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Journalism of Courage
Dear Readers,
In November last year, Donald Trump scripted one of the most remarkable political comebacks in American politics to become the US president for the second time. There were two central aspects of his winning pitch: Containing and regulating immigration, and addressing the cost-of-living crisis fuelled by high inflation during the Biden Presidency.
All indications were that the second Trump presidency would be an even more decisive — even if possibly more divisive — than the first.
And to a great extent, this was true as well — best captured by his insistence on slapping tariffs, often prohibitively high ones, on almost all countries of the world.
Trump’s idea was that imposing tariffs would force companies across the world to come back to the US to set up production, thus creating jobs and economic growth while lowering inflation.
But a year down the line, that very resolve and choice of policy seems to be becoming too costly for President Trump.
On November 14, almost exactly a year after winning the presidential elections and proclaiming that “tariff” is his favourite word in the dictionary, Trump decided to cut tariffs on a host of agricultural commodities that are staples in American families. These include tariffs on food items such as bananas, coffee, and beef, among others.
Another notable idea floated in the preceding week would see the government give a $2,000 (or Rs 1.75 lakh) dividend to each American (excluding the rich) out of the billions of dollars of tariff revenue earned by the government. According to the Yale Budget Lab, if this dividend is given to anyone earning less than $100,000 a year, then the total outgo would be $450 billion. To put this number in perspective, note that tariffs got a total of $195 billion as revenues in fiscal year 2025 (that ended in September 2025).
Hardly a surprise
Regular readers of ExplainSpeaking would not be surprised that President Trump has chosen to not only cut tariffs on some of the most widely consumed food items but also dangle the promise of a massive dividend (likely to be almost three times the tariffs collected as yet).
That’s because as explained in past editions of ExplainSpeaking, imposing tariffs, especially like a blanket policy, was a remarkably counter-productive move.
But here’s a summary of the arguments against Trump’s use of tariffs.
Contrary to what Trump believes, tariffs are a tax on domestic consumers. They pay tariffs on things they import. A tariff, thus, raises the costs of things without any increase in quantity or quality being supplied.
This, in turn, either makes consumers stay away from importing goods — and as such reduces trade — or makes people pay a higher price, leaving less money for other purchases (often in the domestic market).
If it reduces trade, then foreigners get fewer dollars in their hands, thus their demand for American goods and services (be it an American phone or an advanced computing chip or an American government bond) falls, hurting American growth. And if trade doesn’t suffer, then the domestic economy suffers because there is less money available for domestic purchases.
Either way, a tariff would raise costs and that, in turn, would lead to at least a one-time bump in inflation and worsen the cost-of-living crisis for Americans.
Higher inflation would lead to lower demand, which will soon start to show up in falling consumer sentiment, business confidence and rising unemployment.
In the US’s case, perhaps the worst fallout would be the massive hit to US policy credibility; the truth is that the manner in which Trump has slapped tariffs goes against all established norms of the World Trade Organisation. This, in turn, would have serious long-term repercussions, starting with frayed diplomatic ties, especially with America’s closest allies.
But perhaps the worst end result of tariffs would be a weaker dollar.
A strong dollar — meaning a dollar that enjoys a strong exchange rate versus the other currencies of the world because it is forever in high demand — has been the main superpower that has allowed the US to maintain its dominance in global affairs. After all, which country can genuinely challenge the US if it buys and sells and settles its accounts in US dollar at the international stage? The world was not “atmanirbhar” or self-reliant enough to take on the US.
But if the dollar starts losing value because trust in US policy stability erodes, then countries will steadily start to find an alternative.
Did any of this happen since tariffs were imposed?
Let’s go one variable at a time.
As CHART 1 shows clearly, the inflation rate, which was trending down since the start of 2025, reversed its trajectory since April, the month when Trump first announced sweeping tariffs.
It is important to note that data is only available until September, with the longest US government shutdown since the start of October ensuring that there has been no official estimate of inflation since. Philip N. Jefferson, the Vice Chair of the Federal Reserve Bank of Kansas City, made a speech on economic outlook on Monday (November 17) where he said, “The latest available readings show that inflation is running at a rate similar to that of a year ago, a bit below 3 percent, indicating that progress toward our 2 percent target has stalled. This lack of progress appears to be due to tariff effects, with signs that inflation excluding the effects of tariffs may be continuing to make progress toward 2 percent.”
A Goldman Sachs report has estimated that, as of August end, US businesses had absorbed about half of all tariff costs. But it was also suggested that more and more of the costs will be passed on to the consumers in the shape of higher prices as the year progresses. That means higher inflation for consumers as the months roll by.
The unemployment rate too has inched up right through the year (see CHART 2). The data is likely to be updated in the coming days to make up for the break due to the US government shutdown.
In the aforementioned speech, Jefferson stated: “In the labour market, information available in recent weeks appears to be consistent with a gradual cooling in both labour demand and labour supply… I expect that the unemployment rate is likely to inch up slightly by the end of the year from the relatively low 4.3 percent rate recorded in August.”
According to the latest World Economic Outlook released by the International Monetary Fund in October, the US GDP growth rate is likely to slow down from 2.8% in 2024 to 2% in 2025.
