Having access to more information is a good thing — especially if you’re the National Economic Council director whose ability to do the job relies on data. But White House economic advisor Kevin Hassett would prefer to “discipline” researchers whose calculations are inconvenient for the Trump administration’s defense of tariffs.
Last week the Federal Reserve Bank of New York posted an analysis of how Trump’s tariff hikes affected prices in 2025. U.S. border taxes stood at 2.6 percent at the beginning of the year and 13 percent at the end. Who pays them? According to the study, the bulk of the tariff cost — 86 percent in November — was borne by U.S. importers. Foreign exporters adjusted their prices only modestly.
Hassett wasn’t pleased with the analysis, which was authored by Federal Reserve staff and a Columbia University economics professor. “It’s, I think, the worst paper I’ve ever seen in the history of the Federal Reserve system,” he said on CNBC Wednesday. “The people associated with this paper should presumably be disciplined, because what they’ve done is they’ve put out a conclusion which has created a lot of news that’s highly partisan based on analysis that wouldn’t be accepted in a first-semester econ class.”
In fact, the finding — that taxing something raises its cost — is consistent with not only Econ 101 but other professional research on how tariffs affect prices. Isn’t the point of tariffs, after all, to raise the price of foreign goods so Americans will buy domestic goods instead?
Clearly the White House is worried that voters might conclude this research aligns with their own experience. Kevin Hassett, director of the National Economic Council, took to CNBC Wednesday to pan the New York Fed research as “the worst paper I’ve ever seen in the history of the Federal Reserve System” and suggested the people who wrote and published it should be “disciplined.” Disciplined how? Put in stocks? For a tariff paper?
The Fed analysis aligns with other research into the distribution of tariff costs from Harvard economists and Germany’s Kiel Institute—and with common sense. There isn’t widespread evidence that foreign producers are cutting their prices to offset the tariffs, the main mechanism by which foreigners would “pay” for the border taxes.
Nor is the dollar strengthening, which is the other possible mechanism for making foreigners pay (we’ll spare you the equations). Instead the tariffs are causing an increase in post-tariff prices of those goods that are still imported, alongside a modest decrease in the volume of imports. Americans pay higher prices, or “pay” in the form of less choice.
In his more honest moments, Mr. Trump admits this is the effect, if not the intention, of his tariffs. That’s what he meant when he said last year that Americans may have to buy fewer dolls for their children as a result of his trade policies. The handful of economists who support his tariffs believe the border taxes rebalance the global economy specifically by deterring American consumption.
The Fed research and similar papers try to put some numbers on these phenomena. The serious kernel of Mr. Hassett’s complaint, to the extent there is one, is that the New York Fed economists overlooked a wide range of other ways the tariffs could affect the U.S. economy, such as stimulating reshoring of production and an increase in domestic wages.
But such an analysis also probably wouldn’t flatter the Trump tariffs. So far the manufacturing boom Mr. Trump promised hasn’t appeared, as manufacturing jobs are down over the last year. The New York Fed and other research on cost distribution shows one reason why: To the extent American companies eat some of the costs of tariffs, that’s less cash available for investment and hiring.
The Trump economy has been as healthy as it is despite the tariffs, not because of them. The market response to his April 2025 “liberation” tariffs was so negative that the President quickly withdrew them and negotiated lower tariffs as part of “trade deals” that may turn out to be partly illusory. He has also laced the tariffs with multiple exemptions. A dollop of tax reform, a big dose of deregulation and an AI investment boom are allowing the economy to cope with the tariff distortions and uncertainty.
My Cato Institute colleague Alan Reynolds works his way through the figures and finds several basic errors. First, he looks at the Fed’s 2025 foreign investment data and finds no evidence of a significant uptick. In fact, FDI “grew 23% more rapidly during the Biden years, 2021–24, than it did in the first three quarters of 2025.”
Broader domestic investment figures were similarly unspectacular last year, particularly in the manufacturing sector that Trump is targeting: “growth of US fixed investment in plant and equipment was relatively weak last year. … Real investment has been rapidly falling in manufacturing structures (factories)—the opposite of the President’s familiar justification for high and erratic tariffs on imported manufactured goods (to ‘rebuild American manufacturing’).”
