Let’s investigate two studies. Can they both be right?
 

The No Side

A San Francisco Fed study by Regis Barnichon and Aayush Singh discussed the No side in What Is a Tariff Shock? Insights from 150 years of Tariff Policy

In this paper we exploit 150 years of tariff policy in the US and abroad to estimate the short-run effects of tariff shocks on macro aggregates. A careful review of the major changes in US tariff policy since 1870 shows no systematic relation between the state of the cycle and the direction of the tariff changes, as partisan differences on the effects and desirability of tariffs led to opposite policy responses to similar economic conditions. Exploiting this quasi-random nature of tariff variations, we find that a tariff hike raises unemployment (lowers economic activity) and lowers inflation. Using only tariff changes driven by long-run considerations—a traditional narrative identification—gives similar results. We also obtain similar results if we restrict the sample to the modern post World War II period or if we use independent variation from other countries (France and the UK). These findings point towards tariff shocks acting through an aggregate demand channel.

The Yes Side

On November 17, 2025, the Tax Foundation discussed Trump Tariffs: Tracking the Economic Impact of the Trump Trade War

Historical evidence and recent studies show that tariffs are taxes that raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.

Reduced Employment and Lower Growth

Both sides agree that tariffs reduce employment and lower growth.

I am on board with that. Hello Trump!

But let’s look further.

Lessons from the 2002 Bush Steel Tariffs

Please consider Lessons from the 2002 Bush Steel Tariffs by Erica York at the Tax Foundation.

In 2002, the George W. Bush administration placed tariffs on imports of certain steel products in an attempt to protect the domestic US steel industry from foreign dumping. The failure of these tariffs to work as designed and the economic harm they caused provide a foreboding tale of what we should expect to see result from the Trump Administration’s new tariffs on steel and aluminum. A research paper titled “The Unintended Consequences of US Steel Import Tariffs: A Quantification of the Impact During 2002” found that in 2002, more American workers lost their jobs due to higher steel prices than the total number employed by the US steel industry itself.

If this last round of steel tariffs has anything to teach us, it is that the long-term impact of tariffs are higher prices and smaller quantities for US businesses and consumers that result in lost business, reduced employment, and slower economic growth.

The vast majority of the manufacturers that use steel in their business processes are small businesses. Ninety-eight percent of the 193,000 US firms in steel-consuming sectors, at the time of the Bush steel tariffs, employed less than 500 workers, according to the above study. The economic implication of such small firm size meant that these businesses were “price takers.” In other words, the firms were too small to have the market power to influence prices and instead had to accept the higher input costs caused by tariffs.

The effects of higher steel prices, largely a result of the steel tariffs, led to a loss of nearly 200,000 jobs in the steel-consuming sector, a loss larger than the total employment of 187,500 in the steel-producing sector at the time. The study warns:

In making policy for the revitalization of manufacturing, including the steel industry, our conclusions suggest that the effects across the full industrial spectrum should be considered. The lessons of the impact of higher steel costs should counsel a good deal of caution when import barriers are considered.

The tariffs not only led to domestic pressure characterized by supply shortages and higher prices, but also international pressure. US steel market prices were generally higher than steel prices paid by competitors abroad. This gave foreign producers of steel-containing products a cost advantage over US producers of steel-containing products. In response, customers began shifting orders from US manufacturers to foreign manufacturers.

In total, the benefit of using protectionist policies to save very few steel-making jobs in the short run was significantly outweighed by the unintended consequences of higher prices and job losses in other industries. The outcome of the 2002 Bush steel tariffs is not unique, and we should expect to see similar effects from the new tariffs on steel and aluminum products under President Trump.

Zero Doubt

There is zero doubt that the reports by Erica York and the Tax Foundation are factually correct.

Let’s look at what’s happening now, at the grocery store, and how Trump is reacting.

Trump Admits Food Inflation!

Was it tariffs? Oh no, of course not.

The rising price of bananas and coffee, cannot be due to tariffs. Like Warren and Biden, Trump blames price gouging. The same applies to the price of beef.

Three Statements on Price Gouging

Please consider Three Statements on Price Gouging: Who Said What? Trump, Warren, or Biden?

I list three statements. Tell me who said them.

Who Said What?

A. “Actions must be taken immediately to protect Consumers, combat Illegal Monopolies, and ensure these Corporations are not criminally profiting at the expense of the American People.”

B. Meat packers are “corporate criminals” and Tyson Foods is abusing its “corporate market power and raking in record profits by jacking up meat prices.”

C. Meat packers are using “their position as middlemen to overcharge grocery stores and, ultimately, families.”

What Should We Make of the Biggest Trump Tariff TACO Yet?

On November 15, I asked What Should We Make of the Biggest Trump Tariff TACO Yet?

Trump is rolling back tariffs. I am laughing, not complaining.