Reason? “The downward revision is mainly a result of greater policy uncertainty, higher trade barriers, and lower growth in both the labour force and employment,” stated the IMF.
According to the University of Michigan’s consumer surveys (refer CHART 3), the index of consumer sentiment in November was 30% below the level last November.
“This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation.
The reading in November is reportedly the second-lowest since 1978.
What is worse is the emerging K-shaped economy, where the rich seem to buck the trend of deteriorating sentiments.
The UMich survey finds one key exception: “Consumers with the largest tercile (that is, in the top one-third) of stock holdings posted a notable 11% increase in sentiment, supported by continued strength in stock markets.”
The Chamber of Commerce, the US’s largest business association, has repeatedly pointed out that tariffs are hurting American businesses, especially the small firms that neither have the financial strength to deal with the higher cost imposed by tariffs nor the ability to reorient new supply lines after tariffs disrupt existing supply chains.
On October 27, the Chamber of Commerce wrote to the US Congress, urging it “to pass legislation to reclaim its constitutional role setting tariffs”. In other words, asking it to take away President Trump’s power to slap tariffs.
“American families are facing thousands of dollars in higher prices as a result of these increased taxes. Small businesses, manufacturers, and ranchers are struggling with higher costs, with additional economic pain likely in the coming months,” it stated.
Earlier this month, the Chamber noted how higher tariffs have, far from helping American manufacturing, hurt it. According to a report from the Institute for Supply Management, the U.S. manufacturing sector contracted for its eighth consecutive month in October.
US relations with almost all trading partners have been adversely affected. The best case study in this regard is Canada, which was the US’s closest trade and military ally.
On November 7, Prime Minister Mark Carney reiterated that not only is the economic relationship between Canada and US over, but also that Canada’s former strengths based on their close ties with the US have now become their weaknesses.
Be it the euro or the Japanese yen or the Chinese yuan or the British pound or the Canadian dollar, the US dollar has lost value to each since the start of 2025.
Are these the reasons that have prompted the U-turn or rethink on tariffs?
Yes and no. No, because most of these repercussions could be seen a mile away, and the administration was repeatedly warned about them.
Yes, because while they may not have directly convinced Trump, they have increasingly convinced the US electorate, especially Trump’s very own MAGA supporters.
There are four key factors that are causing a rethink on how Trump goes about imposing tariffs.
#1 Electoral reversals
The Democrats, who had lost ground across the whole country — even in traditional stronghold states such as California and New York — during the Presidential election last November, scripted a remarkable turnaround this November. On the 5th, Democrats flipped the gubernatorial races in Virginia, retained the governor’s office in New Jersey and won the closely watched race for New York’s Mayor. All these victories were landslides.
But beyond the victories and their margins, what stood out was the message on which the Democrats won: Promise to address the affordability crisis among voters.
It was clear that Trump was ineffective in retaining voter confidence when it came to one of the two main issues on which he was reelected last November.
Here’s another way to understand why Trump chose to cut tariffs on certain specific food items: While the overall inflation rate in September was 3%, inflation rates for banana were 7%, beef was 15% and coffee was 19%.
In other words, the election reversals in November underscored that Trump needed to do something about inflation in food items that are staples in American kitchens.
#2 Collapse in Trump’s approval ratings
The electoral reversal haven’t happened in a vacuum. Across the board, no matter which ratings one picks, Trump’s approval ratings have been falling.
He started his second term with an average approval rating of 52% and as of the latest estimate by The New York Times on November 19, it has fallen to 42%.
A report on The Financial Times that compares presidential approval ratings across presidencies, states “Trump’s approval is lower than any other recent president except himself”.
In fact, the latest Reuters/Ipsos poll pegs his approval rating at 38% prompting Trump to accept that his ratings have fallen.
“So my poll numbers just went down, but with smart people they’ve gone way up,” he said in Washington, according to a Reuters report.
#3 MAGA disunity
Trump has had very public spats with two conservative members of the US Congress — Marjorie Taylor Green and Thomas Massie — on the issue of not yet releasing the files associated with sex-trafficking financier Jeffrey Epstein. This is hardly a time to lose one’s dedicated supporters, and there is growing restlessness among the Republicans if they still enjoy the trust of their support base. If tariffs continue to upset American household budgets, politicians will start to find it tough to sacrifice their own reelection chances at the altar of Trump’s misplaced fascination with tariffs
#4 Challenge in the US Supreme Court
Trump’s sweeping reciprocal tariffs that were announced on Liberation Day have already been struck down by courts at two levels. They are now being evaluated in a high-profile case in the Supreme Court. Initial indications are that it would not be entirely surprising if the apex court finds that Trump’s tariffs were illegal, as the original power to impose tariffs lies with the US Congress. An adverse ruling from the apex court would be strike three, not just for these tariffs but also for the intellectual and moral standing of Trump’s presidency.
If the US president wants, and even if the Supreme Court strikes the existing tariffs down, tariffs will find a way back for the US to impose tariffs. But none of that will either change how economics works or stop voters from penalising Republican candidates in one election after another.
Do you think Trump is justified in imposing tariffs in a bid to become self-reliant? Should India also impose trade restrictions to become more atmanirbhar?
Share your views and queries at udit.misra@expressindia.com
Take care,
Udit
