High taxes on imports would hurt growth, but the US economy can probably withstand them.
Markets are desperate for good news about tariffs — or no news at all. It only took a pause on the reciprocal tariffs and vague promises of future trade deals for the bond market to stabilize and stocks to recover. And despite the continuing uncertainty and the potential for more disruption, it seems markets are not pricing in a recession.
Are traders deluded? Irrational? Or do they know something that too many prognosticators do not — namely, that tariffs will not bring about an economic calamity.
Don’t get me wrong, tariffs are a bad idea, even reduced to 10% (which is still much higher than those of other countries). But while a high tariff regime would be bad for growth, the US economy can probably withstand it. The economy has strong fundamentals, a likely positive productivity shock in its future, and the part which is dependent on trade is relatively small. No less an authority than the Yale Budget Lab estimates the tariffs will reduce GDP between half and one percentage point — which, again, is not great, but is also not a recession.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by VCG/VCG via Getty Images
