There’s a certain charm in recalling those segments from TV variety shows where famous stars would pose innocent, and often hilarious, questions to children. It’s reminiscent of how some economists connected to President Trump seem to articulate their support for his trade policies and tariffs, almost as if trying to explain the inexplicable.
Take Stephen Milan, for instance, who leads Trump’s Economic Advisory Council. He recently attempted to clarify for a political reporter, Victoria Gida, why the president’s tariffs wouldn’t necessarily cause prices to rise for Americans.
According to Gida, Milan’s core argument hinges on the idea that, being the largest buyer in global markets, the U.S. could negotiate with other countries to absorb some of those tariff costs. This implies, somehow, that American companies might keep post-tariff prices competitive enough to avoid passing costs onto consumers.
At least he recognizes that it’s U.S. businesses — not foreign countries — who pay these tariffs. As the Tax Foundation points out, tariffs are essentially a tax on imports that U.S. companies remit directly to the government.
Trump, however, seems to struggle with this concept. Just the other day, he stated that Canada would soon be notified of the tariffs they would pay on doing business in the U.S., missing the crucial detail that it’s Americans who ultimately shoulder those costs.
What would have been more accurate is for him to explain how much more Canadian products will cost U.S. consumers because of these tariffs.
While the Tax Foundation does acknowledge that some companies might pass higher costs onto consumers, not all industries have done so yet. Many businesses are clinging to hope that this tariff situation will somehow resolve itself.
Moreover, the idea that foreign exporters might lower their prices to help U.S. businesses is what Milan anticipates could offset tariff costs. But the reality is that many tariffs introduced by Trump are among the highest seen historically, which means not every company can absorb those costs.
To illustrate: imagine a U.S. business that buys goods for $1,000 from a foreign supplier, say, steel from Canada, incurring a 50% tariff. This means that the business pays an additional $500 in duties, bringing the total to $1,500 for that steel.
If Canadian producers decide to cut their prices, like reducing the charge to $900, they still face a 50% tariff once that steel enters the U.S., translating into $1,350 for American buyers. So while this might provide some slight relief, consumers still end up paying considerably more than they would without tariffs.
Actually, Canadian steelmakers would need to decrease prices by over 30% just to keep post-tariff costs relatively in line with what they would be without the tariffs, a significant challenge for many businesses.
Certainly, companies in nations affected by lower tariffs might manage to eat some costs, yet American consumers are still footing the bill for higher-priced goods.
Another flaw in Milan’s argument is that in some markets, competition simply isn’t there. For example, with recent restrictions on the export of rare earth minerals from China, U.S. manufacturers are feeling the pinch and can’t easily switch suppliers.
Trump’s fluctuating tariff policies have pushed many of his economic advisers into strange contortions to justify his decisions. Much like the children in those variety show segments, Trump’s economists occasionally express thoughts that are startling — but unfortunately, it’s U.S. businesses and consumers who end up bearing the brunt of it all.
