Why Trump’s tariffs won’t last long

Welcome back. Two weeks ago, I outlined five optimistic scenarios for the global economy. The first was “Donald Trump dilutes his tariff plans”. Now that the US president has unveiled his historic package of import duties, I return to this idea. This week, I sought the argument for why US tariff rates won’t stay high for long. Here’s what I found.

First, the economic pain. In the near term, most forecasters expect Trump’s import duties to raise prices and slow economic activity. But the White House may have overestimated its ability to withstand political pressure as tariffs kick in.

Consumer sentiment is falling in anticipation of bad times ahead. But as the latest tariffs actually hit supply chains, it will plummet.

Durable goods and non durable items, such as food and clothing, account for 30 per cent of US household spending. These will, to varying degrees, be hit by higher duties. (One estimate suggests the price of an iPhone 16 Pro Max could jump from $1,599 to $2,300, if all tariff costs are passed on to consumers.)

Trump’s pre-April 2 tariffs were already pushing up manufacturers’ prices. Given the extent and scale of his latest blitz, inflation could rise higher and faster than anticipated. Blanket tariffs limit the ability of US suppliers to find cheaper alternatives quickly. Overall, Allianz Research expects around two-thirds of companies to pass on costs to consumers.

The non-price effects of Trump’s agenda are also piling up: so-called Department of Government Efficiency-linked lay-off announcements totalled more than 280,000 over the past two months, while existing tariffs and uncertainty are restraining hiring and investment plans.

This builds on economic concerns before Trump came in. A reminder: prices have risen 20 per cent on average since the start of January 2021 (with the cheapest goods facing even higher inflation), and debt distress is rising in Republican states (which could be exacerbated if the US Federal Reserve keeps rates higher for longer to ward off tariff-linked inflation spirals). In all, Americans’ threshold for quick, further pain is lower than the president thinks.

The targeted approach trade partners are taking in their retaliation will worsen this. For instance, the EU is devising levies aimed at Republican-held states — including soyabeans in Louisiana, beef in Kansas and produce in Alabama — in response to Trump’s steel and aluminium tariffs.

This matters because approval ratings track consumer sentiment closely, particularly for Republicans when Trump is in power. And political concerns were rising within the GOP even before the president’s “reciprocal” tariffs.

Data collated from YouGov by John Burn-Murdoch in the FT shows Trump’s economic approval among his non-Maga 2024 voters rapidly falling. Broader Republican consumer sentiment is now also at a turning point.

Since Trump unveiled his latest tariffs, discontent has spread. In the Senate, a largely symbolic resolution to overturn the tariffs against Canada was passed with Republican support on Wednesday. Later in the week, the FT reported a rift emerging between top Republicans on trade policy. GOP senator Ted Cruz (usually a staunch Trump supporter) also warned of a potential “bloodbath” for the Republicans at the November 2026 midterm elections.

Businesses may also become more vocal, at least in private, notes Marko Papic, chief strategist at BCA Research. “Existing US corporations — which employ Americans at a greater level than some theoretical manufacturing renaissance would — are going to face steep costs, and will lose business in foreign markets.”

Major S&P 500 tech, banking and industrial stocks have plunged. Apple experienced its biggest ever one-day valuation wipeout. The tech bros and big business networks will put pressure on contacts in the administration, and senior officials’ stock portfolios will suffer.

Small business owners, who employ almost half of the private sector workforce and are an important Republican constituent, are now also feeling less optimistic. Plans to end “de minimis” customs exemptions globally would be particularly painful for them.

In financial markets, it will take something spectacular to shift Trump, given his flippancy about plunging stock prices so far.

“It’s a bit like asking a pyromaniac to put out a fire he started,” said Jonas Goltermann, deputy chief markets economist at Capital Economics. “There is a degree of pain, whether in equities or other markets, that would prompt some sort of a rethink. But it is further away than most thought.”

Could bond markets force him to change course? Right now US Treasury yields are falling, as investors still consider them safe haven assets. But in one tail-risk scenario, fiscal recklessness (for example, stimulus measures amid unreliable tariff revenue, Doge savings or growth projections), a rising term premium (given Trump’s unpredictability) and higher inflation or interest rate expectations (if high prices become entrenched) could fuel a sell-off event. “In that case, presumably [Scott] Bessent would have to try convince Trump that his approach is not tenable,” said Goltermann.

Either way, the cumulative pressure from households, business, markets and Republicans on Trump will mount even faster now tariffs are in full flow. Delays, exemptions and reductions are possible.

Could the administration soften the blow by expediting tax-cutting measures? Garrett Watson, director of policy analysis at the Tax Foundation, is sceptical. He said plans to extend existing tax cuts may not be considered a gain by households. Nor would they cancel out the income hit from tariffs.

Watson added that the administration’s plans for additional tax cuts might help. But the $2.9tn Trump’s tariffs are estimated to raise will not even offset the extension of the expiring tax cuts. (Plus, tariff revenues are difficult to forecast.) “Timing is also a challenge, the negative impacts of the tariffs accrue now, while the tax package will take further time to pass and even longer to see bottom-line benefits.”

Even if we assume the president can brush aside the political pressure, there are other ways tariffs could come down.

Interim shortages might lead to some limited tariff reductions. “Any price spikes from tariff hikes in totemic items may trigger emergency moves to lower prices, doing that quickly almost always involves opening up to imports,” said Simon Evenett, professor at the IMD Business School, who points out that the administration is, ironically, trying to deal with the current egg shortage in part via trade.

Next, a partial rollback could be plausible if trade partners offer him sufficient concessions. Indeed, Trump has already shown a willingness to negotiate. Allianz Research’s baseline scenario is for several bilateral deals by the end of this year to reduce the US effective tariff rate by about 40 per cent.

Then there’s the bigger picture. Trump hopes foreign investors will set up factories in America to avoid tariffs. Given the time and cost involved, a swift job and investment spurt that offsets domestic economic pain is unlikely. Global manufacturers don’t know how long tariffs will last, don’t like uncertainty and need reliable supply chains (domestic or international).

But the transition to America becoming a self-sufficient manufacturing hub is a costlier, more protracted and less desirable process than Trump thinks it is. The global goods industry is more interconnected and complex than it was in the late 19th century when the US had high tariffs for an extensive period. The opportunity cost of being behind a protectionist wall is far greater today (see last week’s newsletter).

International factory owners know this. Most could decide to sit it out, which would raise pressure on Trump. That also means US manufacturing is unlikely to grow to the point where reducing tariffs in the future is harder, as established, coddled industries tend to lobby to keep them.

Sure, levies could even go higher in the near term. But between the rapidly rising economic pain, political pressure and the president’s fondness for negotiations, there is perhaps a greater chance of tariffs coming down sooner than feared.

“He will certainly pay a political price if there is nothing to show at the end of all this chaos. And that is a real possibility,” said Maurice Obstfeld, senior fellow at the Peterson Institute for International Economics.

Indeed, even if Trump doesn’t bow to the pressure in his term, it’s hard to see how any subsequent administration could then justify keeping his levies in place.

How long do you think Trump’s tariffs will last? Send your thoughts to freelunch@ft.com or on X @tejparikh90.

Food for thought

After remaining constant for over three decades, productivity at US restaurants surged during the pandemic and has remained high. Why? A new NBER working paper suggests the rise of takeaway culture, aided by food-delivery apps, is the secret sauce.