Tariffs, rising debt expected to sow 'mess', 'chaos' in US

The US economy is facing mounting structural problems, even though it has shown slow and seemingly sustained expansion despite shocks such as steep tariffs and rising debt. However, in the longer term, the US government policies in the past year may bring about serious costs, "mess" and "chaos", said US experts.

At a Brookings Institution event titled "One Year of 'America First' Trade Policy: What Did We Learn, and What Comes Next?" last week, experts reflected on the turbulent year, highlighting unprecedented policy shocks yet surprising short-term economic resilience, while warning of mounting long-term risks, including persistent inflation, supply chain fragmentation, and erosion of geopolitical trust.

Ben Harris, vice-president and director of economic studies at Brookings, questioned why the US economy continued on a path of slow but sustained expansion despite actions "contrary to the conventional wisdom of mainstream economists".

Harris outlined four major shocks: an escalation in tariffs, with the average rate jumping from 2.4 percent to 28 percent; a sharp drop in net immigration to near zero or negative; trillions in new debt outside recession or war; and an erosion of Federal Reserve independence through White House pressure and investigations. He said if economists had been informed of these a year ago, "virtually all would project the US economy would be stagnant at best and cratering at worst".

Despite this, Harris offered four explanations for the economy's resilience: shocks may be overstated due to evasion and muted retaliation, offsetting stimuli such as AI investment may be at play, traditional models may have overstated short-term downsides, and full effects simply take time.

But he warned that long-term costs include "sacrificing economic autonomy, hurting select industries and communities through sharply increased competition, and forgoing an imperfect but still significant source of revenue in the form of tariff collections".

Nora Todd, former special assistant to the president and senior director for international economics and labor in the White House, discussed how corporations have mitigated the impacts. "In trade policy, we saw corporations choose not to pass along tariffs to consumers, choose to stockpile goods in advance of the tariffs being put into place, choose to shift production so that they could avoid tariffs, and maybe some of these are the contributing factors about the muted economic response to the very sweeping changes that (the US administration) has enacted in trade policy," she said.

Consumer prices jump

Wendy Edelberg, a senior fellow in economic studies at Brookings, assessed the policy's economic effects, saying that tariffs have raised consumer prices by about half a percentage point so far, with more inflation expected. "Imported goods that are subject to these tariffs are indeed showing higher prices for consumers. And in fact, the domestically manufactured goods that compete with those imported goods are also showing higher prices," she said, adding that low-income households and small businesses bear the brunt, and manufacturing employment has shrunk because "manufacturers use imported inputs. So, you have actually made it harder, not easier, to manufacture domestically".

Edelberg pointed to time lags, saying the full effects "would create a mess, create some chaos, certainly create higher inflation, but wouldn't necessarily lead to a recession or cataclysmic effects".

Daniel H. Rosen, cofounder and partner at Rhodium Group, criticized the US trade approach, which has led allies to turn to China. He said the leaders of US allies are already engaging more with China."Our allies are sort of lining up to find alternative markets."

Rosen suggested a managed trade path with China. "Anywhere from 60 to 90 percent of what large economies like ours trade with each other really doesn't present an economic security or a national security problem."