The obvious rebuttal to these figures is that Trump’s investment figures are prospective—meaning they represent investments to come, not spending that has already happened. And that’s a fine point, given the announcements’ timing. Yet here, too, there are plenty of problems. For starters, the only actual evidence the White House has offered of a tariff-fueled “Trump Effect” on domestic investment is a list of 132 “private and foreign investment” announcements it claims was “made possible by President Trump’s leadership.” But even that totals just $9.6 trillion—a little more than half of what Trump keeps claiming.
This hefty sum, moreover, is also wildly exaggerated. A Bloomberg analysis of the White House’s “investment” list shows that about $2.6 trillion isn’t investment at all. Instead, it’s routine U.S. business expenses (e.g., worker training) or vague commitments to purchase U.S. goods. Some of those commitments, moreover, relate to military equipment that foreign governments (e.g., Saudi Arabia) already wanted to buy. Others, such as India’s promises to stop buying Russian oil and start buying U.S. liquid natural gas, might never happen for practical and geopolitical reasons. Others still—as is the case of the EU’s purchase promises—simply can’t happen because government officials in these places don’t have the authority to control private firms’ purchasing decisions.
The remaining $7 trillion on the White House list is split evenly between U.S. firms and overseas governments and companies, but there are big red flags here, too. “Most of the biggest investment plans,” Reynolds explains, came from large multinational corporations—Apple, Meta, Nvidia, Microsoft, Google, Micron, IBM, Eli Lilly, Pfizer, Merck, Johnson &Johnson, and AbbVie—that were already investing heavily in the United States and had already planned even more spending in the future, long before any tariff-induced “Trump Effect.”
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A comprehensive review would also need to consider the resources (capital, labor, materials, etc.) any forced investments take away from other possible projects, as well as what might have happened to investment in the U.S. without all of Trump’s tariffs and threats. As economist John Cochrane recently noted in this regard, some of the administration’s efforts to remove “regulatory and legal barriers to making the investment or making a profit on it in the US” are worthwhile and may have encouraged new spending in key sectors without “bludgeon[ing] other countries with tariffs to get the investment.”* He also cautions that “government-directed investment from other governments is not usually known for its focus on efficiency,” raising the risk that some of these investments become yet another U.S. industrial policy boondoggle. Influential writer and energy entrepreneur Austin Vernon seemingly concurs in his recent deep dive on the future of U.S. manufacturing, warning that tariffs (and industrial policy) will encourage the wrong type of manufacturing, reduce total output, and also divert finite policy attention away from things like regulatory reform that actually can move the investment needle in the direction we want.
Finally, a comprehensive review of the “Trump Effect” also will need to consider how Trump’s tariffs and threats may have discouraged other investments—or prodded full-on divestment—due to the higher costs and uncertainty that accompany them. As I just wrote for Bloomberg, there are increasing signs—in global trade flows, foreign investment data, and new trade agreements—that companies and governments are slowly diversifying away from the increasingly unreliable United States.
Between now and 2036, the CBO projects $94.6 trillion in federal spending against $70.2 trillion in revenue, a decadelong deficit of $24.4 trillion. Outlays reached 23.1 percent of GDP in 2025, nearly two full percentage points above the 50-year average, meaning annual spending growth is outpacing the economy itself. Debt held by the public is projected to hit 101 percent of GDP this year, which will surpass the post-WWII record of 106 percent by 2030, and climb to 120 percent by 2036.
Here’s Michael Magoon on the Scottish Enlightenment and the commercial society. (HT Arnold Kling)
For generations, people bit gold coins to verify that they were genuine. Gold is a relatively soft metal, so a pure gold coin would show a faint tooth mark. If a coin were diluted with a harder metal, or merely plated in gold, your teeth would quickly tell the difference. The bite was not kitsch. It was quality control.
Ed Crane is remembered by Johan Norberg, José Piñera, Vernon Smith, and other friends of liberty.
