The World Bank has downgraded growth projections for 70% of global economies, blaming escalating trade tensions and policy uncertainty. JPMorgan Chase warns the U.S. economy is likely to grow at a sluggish pace, while Elon Musk predicts tariffs could spark a recession in the second half of the year.
This turbulence raises a central question: Can economic disruption lead to long-term prosperity?
The Trump administration is testing a bold economic strategy—slapping tariffs on nearly every major trading partner. While the U.S. economy has so far endured the shocks, the administration has offered little clarity on how this approach will yield positive outcomes.
Stephen Miran, a Harvard-educated economist and head of Trump’s Council of Economic Advisers, presents one of the few structured theories behind the policy. His premise is straightforward: because the U.S. is the world’s top consumer market, it can pressure foreign manufacturers to absorb the cost of tariffs. If they don’t, U.S. importers will source goods from other countries.
“We can move our demand across borders, but a factory can’t,” Miran explained, emphasizing that the U.S. holds the upper hand in trade relationships.
Critics argue that this theory overlooks key evidence—such as the 2018 washing machine tariffs—that shows consumers often bear the brunt of such policies. The real question is who will ultimately pay: foreign producers, U.S. companies, or consumers. The answer will shape inflation, growth, and the Federal Reserve’s response.
Miran’s theory assumes a delicate balance. Tariffs must be disruptive enough to prompt change, but not so damaging that they paralyze business. However, the lack of predictability has already frozen investment. Companies don’t know where to build, hire, or expand as tariff threats remain fluid.
Manufacturing output is slowing, and CEO confidence plummeted in the last quarter at its sharpest rate in 50 years. Miran acknowledges the uncertainty but insists that delays in business activity don’t equal permanent damage. He believes companies will eventually move forward, even without perfect clarity.
Miran initially favored a gradual rollout of tariffs, but Trump has opted for abrupt changes and unpredictable negotiations. Still, Miran expects more clarity in the coming weeks, with the administration aiming for tax reform and trade deals by early July.
Despite these efforts, uncertainty looms large. While some hope a recession can be avoided—especially after recent easing of trade threats with China—other risks persist. Global tensions, like the Israel-Iran conflict and rising oil prices, add to the unpredictability.
Former Biden administration economist Ernie Tedeschi notes that real-world businesses don’t react as neatly as economic models assume. And economists like Katheryn Russ warn of hidden damage, pointing out that Trump’s earlier trade policies likely cost the U.S. around 300,000 manufacturing jobs.
Meanwhile, the debate continues over who absorbs the cost of tariffs. In many cases, it’s shared: one-third by factories, one-third by corporations, and one-third by consumers—far from Miran’s goal of foreign producers shouldering most of the burden.
Even so, Miran remains confident. “In the long run, this logic absolutely is going to hold,” he said, though he concedes that in the short term, volatility in prices is “absolutely possible.”
Source: Politico