Why Trump's Tariff Shock Didn't Tank the Economy (And What That Tells Us)

When tariff rates jumped from 3% to over 20%, economists predicted economic catastrophe. Instead, they got a masterclass in how little they understood about modern economic resilience.

President Donald Trump's "Liberation Day" tariffs were supposed to be the economic equivalent of a wrecking ball. Companies would retaliate, prices would soar, and the US economy would crash into recession. That was the consensus among economists, anyway.

Then reality intervened. The Supreme Court recently declared those tariffs unconstitutional, and as Trump scrambles to reimpose them, we're left with an uncomfortable question: Did the experts get it spectacularly wrong?

The Prediction That Didn't Pan Out

Ben Harris, vice president at the Brookings Institution and former assistant Treasury secretary under Biden, admits economists underestimated the complexity of the system they study.

"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."

The numbers tell the story. During Trump's first term, average tariff rates crept from 1.5% to 3% — significant proportionally, but nothing like the post-Liberation Day surge that sent rates soaring past 20%.

Three Lessons in Economic Humility

Lesson One: Timing Is Everything

During Trump's first presidency, washing machine tariffs hit consumers immediately — Americans paid about $90 more per machine. Economists expected similar speed in the second term, but companies hesitated. Maybe they weren't sure the tariffs would stick, or perhaps they recognized consumers couldn't absorb such massive price increases all at once.

Lesson Two: Context Matters More Than Models

While tariffs were extracting extra taxes from middle-class families, Trump and congressional Republicans were simultaneously pumping money back through the massive "One Big Beautiful Bill." For many households, the tariff pain was roughly offset by tax benefits — a dynamic most economic models missed.

Lesson Three: Trading Partners Don't Always Retaliate

Perhaps most surprising was what didn't happen. Outside of China, America's trading partners didn't respond with punitive counter-tariffs. Instead, they scrambled to create new trade frameworks. The expected "tariff war" simply didn't materialize.

Why the World Didn't Fight Back

Harris suggests trading partners were as caught off guard as domestic economists. "The United States has a massive export market, and this is something that President Trump recognized from the outset," he explains. "We do have a fair amount of leverage."

But this forbearance might be temporary. "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."

Consumers Knew Better Than Experts

Ironically, while economists struggled to predict tariff impacts, American consumers understood them perfectly. Surveys show high percentages of both Democrats and Republicans correctly attributed higher prices to tariffs — a more accurate assessment than many professional forecasts.

"People really hate inflation," Harris notes, reflecting on his Treasury Department experience when unemployment hit a record low 3.5% but voters remained frustrated with higher prices.

What Happens Next?

With the Supreme Court striking down the original tariffs, several scenarios are unfolding:

Price Stabilization: Expect prices to level off, especially if unpopular tariffs get removed.

Political Calculations: Republicans facing midterm elections might push legislation rebating tariff costs directly to households.

Legal Battles: Trump's new Section 122 tariffs — universal 15% duties — face court challenges over presidential authority.

The Rebate Question: Will the roughly $160 billion in "illegally collected" tariffs get refunded to companies that filed for rebates?

The Bigger Economic Picture

Harris draws a broader lesson: "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."

This resilience shouldn't breed complacency, though. The Supreme Court's intervention might have actually done Trump a favor by limiting his tariff authority. "Tariffs outside of a few select circumstances are unequivocally bad for American consumers and they're unequivocally bad for US businesses."