you know. the the real measure of how much harm. this has will be the counterfactual of. what growth would have been sustained. over many many years. It might you know. you don't have to have a recession uh. you know this year in order to in order. to think that this is a bad policy. It's. it's the lost opportunity that I think. will be immense. >> You are you are you're preaching to I. started as trade correspondent you know. 25 years ago in the economy.

it stays with you. No I I I absolutely. but I do think it's important to spell. out because there are a lot of people. who say well people like you the. economist were saying that tariffs are. going to be catastrophic and they. haven't proved it but I think your point. one that actually if you look carefully. you can see some damage two firms have. swallowed a lot of the tariff but that. if they're here to stay they will. eventually get passed on to consumers. but but I think sort of two important. points that you make that really are. lost in a lot of the discussion is one.

because the rest of the world hasn't. retaliated. Then actually the best way to think. about it is this is the US essentially. building a fortress around itself. The. rest of the world will continue to. integrate and have a much more. competitive market without tariffs. So. over time that damage to the US will. will rise and secondly the political. economy and and John this is for you. then. Ed is arguing that because tariffs. have have risen now, it's going to be. very very hard for any subsequent.

administration to bring them down. The. Democrats traditionally more. protectionists than the Republicans. Can. you see a major push for bringing the. tariffs down? >> What tends to happen is you get a. thermostatic response. So whatever. Donald Trump was in favor of if. Democrats win next time, they try and do. the opposite. >> Oh, really? You think they'll be in. favor of. >> But but big caveat. I mean, we're all. scarred by our past jobs. So the. economist one of mine was his Brazil. correspondent and there I just spent a. lot of time talking to pretty. protectionist economy by the way I spent.

a lot of time talking to companies who. are lobbying uh very energetically to. keep tariffs in place because they. didn't want the competition coming back. So I think once you've created these. tariffs you you you you have some very. sort of concentrated interests who want. to keep them in in place and that that's. a big thing and the other thing is you. create a government revenue stream which. you know Henry is Mr. fiscal at the. moment, but then suddenly you have to. replace that. So say if you settle. around a 10% tariff or something like. that, you get some pretty meaningful. government revenue. So I do think the. politics have switched. You know, the.

Democratic Party now seems to be the. more pre prot trade party and that and. that's a change. But I I kind of agree. with the consensus. It's hard to go back. to the previous world.