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We have written this before: the discourse around trade and prices is full of contradictions and small hypocrisies.
Opponents of tariffs, of course, are fond of saying that tariffs are really just a tax on consumers, and that the only thing they do accomplish is making consumers pay more for the same thing. Opponents of tariffs love Basic Economics. We don't mean that in a derogatory way, to be clear: Basic Economics has a lot of wisdom, wisdom that is often greater than, say, the theoretical castles in the sand built by many progressive economists. But if the tariff opponents argue from Basic Economics, then it's awkward for them that one of the tenets of Basic Economics is that the incidence of a tax is never 100%. Take the corporate income tax: in economic terms, it's impossible for a corporation to pay a tax, since a corporation is just a legal fiction that allows actual people, who are the real economic actors, to coordinate certain kinds of actions; so, who pays the corporate income tax? Well, partly consumers, partly employees, and partly shareholders. And what share each group pays is actually a matter of great controversy and puzzlement in the literature. And so, by the same logic, under Basic Economics, it simply cannot be true that a tariff is purely a consumption tax. Maybe most of it is paid by consumers; but surely at least some of it is paid by producers. The tariff opponents make this argument, obviously, not for economic reasons but for political reasons, because "making consumer goods more expensive for Americans" is politically unpopular, while "making foreign companies pay more to access the American market" is politically popular. Opponents of tariffs make a similar sleight of hand when they talk about "inflation," but again, it is Basic Economics that inflation is an overall rise in the price level, and that inflation is always a monetary phenomenon; a series of one-time increases in prices on certain specific goods is not inflation; prices of various goods and services are always going up and down, but that is not the same thing as inflation.
Not that proponents of tariffs don't have symmetrical hypocrisies. Of course, proponents of tariffs argue the opposite: that tariffs won't raise prices, or won't raise them by much. They point to discrete cases where foreign exporters chose to eat the tariff to maintain marketshare rather than increase their prices, as in the case of a famous study of Korean washing machine makers during the first Trump Administration. And indeed this sometimes happens (although sometimes it does not). But tariff proponents have another hypocrisy here: the whole point of tariffs is to increase prices! The whole point of tariffs is to make foreign-produced goods more expensive relative to domestically-produced goods to create an incentive to purchase more domestically-produced goods. If all foreign manufacturers decide to act like the Korean washing machine makers, then the effects that tariff proponents would like to see occur as a consequence of tariffs will not occur! The more honest argument, and the one that would better reflect the true beliefs of tariff proponents, would be to say that, yes, of course some prices will increase, but Americans will be better off in the end because more manufacturing jobs will increase productivity, and thereby increase wages and purchasing power. But again, it's much more politically popular to promise a free lunch rather than say "Yes, some stuff will get more expensive, but don't worry, you will be better off eventually, at some point, because of this complicated mechanism that we pinky-promise will work in the end."
It's a shame, because the back and forth obscures the actual question that should be posed, which is the much more interesting question, and much harder to adjudicate, which is: "To what extent will tariffs increase prices?" By how much? On which types of goods? For how long?
Into this discourse comes a new report from the Council of Economic Advisers, chaired by Dr Stephan Miran (PDF).
The report decomposed the Personal Consumption Expenditure (PCE) Price Index into imported and domestic components using 2017 input-output tables from the Bureau of Economic Analysis to calculate the import intensity of each PCE category.
This approach captures both direct effects of imported final goods for consumption and indirect effects of imported intermediate inputs used in production, with import shares calculated as the combination of direct imports (imported PCE divided by total PCE) and indirect imports (imported intermediate inputs divided by total industry output). The researchers then mapped goods to PCE categories using bridge tables and create import price indices by aggregating individual category seasonally-adjusted indices using the Fisher price index formula, weighted by import spending totals.
To validate their findings, they performed similar analysis on the Consumer Price Index (CPI) by mapping categories across the indices.
The CEA report found that imported goods prices have declined relative to overall goods prices during Trump's second term, contradicting claims that tariffs would accelerate inflation. Specifically, from December 2024 through May 2025, overall PCE goods prices increased by 0.4 percent (corresponding to a 1 percent annualized rate) while the imported component of PCE goods prices fell by 0.1 percent, with similar patterns observed across core goods, durables, and nondurables categories. The Consumer Price Index analysis showed even starker results, with imported goods deflating 0.8 percent while overall goods prices remained flat.
