The paradox at the counter

Reason reports that the current administration's tariff regime amounts to the largest tax increase on American households since 1993 — roughly $900 per household in 2026. The intuition behind a tariff is seductive and old: if a foreign competitor undercuts your domestic producer, you level the field by taxing the import. It feels like prudence, the kind of thing a careful shopkeeper would do. That is precisely the problem. The shopkeeper analogy, applied to a continental economy of hundreds of millions of consumers and producers, produces conclusions the opposite of the intended ones.

Incidence falls on the buyer, not the exporter

The elementary error in the tariff-as-protection story is the question of incidence — that is, who actually pays the tax. A tariff is levied at the border, but the price signal passes through to the domestic importer, then to the retailer, then to the household. The foreign exporter adjusts their currency, their contracts, their supply chains; the American consumer adjusts their wallet. Reason's estimate of $900 per household is, on this analysis, not a surprise but an accounting identity dressed up as a headline. To the extent that the tariff raises prices on inputs used by domestic manufacturers — steel, aluminium, electronic components — it taxes production as well as consumption. The protection given to one industry is a hidden levy on every industry downstream.

Aggregate demand is the thing to watch

Here is where the macroeconomic argument diverges sharply from the political one. Tariff advocates point to protected jobs in steel towns and semiconductor fabs, and those jobs are real. But $900 extracted from every household is $900 not spent on restaurants, school supplies, home repairs, and the thousand other goods and services that sustain employment in the broader economy. The arithmetic of aggregate demand is remorseless: a tax that concentrates visible benefit in a protected sector while diffusing invisible cost across all consumers will, in net, suppress the demand on which the whole system depends. This is not a theoretical conjecture; it is a restatement of the paradox of thrift applied to trade policy. Individual caution — saving, protecting, hoarding — can be rational; universal caution is ruin.

The confidence channel compounds the damage

Beyond the direct price effect, I would draw attention to what I have elsewhere called the animal spirits of investment. Businesses making long-horizon capital commitments — factories, supply contracts, hiring plans — require a stable and legible trading environment. A tariff regime that can be announced, escalated, suspended, and reimposed by executive action in the course of months does not provide that environment. The uncertainty premium on investment rises; the marginal project that would have been funded at a lower risk threshold is shelved. I cannot furnish you with a precise estimate of this effect — the institutional mechanics of modern supply chains and financial markets are considerably more complex than anything I navigated in my own era — but the direction of the effect is not in doubt. Uncertainty suppresses investment. Suppressed investment suppresses employment. The protection that was meant to defend the worker ends by threatening the conditions under which the worker finds work.

What legitimate industrial policy looks like

I do not say that a state has no interest in the composition of its productive capacity. There are industries — I would allow, as inference, that semiconductors and clean energy infrastructure may be among them today — where the social return to domestic production exceeds the private return, where strategic vulnerability is real, and where some public intervention is warranted. But the instrument for that intervention is direct public investment and targeted subsidy, not a broad tariff that operates as a regressive consumption tax. The former can be calibrated, evaluated, and adjusted; the latter, once politically embedded, is nearly impossible to remove without creating a new class of losers who will defend it with the full force of their votes. Policy built on a household analogy tends to acquire the permanence of a household habit — and proves just as hard to reason out of.