Trump's tariff theater could actually help fight inflation
With consumer confidence taking a notable dive in recent months and inflation still hovering above the Federal Reserve's target rate, economic anxiety has become a defining feature of the early days of Trump's second administration. While the president has begun implementing his promised tariffs against several countries, what's more remarkable is the pattern of threats, brief implementation, and subsequent rollbacks that has characterized his administration's approach thus far.
This "tariff threat theater," though widely criticized, might inadvertently accomplish something that conventional economic wisdom would consider paradoxical: helping to combat inflation.
Basic economics tells us that increasing the cost of imported goods feeds directly into higher prices across the economy. And the conventional understanding of tariffs, wherein they function as taxes that ultimately raise consumer prices, isn't wrong. Yet this surface-level analysis misses a more nuanced potential outcome when tariffs are repeatedly threatened but inconsistently applied, as we’re witnessing frequently as of late.
When Trump threatens new tariffs, consumers rationally react by pulling back on spending, out of fear that prices will soon rise. This psychological dampening of demand can exert significant downward pressure on inflation, even if the tariffs themselves never fully materialize or persist. Essentially, the president may be creating an economic placebo effect — generating the demand-cooling benefits of tariffs without their sustained price-increasing consequences.
This approach bears some resemblance to the Federal Reserve's own "forward guidance" strategy, where merely signaling future interest rate increases can cool markets without actually implementing those hikes. The difference is that the Fed's communication strategy is deliberate and calibrated, while any anti-inflationary benefit from Trump's tariff threats appears to be an entirely accidental artifact of his frenetic style of governance.
For businesses, this persistent uncertainty creates a peculiar incentive structure. When tariffs are threatened but believed to be potentially temporary, companies are more likely to absorb temporary cost increases rather than pass them along to consumers. After all, raising prices is strategically risky if competitors might be able to undercut you once tariffs are withdrawn. This corporate hesitancy to pass through costs further dampens the inflationary impact that tariffs would typically have.
What makes this dynamic particularly relevant is the current economic context. With the Federal Reserve keeping interest rates steady, as it navigates the delicate balance between fighting inflation and avoiding economic contraction, any additional demand-dampening mechanism could prove useful. Consumer confidence has already declined sharply, suggesting Americans are becoming more cautious with their spending. Tariff threats may be amplifying this caution without necessarily triggering the full supply-chain disruptions that permanent tariffs are likely to cause.
None of this suggests that "tariff threat theater" is good economic policy. The uncertainty it creates hampers business planning, undermines international relations and risks diminishing returns as economic actors learn to discount the threats. Moreover, if implemented permanently, these tariffs would certainly contribute to higher prices, and potentially trigger retaliatory measures from trading partners.
It's worth emphasizing that this potential anti-inflationary effect almost certainly isn't the motivation behind Trump's approach. His stated goals center on protecting American industries and reducing trade deficits — objectives that economists broadly agree tariffs are poorly suited to achieve. Any inflation-fighting benefit would be purely coincidental.
The irony here is palpable. Throughout the 2024 campaign, Trump criticized the Biden administration for high inflation, yet his proposed economic policies were widely expected to reignite inflationary pressures through disrupted supply chains and reduced labor supply. That his implementation strategy might accidentally serve as an inflation-dampening mechanism represents a peculiar twist that few economists would have predicted.
As we navigate this unusual economic experiment, policymakers would be wise to recognize both the potential short-term benefits and long-term risks of governing by threat. The psychological effects on consumption may temporarily help ease inflation, but the enduring damage to economic planning, international relations and policy credibility could ultimately prove far more costly than any transient benefit to price stability.
Nicholas Creel is an assistant professor of business law and ethics at Georgia College and State University.