Now, to be clear, their methodology has flaws (like all economic studies). They are using import share numbers from 2017 and, obviously, they don't have access to the counterfactual universe where there are no tariffs, so you can always argue that the prices would have been even lower without the tariffs.
Another criticism is that this doesn't capture the full impact of "Liberation Day," which was on April 2, and we know that ahead of Liberation Day importers dumped goods to avoid tariffs, which would have had an effect on prices, but this would be artificial.
The best thing we can say is that if tariffs are causing prices to jump, it's certainly not by an amount so large that it's impossible to miss in the data.
The search for the truth continues…
Policy News You Need To Know
#PowellDelendaEst — The Administration is escalating its pressure campaign on Fed Chairman Jerome Powell, who, in very bad timing, is embroiled in a scandal about the Fed building's renovation, which has significant cost overruns, and about which he seems to have made incorrect statements to Congress. Now it's OMB Director Russ Vought who has sent the Chair a letter hinting that the renovation might be in violation of the law, specifically the National Capital Planning Act, and demanding answers to a series of questions. Obviously the goal here is to create an escalating legal pressure campaign to either fish for embarrassing or even perjurious information, or catch Powell in a lie or perjury, or simply just continue to embarrass him politically and drive him to resign. To recap, the Administration would very much like for the Fed to cut interest rates, because inflation is currently low and they want to run the economy hot. Powell made himself fair game, in our view, by making public statements to the effect that he would in fact support an interest cut if it wasn't for Trump's tariffs—taking a position on a policy question, and creating the impression that he is trying to punish the Administration for pursuing policies he disagrees with. Whether deliberately or not (and if it was not deliberate, a man in his position should have known better), Chairman Powell stepped in the political arena. And what happens there is tough.
#Build — Aiden Buzzetti of the Bull Moose Project has an interesting op-ed in the Examiner, praising the approach of FCC Chair Brendan Carr (who has certainly made himself visible) as a blueprint for the future of MAGA governance. The basic gist of it is that Carr's populism focuses not primarily on rhetoric or ideology but on delivering concrete results for voters. His deregulation efforts aren't driven by abstract principles but by real-world conversations with "tower climbers in South Dakota, rural farmers, small-town nurses, and telecom crews," writes Buzzetti. The agenda promises concrete benefits like "broadband to the farm, jobs on the tower, cheaper service at home" rather than just regulatory reform for its own sake. Carr is "turning deregulation into a hammer," that is to say, actively implementing rather than just proposing, making government "not just smaller but faster, sharper, and more focused on results." These are all very good points. This is indeed the kind of governance that MAGA should aspire to. "Building" is of course a common theme on the MAGA right, and especially on the tech right, as exemplified by JD Vance's recent speech on citizenship at the Claremont Institute, which highlighted "building" as a pillar of American citizenship.
SEE ALSO: JD Vance's Speech At The Claremont Institute
#FamilyPolicy — Friend of the Sphere and EPPC Fellow Patrick T. Brown has been waging an online campaign, of sorts, for a very modest policy proposal: allowing pregnant women to park in parking reserved for persons with disabilities, as Florida already does. Seems like a smart and common sense proposal that makes lives for families easier, doesn't cost any money, and hurts no one (let's be honest, handicapped spots are empty most of the time). Especially for conservatives who, as we all know, are pro-family. Well, Arkansas State Rep Aaron Pilkington took up Brown's proposal, put up a bill in the Arkansas State House, Arkansas being generally thought of as a pretty conservative state, to put it mildly, and was soundly defeated, on a bipartisan basis. This is how he described the opposition from members: "They said women need the exercise and worried not enough spots for the disabled. One freshmen member suggested to me women might get pregnant just for the parking spot (not kidding)." There's still a long way to go for Republicans to get the message on family policy…
SEE ALSO: Patrick T. Brown talks all things family policy on the Sphere Podcast (YouTube, Spotify, Apple Podcasts)
#Immigration — You may have seen the hoopla about a recent Federal raid in California. Democrats are trying to whip up outrage, even though the raid, as Fox's invaluable immigration reporter Bill Melugin points out, targeted an illegal marijuana farm that was using…child labor. Democrats for Illegal Alien Child Labor. Sounds like a good Midterms slogan.
