Over the coming few weeks, alongside the regular coverage of the Clark Center’s polls and other news, On Global Markets will be reporting on the discussions held at the Economic Experts Conference 9/10 October. Most of those sessions were held under the Chatham House Rule.
The polls of the Clark Center’s various Expert Panels often throw up division, or at the very least high levels of uncertainty. But there are also plenty of issues on which the majority of experts tend to agree, and one of those topics is questions related to tariffs. In general, the experts responding to polls tend to believe that protectionism damages overall economic welfare, hits growth, and pushes up prices, even if the magnitude of such damage is often unclear.
It is then, no surprise, that the session of the Economic Experts Conference devoted to trade and protectionism was at times rather downbeat. Tariffs, uncertainty, and the complex relationship between these ideas have been at the heart of American economic policy since January.
Many polls, conducted over the last decade or more, have reiterated the same concerns. Indeed, little has changed to affect the fundamentals since a poll in 2018. Back then, the experts were asked whether “because global supply chains are more important now, import tariffs, are likely substantially more costly than they would have been 25 years ago?”. Weighted by confidence, 33% of respondents strongly agreed and 61% agreed. The balance was uncertain.
As was made clear at the conference, there are plenty of theoretical reasons to believe that more complex supply chains and more intermediate goods crossing borders make the impact of import tariffs more keenly felt.
But, as one participant noted, the one upside of there being ‘more policy variation’ over the last decade or so is that, even if one is not convinced by the model-based reasoning, there are now also plenty of empirical studies demonstrating just this.
The debate amongst the experts pointed out that the nature of the Trump tariffs so far in 2025 may even make them more damaging than the headline rates imply.
For a start, they have moved around a lot and often at quite short notice. What is more, the majority of the rates are based on the country from which the import is coming rather than the nature of the goods themselves, which are being imported. That encourages a lot of switching by suppliers and yet, at the same time, means that importers can rarely make long-term plans. Together, this implies more uncertainty, which may lead to additional risk premiums in pricing.
Participants at the conference were also urged to treat many of the headline tariff rates and regularly used comparisons with a degree of caution. For example, whilst the overall average tariff rate on imports has bounced around a fair bit in recent months, one commonly cited number notes that the average tariff rate was recently at its highest level since the mid-1930s. That may well be true, but even such a stark claim – tariff rates are at their highest level in 90 years – is potentially misleading. Imports of goods were just 4% of American GDP in the mid-1930s compared to more like 11% today. What is more, imports of intermediate goods – as opposed to final products – are a much larger part of the mix, making the read-through to prices much more complicated.
Equally important, a large gap has opened up between the headline, or statutory, rates of tariffs on imports and the actual rate being paid by those making imports. The statutory rate in July, for example, was around 20% but the rate actually being paid was closer to 11%.
There are at least three factors underpinning this unusually large wedge. The first, which should fade over time, is a straightforward timing lag. In general, goods which have already been dispatched, and are ‘on the water’, will be charged at the time when they left port. This, for some seaborne traffic, can be a gap of several weeks.
Then there are goods granted exemptions. Here, things become tricky because such exemptions have been granted on company-specific grounds. If two companies are importing the same good from the same country, but one of those companies has pledged to increase investment in the United States, then sometimes the tariff rates charged will vary.
Finally, a much higher percentage of goods imported from Mexico and Canada than in the past is now claiming exemptions from charges based on the United States-Mexico-Canada Trade Agreement.
Given all of this, the impact of tariffs on consumer price inflation has been much harder to track and forecast than in the past. In general, the tariff impact on the US price level has been a touch lower than many economists estimated back in the Spring, but it may also prove to be less of a ‘one-off’ level adjustment and more of an ongoing process.
Tariffs, as more than one participant noted, are rarely the first-best policy solution to any problem. They distort both production and consumption decisions, while a case can be made – and was by several participants – for the European Union’s Carbon Border Adjustment Mechanism, which is an unusual case and even then hardly perfect.
The overall consensus was that tariff policy will damage America’s economy, with the real debate over the scale of the damage.
Next week, On Global Markets will turn to the second half of the discussion on global trade and protectionism – the unusual role of the dollar, and what that means for the US economy.
