Thread by @Brad_Setser

A bit of ballpark tariff math

I think the new tariffs on China are 30% on about 1.2 pp of US trade, & 20% (the fentanyl IEEPA case) on 0.3 pp of US trade, so a "just pay it" cost of just over 0.4 pp of US GDP (more than the first 301 case, which applied to a bigger base)

1/

I think the 30% tariff "stacks" with the legacy section 301 tariff, so for a number of goods (~0.5 pp of current US trade) the tariff will be around 55%, and I think the 20% tariff stacks with the 232 tariffs -- which will matter for chips

2/

The 10% base tariff on US trade (except oil, and except USMCA compliant trade) covers roughly 5.5 pp of imports once China is netted out -- so a just pay it cost of 55 bp of GDP ...

3/

The 232 tariffs (now mostly at 25%, but new ones coming from chips, pharma and now, gulp, planes & perhaps movies) don't stack on the 10% base tariff, and look set to cover 3-4% of GDP (but some of the coverage will only be partial -- non US content for Canadian autos ...)

4/

Conservatively, I will estimate a just pay it cost of 75 bps (still working on the actual calculation), and some of that is + 15 pp in tariffs v the base, so call it a net increase of 0.5 pp of GDP (with lots of uncertainty)

5/

So I am getting a just pay it cost of ~ 1.5 pp of GDP; and I tend to think the just pay it cost is a decent estimate of the impact on CPI and the overall economy in the short-run (unless consumers reduce savings, and absent offsetting fiscal policy changes).

6/

the long-run estimates of the impact on the economy are usually lower than the just pay it cost, so the slowdown risk is really from the immediate impact --

7/

Enough to noticeably slow the economy -- Absolutely.

Enough to tip the economy into a recession? Maybe, but not not a given with the recent fall in the price of oil (helps offset lost consumer purchasing power).

8/8