Topics
-
Live Updates: Trade Fight Widens as Europe and Canada Retaliate Against Trump Tariffs
As President Trump’s global tariffs on metals took effect, the European Union and Canada announced billions of dollars in levies on American goods. Economists worried that the trade war could over ...The New York Times - 6d -
Trump Tariffs Unsettle Farmers, but They Have Their Own Fair Trade Complaints
When the U.S. trade representative asked for examples of unfair trade, agriculture interests had plenty, but also politely warned about what a trade war could do to them.The New York Times - 51m -
Trump 25% tariffs on steel and aluminum take effect, EU announces retaliation
Trump's tariff policies have rattled the stock market and raised fears of an economic slowdown, increased inflation and a global trade war.CBS News - 6d -
Trump's 200% tariffs could have an unlikely winner — troubled beer brewers
U.S. President Donald Trump's threat to impose 200% tariffs on alcohol from Europe would serve a major blow to drinks makers on the continent, but it could have one unlikely beneficiary — the ...CNBC - 4d -
Trump tariffs on steel and aluminum come into effect amid US-Canada trade war
European Commission announces countermeasures after sweeping US levies of 25% come into force without any exemptions. Donald Trump’s tariffs on steel and aluminum imports took effect on Wednesday ...The Guardian - 6d -
Tesla tells US government Trump trade war could ‘harm’ EV companies
Letter from Elon Musk’s firm to US trade representative warns of ‘downstream impacts’ of tit-for-tat tariffs. Business live – latest updates Elon Musk’s Tesla has warned that Donald Trump’s ...The Guardian - 4d -
Trump doesn't rule out possibility of recession, Chinese retaliatory tariffs go into effect
President Trump said in a Fox News interview that aired over the weekend that inflation could continue to rise, but he wouldn't say if the U.S. could fall into a recession later this year. ...CBS News - Mar. 10 -
Trump Says a Recession Would Be Worth It, but Economists Are Skeptical
President Trump and his advisers say his policies may cause short-term pain but will produce big gains over time. Many economists are skeptical of those arguments.The New York Times - 12h -
Sweeping Tariffs Threaten to Undo a 30-Year Trade Alliance
The stiff tariffs President Trump briefly imposed on Mexico and Canada this week could have pushed those allies into recession. The impact for America would be messy.The New York Times - Mar. 7
More from The Hill
-
Democrat on Trump-Putin call: 'Russia remains the obstacle to peace'
Sen. Chris Coons (D-Del.) said it's clear that Russia "remains the obstacle to peace" following a highly anticipated phone call between President Trump and Russian President Vladimir Putin on ...The Hill - 44m -
Trump, Putin agree on limited ceasefire in Ukraine
PRESIDENT TRUMP and Russian President Vladimir Putin appeared to make progress on a limited ceasefire agreement in Ukraine during a lengthy phone call on Tuesday that the White House says is the ...The Hill - 47m -
Kentucky lawmakers pass legislation removing conversion therapy restrictions
Kentucky lawmakers passed a measure Friday seeking to protect the controversial practice known as conversion therapy for LGBTQ youth, repealing an executive order from Democratic Gov. Andy Beshear ...The Hill - 1h -
Democrats ask Trump to remove Patel as acting ATF director
A group of Democrats are calling on President Trump to remove FBI Director Kash Patel as the acting director of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). Fourteen Democratic ...The Hill - 1h -
Democrats push back on plans to use military installations as migrant detention centers
Democratic lawmakers are pushing back against Trump administration plans to detain thousands of immigrants living in the country illegally at U.S. military sites. In a letter signed by nine ...The Hill - 1h
More in Politics
-
Democrat on Trump-Putin call: 'Russia remains the obstacle to peace'
Sen. Chris Coons (D-Del.) said it's clear that Russia "remains the obstacle to peace" following a highly anticipated phone call between President Trump and Russian President Vladimir Putin on ...The Hill - 44m -
Trump, Putin agree on limited ceasefire in Ukraine
PRESIDENT TRUMP and Russian President Vladimir Putin appeared to make progress on a limited ceasefire agreement in Ukraine during a lengthy phone call on Tuesday that the White House says is the ...The Hill - 47m -
Kornacki: White men, white women and the gap within the gender gap
NBC News National Political Correspondent Steve Kornacki digs into a NBC News poll that shows divisions along race and gender lines in how the American electorate views DEI initiatives and more.NBC News - 54m -
Kentucky lawmakers pass legislation removing conversion therapy restrictions
Kentucky lawmakers passed a measure Friday seeking to protect the controversial practice known as conversion therapy for LGBTQ youth, repealing an executive order from Democratic Gov. Andy Beshear ...The Hill - 1h -
Trump must understand Putin ‘respects strength’ during talks over Ukraine war: Fmr. Amb. to Russia
Former U.S. Ambassador to Russia Michael McFaul discusses the call between President Trump and Russian President Vladimir Putin and what talks could mean for the end of the war in Ukraine.NBC News - 1h