#Nuclear #Energy — Nuclear investor Rod Adams reports: "NuScale's initial lead project of building a 6-module, 462 MWe nuclear plant on a site inside the Idaho National Laboratory was halted before reaching a final investment decision. Not enough of the small municipal utilities that together make up UAMPS chose to pursue the opportunity." Why is this a big deal? NuScale is the American company that's the most advanced in designing and building small modular reactors (SMRs) which are widely believed to be the future of nuclear energy. Thus far, China is the only country that has commercial SMRs in the field, though France and the UK are working on SMR projects. The Federal government should be doing everything possible to push the rollout of SMRs, including overcoming local community resistance. Tellingly, the nuclear project happened after a previous rejection of a wind farm project, which would have occupied "200,000 acres of currently pristine rangeland," versus the 40 acres of the NuScale project.
#Chyna — For the first time ever, the FBI has apprehended a Chinese hacker allegedly working for the Chinese MSS (their secret service). Maybe the timing is due to happenstance, or maybe the Biden Administration wasn't trying very hard to catch Chinese spies…
#Telecoms — Interesting piece in RealClearMarkets by Randolph May, President of the Free State Foundation, a free market think tank. He argues that Congress should substantially revise the outdated Communications Act of 1934 (last amended in 1996) to create a new "Digital Age Communications Act" that better reflects today's competitive digital marketplace. He proposes two fundamental reforms: first, eliminating the existing "stovepipe" regulatory framework that treats different services (telecommunications, cable, broadcasting, etc.) under separate regulatory schemes that no longer make sense in a converged digital environment; and second, replacing the vague "public interest" standard that has enabled bureaucratic overreach with a market-oriented, competition-based standard that includes a rebuttable presumption against regulation unless there is demonstrable market failure harming consumers or competition. We are very friendly to the first idea; not so much the second. There is a public interest in government regulating digital communications beyond simply ensuring competition and preventing market failure.
#DEI — City Journal's Neetu Arnold goes through the list of states that have racially-discriminatory scholarships, and calls for their elimination.
#K12 — Good news, reported by Brittany Bernstein at National Review: "Two Massachusetts parents have filed lawsuits against their local teachers’ union seeking compensation on behalf of all students and parents who were affected by the teachers’ decision to launch illegal strikes last year in violation of both state law and a court order."
#Politics — The New York Times' Katie Glueck has a piece out on a new group calling itself "Majority Democrats", made up of "roughly 30 elected officials at the federal, state and local levels" who, while not agreeing on every issue, generally agree with the idea that Democrats must become a bigger tent in order to win future elections. Call it the non-Mamdani Democrats.
Friday Essays
Very noteworthy: in spite of the dire warnings of all the Very Serious People, Javier Milei's agenda in Argentina is delivering serious, good results. Center-left economist Noah Smith concedes that while free market libertarianism is hardly perfect, it does work very well in certain circumstances.
In the early 2000s, Australia was rocked by multiple cases of Muslim immigrants gang-raping teenage girls. They effectively eradicated the problem using a revolutionary method: telling the truth and enforcing the law. At Compact, Helen Andrews explains.
AEI Senior Fellow Robert Pondiscio asks a troublesome but important question: according to the best data, "family structure appears to influence student outcomes more than anything we can ever do in school. How should we respond to that?"
It's time to put Jeffrey Epstein conspiracy theories to rest. At Compact, Michael Tracey explains very well what he calls, rightly, "The Idiocy of the Epstein Mythology"
SEE ALSO: Opinion: The Trump DOJ Is Probably Right About Jeffrey Epstein
Contrary to what you may sometimes have heard, the US Constitution in no way provides for a "separation of church and state." But the Everson ruling by the Supreme Court in 1947 changed that. It should be reversed, argue Yoram Hazony, Timon Cline and Josh Hammer in the Harvard Journal of Law and Public Policy (PDF).
This publication tried to keep an even-handed position on the OBBB. We think it's probably the best bill, or close to it, that met the following conditions: reflected President Trump's priorities, could get 50 votes in the Senate, could survive a Byrd Bath. Ross Douthat feels differently. Very. And his critiques are worth keeping in mind.
In the wake of Zohran Mamdani's victory, paleocon influencer Scott Greer diagnoses the demographic most favorable to this kind of politics: what he calls The Lumpenbourgeoisie. "These are middle-class types who feel thwarted in some way. Some may have decent jobs, but still struggle to pay rent living in NYC or another big city. Others are NEETs (not in employment, education, or training) who live with their parents and have no job at all. They think they will not obtain the level of security as their parents, and they don’t see much of a path to advance. They may have a college degree, but it’s no ticket to the American dream. They’re in a precarious position and are open to radical ideas. They don’t have much to lose, so why not try socialism? It will at least own the chuds they despise."
Chart of the Day
Very instructive chart from Bloomberg.
