Arbitrary U.S. Tariffs Are Gone. What's Next?

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“Who pays the tariffs?” has been a surprisingly contentious question over the past year or so.Back in April, Steve Miran, who was then in charge of the Council of Economic Advisers, had argued that foreigners would bear the cost as their currencies depreciated. (Equivalently, the U.S. dollar would appreciate if investors decided that making things in America had become relatively more attractive.) Alternatively, foreign producers could cut their selling prices to preserve their market share. Either way, Americans would not have paid higher prices as a result of the tariffs.That is not what happened. Economists at the Federal Reserve Bank of New York recently observed that foreign producers have barely cut their prices when selling to Americans, while the dollar has depreciated over the past year. Most of the extra customs duties have therefore been paid by U.S. importers, although the exact split between manufacturers, wholesalers, retailers, and consumers is still ambiguous. Everyone else who has bothered to look has found the same thing. Yet, Kevin Hassett, who is best known for writing Dow 36,000 and for predicting that the Covid pandemic would only last a few months because of a “cubic model”, said the NY Fed paper was “the worst paper I’ve ever seen in the history of the Federal Reserve system”.I have previously argued that the entire debate misses the point. Tariffs are just taxes. If Americans “pay” the tariffs directly they will have lower incomes, which could lead to less spending on goods and services, including those produced in the rest of the world. If foreigne…