Best Comments of the Day

• “It’s certainly a step in the right direction, but it’s important to recognize that the pain that American working families and businesses feel from tariffs goes way beyond coffee and bananas,” said Jake Colvin, president of the National Foreign Trade Council.
• “By admitting that lowering tariffs will lower prices for U.S. consumers, the Trump administration is acknowledging what economists have pointed out all along: tariffs raise prices,” said Erica York, vice president of federal tax policy at the Tax Foundation, a think tank critical of tariffs.

Worst Action of the Day

In their place, the administration has expanded other tariffs on individual industries like steel, aluminum and automobiles based on more established national security law—Section 232 of the Trade Expansion Act of 1962.

Steel and aluminum tariffs do far more damage than food tariffs. The latter mostly just raise prices. Steel and aluminum tariffs cost jobs and destroy small businesses unable to escape the tariffs.

There is no way to pay back all of the small businesses Trump put out of business with his hugely damaging steel and aluminum tariffs, and tariffs on parts used by those businesses.

I am laughing at banana stupidity, now reversed, and also at the stupidity of Trump’s rants. But his other tariffs are no laughing matter.

Primary Concern

If the primary concern is high prices, then according to Regis Barnichon and Aayush Singh, Trump should raise tariffs!

Q: How so?
A: Raise tariffs high enough to kill enough jobs to slow the economy and lower prices.

Apparently, we don’t need the Fed. We just need more tariffs.

Best Headline of the Day

I wish I thought of this one. The WSJ commented Yes, We Want No Banana Tariffs

President Trump insists his border taxes aren’t raising prices, but Treasury Secretary Scott Bessent more or less conceded otherwise on Wednesday when he floated exemptions for coffee and bananas. Is this the beginning of political wisdom?

Mr. Bessent teased tariff exemptions in a Fox News interview this week: “You’re going to see some substantial announcements over the next couple of days in terms of things we don’t grow here in the United States, coffee being one of them, bananas, other fruits, things like that.” White House economic adviser Kevin Hassett echoed Mr. Bessent.

What the Hell?

Again, if tariffs lower prices, why the hell is Trump not raising tariffs?

Shouldn’t we be in price Nirvana by now?

Trump says he does not want to talk about affordability because it’s great.

Excuse me, but if affordability was great, Trump would not shut up about it.

Instead, he sounds just like Biden.

Perverse Reasoning

I suppose, in a roundabout way, tariffs will eventually lower prices.

Q: How so?
A: Tariffs will first raise prices (as noted by the Tax Foundation), while killing jobs and slowing the economy (as both agree), thereby reducing demand which eventually lowering prices.

Q: Any other possibilities?
A: Yes, the Smoot Hawley Tariffs are great example. Demand destruction was immediate. Then, in an attempt to get prices up, FDR burnt crops and reduced supply, but also destroyed jobs and livelihoods. The result was the Great Depression.

So, if those are the ways you think tariffs reduce prices, then I am more or less on board.

Mish, Are You Changing Your Mind?

No, I have repeatedly discussed the perverse logic of the tariff price nay-sayers.

For example, please consider Long-Term Treasury Yields Rise Again, Gold Sinks. What’s Going On?

The question at hand is not about weakening jobs. And weakening jobs plus stubborn inflation looks like stagflation.

But how long? I think it will be stagflation-lite, not long-lasting (at least in the short-term and possibly mid-term).

Q: Why?
A: Demand destruction from collapsing jobs, an AI slowdown, and continued tariff-uncertainty will sooner or later weaken the inflation impulses.

I expect sooner. Possibly, that’s why yields have not blasted higher already.

A recurring question of mine all year has been how quickly demand destruction due to lost jobs would offset price hikes due to tariffs.

I repeatedly stated “I do not know and no one else does either.” Part of the uncertainty is no one has any idea what Trump will do and when. I don’t know and you don’t either.

A recent series of Trump TACOs reversed huge portions of his March reciprocal tariff announcements.

That’s too bad.

Had Trump only kept those tariffs, the economy would collapsed sooner, killing more jobs faster. Then the price collapse would have been much faster than this slo-mo TACO torture reversal.

Fully On Board

I am fully on board with the unanimous vote of the Yes-position and the No-position that Trump is killing jobs and lowering growth with his tariffs.

I appreciate this support from both sides. Thank you.

Eventually, demand destruction due to the lost jobs and slower growth will bring about overall lower prices.

Then, whether or not one credits inane tariff policy with lowering prices is in the eyes of the beholders.

Meanwhile, there is no doubt tariffs have raised prices and that Trump is reacting to those higher prices by lowering tariffs.

But also credit Regis Barnichon and Aayush Singh. Since tariffs destroy jobs and slow growth, prices will eventually drop. This makes Trump’s TACO tariff reversal a major pity.

Trump needs to hike tariffs to kill the economy faster, destroying demand, and eventually reducing prices faster.

I’ll make a note.

But wouldn’t it have been a better idea to not hike tariffs raising prices and destroying jobs in the first?

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More By This Author:

Fed Vice Chair Blames Tariffs For Lack Of Progress On Inflation
What Should We Make Of The Biggest Trump Tariff TACO Yet?
Long-Term Treasury Yields Rise Again, Gold Sinks. What’s Going On?