TrendMacro conversation with Alex Durante on modeling the economic impact of the Trump tariffs

Alex Durante keeps a running tally of economic impacts of the ever-changing Trump tariffs on the web site of the Tax Foundation. As of this morning's estimates, the tariffs reduce potential GDP by 0.8%, the capital stock by 0.7%, and employment by 740,000. Retaliation takes another 0.1% off GDP and the capital stock, and another 125,000 jobs. He does not model inflation, assuming that the Fed will adjust policy to keep it at target. Tariffs and reciprocal tariffs on China have gotten so high, the model has to assume almost no trade — and therefore no revenues for the Treasury. In that sense thinking of tariffs as a tax hits a natural limit based on diminishing returns, in essence, the Laffer Curve. Durante argues that the loss of Chinese manufactured imports can't easily be replaced by expanding US factory capacity, because such expansion depends critically on capital goods such as machine tools that come from China. Durante thinks the administration's decisions have not been driven or guided by its elite economic thinkers such as Miran, but by political figures like Navarro.