{"id":2457885,"date":"2025-08-05T02:28:00","date_gmt":"2025-08-05T06:28:00","guid":{"rendered":"https:\/\/monetizemail.com\/magatoon\/?p=2457885"},"modified":"2025-08-05T06:54:12","modified_gmt":"2025-08-05T10:54:12","slug":"tariffs-tanked-gdp-not-imports","status":"publish","type":"post","link":"https:\/\/monetizemail.com\/magatoon\/2025\/08\/05\/tariffs-tanked-gdp-not-imports\/","title":{"rendered":"Tariffs Tanked GDP, Not Imports"},"content":{"rendered":"

The latest GDP report<\/a> has Washington officials buzzing. Growth hit 3.0 percent for Q2, which is a staggering reversal of the dismal -0.5 percent growth in Q1. The White House<\/a> claims that this is evidence that their trade policies are \u201can absolute blockbuster.\u201d\u00a0<\/p>\n

New Right pundits are pointing out that it beat expectations<\/a> and that it \u201chas good internals<\/a>.\u201d Some are even suggesting<\/a> that economics is a \u201cdismal pseudoscience\u201d and that Trump has \u201csmashed one of the supposedly iron laws of economics.\u201d <\/p>\n

\u201cCollapsing imports<\/a>,\u201d these pundits say, \u201csaved the day\u201d with regard to GDP figures, just as they were quick to use a surge in imports<\/a> to explain the Q1 shrinkage.<\/p>\n

Both are dead wrong. This latest report is just more evidence that tariffs are a disaster, and the economists who warned about them were correct.<\/p>\n

Let\u2019s cut through the noise and unpack this report. Trade deficits, as I\u2019ve written<\/a>, are among the most misunderstood<\/a> concepts in all of economics. The reality is that imports do not affect GDP at all<\/em>. To explain this, we need to understand that GDP is meant to measure the amount of production<\/em> that happens in a country. Since \u201cproduction\u201d is difficult to measure in and of itself, the Bureau of Economic Analysis instead measures \u201cexpenditures.\u201d This makes sense because, if we think about it, any time we spend money on a good, someone else must have produced<\/em> that good that we bought.<\/p>\n

But what about people who buy American-made products who do not actually live in America? Clearly, we should count that spending, too. Lo and behold, we do, which is why we add exports to American spending totals, reflecting the production that happened here<\/em> despite the spending happening elsewhere<\/em>.<\/p>\n

Because the BEA, however, tallies all<\/em> the spending that Americans do in a given period, and Americans also spend money on imported goods, that spending on imports would also be included in this expenditure method. To fix this, the BEA simply subtracts the value of all the goods that we import from other countries.<\/p>\n

So what does all this mean? All else being equal, when spending on imports rises, GDP will remain unchanged. When spending on imports falls, GDP will remain\u2026 unchanged. The simple reality is that spending on imports does nothing to GDP whatsoever.<\/p>\n

But does this mean that tariffs, which reduce imports, do not affect GDP? Not in the slightest.\u00a0<\/p>\n

When raw materials like steel and aluminum, as well as intermediate goods such as automotive components, become more expensive, production costs rise. When the cost of production increases, firms respond by producing less. That reduced production shows up in GDP figures as reductions in consumption, investment, government spending, or exports.<\/p>\n

Note here the distinction: imports affect GDP insofar as they are used as inputs into domestic production. Spending on imports, however, does not affect GDP in and of itself. If anything, the relationship between \u201cimports\u201d and \u201cGDP\u201d should be the exact opposite that people allege: when firms buy more imported raw materials or intermediate goods, GDP should actually rise<\/em> in subsequent reports, not fall. The opposite is also true.<\/p>\n

So what should we make of this latest report, especially in light of the first quarter numbers? Frankly, we should conclude that economists warning<\/a> about the effects of tariffs on business were right.<\/p>\n

Consider the fact that in the first quarter, which ended March 31, Trump used IEEPA to actually change<\/em><\/a> tariff rates dozens of times and to implement new tariffs. This, as plenty of economists pointed out, created tremendous uncertainty<\/a> in what the tariff rates were going to be on a day-by-day basis. When uncertainty rises, businesses slow down<\/a> and reduce output. Some even close altogether<\/a>.<\/p>\n

Contrast this with the second quarter, which began on April 1. There was \u201cLiberation Day\u201d on April 2, then the famous 90-day pause, a trade war with China (and only with China), and a lot of threats<\/em> of tariffs. But no actual new<\/em> tariffs were raised. We also had delays and reductions in previously announced tariffs.<\/p>\n

In other words, in the quarter when Trump was imposing <\/em>tariffs, GDP growth fell into negative territory. In the quarter where Trump was pausing, delaying, or reducing tariffs, GDP growth rose.<\/p>\n

But let\u2019s make one thing clear: GDP did not fall in the first quarter because firms were busy stockpiling imports ahead of the tariffs. It fell because actual, bona fide<\/em> production fell. Likewise, GDP is not rising today because imports have fallen.<\/p>\n

Economists have been raising this point for months. Tariffs are not a trade victory. They are a tax on the American people, making it harder for consumers (and businesses) to afford goods and services. This latest report is not a vindication for the White House or the New Right. It\u2019s a case study of the simple truism that free markets work and tariffs do not.<\/p>\n

The post Tariffs Tanked GDP, Not Imports<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The latest GDP report has Washington officials buzzing. Growth hit 3.0 percent for Q2, which is a staggering reversal of the dismal -0.5 percent growth in Q1. The White House claims that this is evidence that their trade policies are \u201can absolute blockbuster.\u201d\u00a0 New Right pundits are pointing out that it beat expectations and that …<\/p>\n","protected":false},"author":118,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2457885","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2457885","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/118"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2457885"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2457885\/revisions"}],"predecessor-version":[{"id":2457886,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2457885\/revisions\/2457886"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2457885"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2457885"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2457885"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}