Truly Tariffying: A (Economic Policy) House of Horrors

I was taking a rare vacation trip (most travel is work related for me), when my wife and I decided to enter the haunted house at Tivoli for kicks (last visit, it’d been closed to renovate the wax museum to something new). Well, it wasn’t frightening at all – but that got me thinking: What would be frightening? Here’s my answer:

“Economic Policy in a second Trump term”

Consider some policy proposals:

“It is literally impossible for tariffs to fully replace income taxes. Tariff rates would have to be implausibly high on such a small base of imports to replace the income tax, and as tax rates rose, the base itself would shrink as imports fall, making Trump’s $2 trillion goal unattainable.”

And I haven’t even considered…

Nice discussion here about how Trump’s policies would make the inflation/output tradeoff a true nightmare.

Just a reminder, here’s the US trade balance defined using NIPA data.

Figure 1: US Net Exports to GDP (blue), s.a. NBER defined peak-to-trough recession dates shaded gray. Source: BEA 2024Q1 2nd release, and author’s calculations.

And in terms of policy uncertainty (which conservatives used to decry as slowing investment and growth):

Figure 2: Economic Policy Uncertainty (blue, left scale), and Trade Policy Uncertainty (tan, right scale). NBER defined peak-to-trough recession dates shaded gray. Source: via FRED, NBER.


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