Matthew Lynn has written a powerful essay in which he chastises the economics profession for being so clearly wrong when it came to the effects of Donald Trump’s tariffs. According to him, when President Trump imposed sweeping and massive tariffs in April, the “mainstream economic establishment” predicted inflation would surge, supply chains would crash, and the economy would be plunged into a deep recession. The world would “resemble a post-apocalypse Netflix series, with survivors dodging zombies and fighting one another for the last few items at the mall.”
Six months later, Lynn argues, none of this came to pass. Inflation is around 3 percent, the stock market hasn’t tanked, and we’re not rationing toilet paper or fending off zombie hordes at the grocery store. For our sins, Lynn insists that we economists must repent, acknowledge our mistake, and address why we “big thinkers got this one wrong.”
At a time when experts have been called into question on many fronts, it’s a compelling indictment. There’s just one problem. It’s built on a foundation of selective reading, convenient timing, and a fundamental misunderstanding of what economists actually said and what the evidence actually shows.
First, let’s look at Lynn’s accusations more closely. The Goldman Sachs report that he provides was issued on April 17, 2025, says “we … see a 45% probability of a recession over the next 12 months” [emphasis added]. Being that it is October, there are still six months to go before this particular prediction expires. Likewise, the Torsten Sløk analysis he is likely pointing to, which claimed a 90 percent probability of a “Voluntary Trade Reset Recession” over an unspecified timeline, was released on April 19, 2025.
It’s useful to keep in mind the context within which these were written. April, which already feels so long ago, was a busy month in terms of international trade policy. We saw the “Liberation Day” tariffs announced, stock markets around the world crash, retaliatory tariffs announced by countries around the world, and the famed 90-day pause. It was also right at the beginning of the short-lived but seriously damaging United States-China “trade war” which saw tariff rates as high as 145 percent, grinding trade between the two nations almost to a halt.
Second, Lynn fails to acknowledge that both Goldman Sachs and Torsten Sløk have since revised their recession predictions. In June, Goldman Sachs revised their recession probability downward to 20 percent between June 2025 and June 2026. Similarly, in September, Sløk noted that “recession probability [is] declining” and put the odds of a recession over the next 12 months (September 2025 to September 2026) at 30 percent.
Upon closer inspection, Lynn’s accusations about economists’ predictions simply do not hold water. But what of his specific claims about the efficacy of tariffs?
Year-over-year inflation is indeed at about 3 percent, which is markedly lower than it was during the Biden administration. But notice that the inflation rate is ticking upward, not downward, and that this still remains well above the Fed’s 2 percent target and is drifting further away from it. Still, trotting out “inflation” is odd. Economists have been very clear that tariffs don’t cause inflation the same way that printing money, which consistently pushes prices higher month after month, does. Instead, tariffs cause what’s known as a “level effect” in that they work like a sales tax that gets added to the price tag once and stays there until it is changed. The washing machine that used to cost $500, for example, now costs $625 thanks to a 25 percent tariff. Technically, this isn’t “inflation” by the Fed’s definition, but tell that to the family looking to replace their broken washing machine and is out an extra $125. “Actually, that’s not inflation,” is not only insensitive but also unnecessarily obtuse.
Looking at more granular data than the BLS does reveals a more detailed picture, and one that comports with the lived experiences of everyday Americans. Harvard’s Pricing Lab analyzed 350,000 different products. Their findings are stunning. Not only are imported goods getting more expensive, but so are domestically produced goods. Coffee prices, for example, are up almost 9 percent relative to their pre-tariff trend. Furniture, almost 6 percent, and that’s before the new 25 percent tariff on furniture takes effect.
Matthew Lynn would have us believe that tariffs are being paid almost entirely by foreign countries, but really, tariff revenues come straight from the American people.
Manufacturing, while rebounding in some sectors, remains depressed and particularly so in sectors most exposed to the tariffs. Reports from the Federal Reserve branches, usefully summarized and collated in the Federal Reserve Bank of Boston Beige Book, are all pointing in the same direction: tariffs are not helping the American people. While these aggregate statistics are alarming enough, the specific examples tell the story in ways that numbers alone could never do. The Federal Reserve Bank of Richmond provides the example of a glass manufacturer whose supplier was driven out of business because of the tariffs. Their remaining suppliers have all consolidated, eliminating jobs in the region and driving their prices higher. In Cleveland, “some manufacturers and auto dealers reported passing along 100 percent of tariff increases to customers, while others said they were slowly raising prices in response to tariffs,” and are thus eating the tariffs in the form of reduced profits. In Chicago, “manufacturers attributed higher raw materials prices to tariffs and several said that they had passed on those increases to customers.”
