Natasha Sarin, president and co-founder of The Budget Lab at Yale, says she bristles at the thought of President Donald Trump touting his recent E.U. trade deal as a win.
“The idea that taking a tariff rate of 1.5 percent and turning it into a tariff rate of 15 percent plus is somehow a win for Americans — I’m just baffled by the concept,” said the economist to New York Times reporter Ezra Klein. “Because no one would say that if you took the sales tax on certain goods and you increased it 15-fold that was a win for Americans. But effectively, that’s what we’ve done.”
Sarin said the U.S. economy before President Trump took office was doing “quite well” relative to the rest of the world recovering from pandemic, despite many polls. Inflation had been very high, but it was coming back down toward the Fed’s 2 percent target, with just the last mile to go. The labor market, she said, was strong.
And then President Trump took office.
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“At the time, many commentators, including myself, said the best-case scenario for the economy is literally if [Trump] did nothing,” Sarin said. “… Instead, beginning on Liberation Day and continuing since, the president and his administration initiated a trade war aimed at remaking the global order. The consequences of the trade war have been some of the most inflationary policies we’ve seen in our lifetimes.”
Now Trump’s trade war is beginning to reverberate.
“The Budget Lab at Yale, which I run, estimates that we’re going to see household prices increase by around $2,000 a year. We’re going to see an inflation uptick, and we’re going to see a weaker labor market as a result of all that has already been done.
Sarin told Klein the only reason most other nations haven’t responded to Trump’s tariffs with retaliatory tariffs of their own is because tariffs “are a bad tax” on their own people by forcing folks at the middle or bottom of the tax code to pay proportionately more for goods and necessities.
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Most countries, she said “don’t want to hit low- and middle-income people who consume most of what they earn.”
Plus, if you make it more expensive to buy goods, Sarin said people are going to buy fewer goods, and demand drops. People buy fewer TVs and couches because they’re more expensive — then production and investment in those types of capacities decrease, and the economy goes into a drag.
“Over the last six months our growth rate has been around 1.2 percent,” said Sarin, who is also a law professor. “It was supposed to be — as of last November, when we made projections — basically twice that. So, this is having a real effect on the economy. It’s slowing and shrinking it. That’s exactly what our models predict, and that’s exactly what economists … would expect to happen from these types of policies.”
Read the full New York Times report at this link.