President Donald Trump’s “Liberation Day” tariffs last year had been supposed to change everything — as companies retaliated against new tariffs, economists predicted, prices would soar and the US economy would plunge into recession.
The Supreme Court recently declared those tariffs unconstitutional. As Trump scrambles to reimpose them, though, the news raised a question: Did economists get it wrong the first time around?
Ben Harris, the vice president and director of economic studies at the Brookings Institution and a former assistant Treasury secretary for economic policy in the Biden administration, says economists underestimated our complicated economic system.
“My guess is that if you told a hundred economists that the average tariff rate was going to jump from 3 percent to well over 20 percent, many would’ve predicted a recession,” Harris said. “And that was in fact not what we saw.”
On Today, Explained, he and co-host Noel King dig into the surprises from Trump’s tariff policy, what it illuminated about our own economy, and what happens next.
Below is an excerpt of the conversation, edited for length and clarity. There’s much more in the full podcast, so listen to Today, Explained wherever you get podcasts, including Apple Podcasts, Pandora, and Spotify.
When President Trump was elected and it became clear that he planned on implementing tariffs, what were you hearing from responsible economists about what was going to happen to the American economy?
Many economists were caught by surprise. The average tariff rate in the first Trump administration went from about 1.5 percent to about 3 percent, which was a big proportional increase. But I think there was a bit of a failure of imagination by economists when it came to the second Trump administration, where post-“Liberation Day,” we saw that average rate jump well over 20 percent.
The second thing that caught economists by surprise was that the really sharp increase didn’t have the type of impact that we thought it would have. My guess is that if you told a hundred economists that the average tariff rate was going to jump from 3 percent to well over 20 percent, many would’ve predicted a recession. And that was in fact not what we saw.
Yeah, and it wasn’t just your guess, because I remember covering Liberation Day last year and it was something close to hysteria. But broadly, the American economy did not tank. What did happen?
We learned three big lessons about why this increase in tariffs did not tank the US economy.
The first lesson was that when the tariffs passed through to US consumers really matters. In the first Trump administration, you might remember that the president put in place a tariff on washing machines, which meant that every American consumer paid about $90 more for every washing machine that they bought. And that pass-through happened really quickly. And so the expectation was that the same speed of transmission would happen in a second Trump administration, and that in fact didn’t happen. And that may be because companies weren’t sure if the tariffs would stick and were waiting to see what happened, or maybe they thought that US consumers didn’t have the wealth and income to handle these tariffs all at once.
The second lesson that we learned is that it also matters what’s happening in the rest of the economy. And as you know, the president and Republicans in Congress passed this massive One Big Beautiful Bill [Act]. That bill had a lot of stimulus in it and so for a middle-class family, the extra taxes you were paying in tariffs was roughly offset by the extra tax benefit you were getting from the One Big Beautiful Bill.
The third lesson I think we learned was that the expected response from our trading partners isn’t always what we think. If I had told a bunch of economists at the beginning of 2025 that the tariff rate was going to shoot up as much as it did, I think we would’ve expected that our trading partners in Europe and in Asia and elsewhere around the world would react by putting in place additional tariffs on US exports. That’s exactly the opposite of what we saw, outside of China. We saw a lot of our trading partners racing to put together these trade frameworks rather than putting in place punitive measures against us.
Why was there not the retaliation we expected?
We’ll learn more after a few years. I think that our trading partners, like domestic economists, were caught off guard by the size of the increases and they didn’t really have plans in place to go ahead and put in place punitive measures.
Also, the United States has a massive export market, and this is something that President Trump recognized from the outset. We do have a fair amount of leverage over our trading partners. And so it just takes time for them to put in place alternatives to trading with the United States. I think that when 2026 closes, and if we get into 2027, we’ll probably see more punitive measures and more shifts in trading patterns away from the United States, if these tariffs stay in place.
We can sit here and say all day long that the American economy did not do badly last year or over the last 12 months. But we do know that Americans feel differently about the tariffs. Do we trace that to something bigger going wrong?
I think there are two big takeaways that I have from surveys of American consumers. The first is that people really hate inflation. And I learned this lesson during the Biden administration when I was serving as chief economist of the Treasury Department, where we had the unemployment rate at 3.5 percent. It was a record low, but people were still really frustrated with the economy because prices were higher. And that’s, I think, true today, where President Trump ran on a platform of lowering prices and inflation has stayed around 3 percent or a little bit less.
But the second thing is if you look at surveys of both Democrats and Republicans where they’re asked, “Why do we have higher prices?” — really high percentages of Democrats and even high percentages of Republicans attribute the higher prices to those tariffs, which is economically correct. So I think that American consumers are fairly astute and they’re also really frustrated with this policy.
Did we learn any lessons about the American economy from the Liberation Day tariffs in the past 12 months?
The big lesson about the American economy that we learned was that we are the largest economy in the world. We’re a well-diversified economy. It takes more than a temporary change in our trading policy to throw us into recession.
What happens next now that the tariffs are lifted? Should people expect that prices go down?
We’ll probably see prices stabilize, particularly if the president starts to remove some of the tariffs that have proven to be unpopular. It’s a real question as far as what the White House and the Republicans in Congress are going to do in advance of the midterms. Republicans in the House are obviously concerned about losing to Democrats and potentially even the Senate. Some people are speculating that you’ll see a bill coming out of Congress that will rebate some of the costs of tariffs directly to American households.
And we’re going to see a bunch of legal challenges to the tariffs that will determine exactly what happens moving forward. So you’ve heard of these Section 122 tariffs that the president announced after the Supreme Court decision. Those are universal tariffs of 15 percent. There will be a court ruling on whether or not he can use those. And there’s also a question as far as the rebates. And so, roughly $160 billion in tariffs have been illegally collected. Will those get rebated back to the multitude of companies that have gone ahead and filed for rebates?
The Supreme Court did the president a favor and limited his authority on tariffs. Tariffs outside of a few select circumstances are unequivocally bad for American consumers and they’re unequivocally bad for US businesses. But in general, I think that we should not expect a recession in the near term, and we should rest assured that we have a great number of resources and we’ll continue to grow at a moderate rate.