Lynn would have us believe that tariffs are being paid almost entirely by foreign countries. He writes, “the extra $30 billion a month in revenue the tariffs are already generating is not exactly ‘free money.’ But it’s as close to it as anything we have seen for a long time.” The problem with his analysis is that this claim was not true during the first Trump administration, and it’s not true during the second, either.
Tariff revenues come straight from the American people. In Cleveland, 87 percent of manufacturing firms report that their costs have increased because of tariffs and the surrounding uncertainty of their implementation. Looking at import shares and tariff pass-throughs, for firms that receive at least half of their materials from imports, 25 percent report that they will pass all the tariff along, 50 percent report that they will pass at least a majority along, and only 25 percent report that they plan to pass only “some” of the cost increases along to customers. None reported that they will not pass at least some of the cost along to consumers.
Unfortunately, this isn’t news, even in the White House. President Trump himself publicly chastised Walmart when they were considering raising prices in response to tariffs. Treasury Secretary Scott Bessent himself said that American firms are paying the tariffs out of their profits, which are allegedly still elevated from COVID. If tariffs are paid by foreign countries, what is there for Walmart to “eat” and why are American firms’ profits being decreased?
But even setting this aside, we still have to question the fiscal wisdom of the proposed tax rebates from all the “extra tax revenue.” Giving each of the roughly 160 million taxpayers $1,000 would cost $160 billion, which would be 40 percent of the entire projected $400 billion in revenue that tariffs could raise. It’s difficult to see how we could give up 40 percent of the revenue from tariffs in the form of rebates, bail out farmers, and still pay off the $1.8 trillion in deficit spending from 2025 alone, which would need to be addressed before the staggering $37.86 trillion in national debt could even begin to be paid down.
If economists made any mistake in the past six months, it’s that we believed that Trump was sincere in his months-long proclamation that “tariff is the most beautiful word,” that he would live up to the “Tariff Man” moniker he gave himself, and that the April 2 “Liberation Day” tariffs were just “the beginning.” As we’ve found out, between pauses, reductions, and exemptions (all of which are available to companies or countries that say big enough numbers), the tariffs are really just a sticker price, not unlike college tuition before the heavy discounts that are given to students in the form of “scholarships.”
The difference, however, is that college scholarships and aid packages are generally given out based on merit and need. Not so with tariff exemptions. Big companies, with their armies of lawyers and lobbyists who can secure meetings with top officials in the administration, will pay lower tariffs. Just look at Apple, which effectively bought an exemption from the tariffs with the promise of increased investments in American facilities. But when a small manufacturing start-up believes (rightly) that they deserve a break on tariffs, all they can do is fill out an online form and hope that some junior staffer empathizes with their application and passes it dispassionately up the chain of command. This isn’t competition, it’s cronyism, through and through.
World leaders can effectively buy their way out of paying higher tariffs, too. The European Union, for example, promised $600 billion in “extra investments” to secure a trade deal. They’ve since admitted, however, that their ability to deliver on those promises is dubious at best. The United Arab Emirates has pledged $1.4 trillion in US investments. This seems unlikely, though, seeing as their entire GDP last year was $537 billion. Should we really believe that they are going to give us almost three years’ worth of their country’s entire output as an investment?
Finally, there is also the immense legal uncertainty surrounding the implementation of tariffs through IEEPA. With the Supreme Court set to hear arguments next month, it could also be the case that tariffs have not caused pain because firms and countries are betting that they will be struck down. Still, administration officials have acknowledged that they have alternative strategies by which they could impose tariffs. As Pete Navarro said of the Court of International Trade’s ruling that the IEEPA tariffs were unconstitutional, “this did not catch us by surprise.”
These tariffs are not a “win” for the American people. Whether they will cause a recession is anyone’s guess, and Lynn is correct to point out the resiliency of the American economy, which is really a reflection of the resiliency of the American people. The American people are, on a per-capita basis, the most industrious and productive people on the planet, bar none. Even the supposed economic superpower that is China only produces three times as much output as we do, despite having over six times as many workers.
American workers do not need “protection” from the rest of the world’s economic prowess. They need empowerment in the form of deregulation, incentives in the form of reduced taxes, and opportunity in the form of lowered barriers to trade.