Will Trump's Tariffs Undermine OBBB’s “Wins”?

Originally posted to Substack. 

The One Big Beautiful Bill (OBBB) takes meaningful steps toward restoring American prosperity—permanent individual tax relief and immediate business expensing are clear wins. The bill also includes a projected $1.5 trillion in spending restraint over the next decade. But projections are promises, not outcomes. And rising tariffs threaten to erase much of the pro-growth impact before it ever reaches working families.

Instead of reducing taxes overall, policymakers are engaging in a dangerous shell game. While OBBB advanced many sound reforms, the Trump administration is pushing to lock in a baseline 10% tariff on nearly all imports, with targeted duties as high as 60%.

This is real policy, not a hypothetical one. And the much‑touted “90 deals in 90 days” haven’t materialized, and those that have are stalled mainly in the framework stage. As Business Insider reports, agreements with nations such as India, ASEAN members, and Japan lack enforceable terms. And the agreements will likely raise trade barriers to levels higher than they were just months ago.

That’s a sharp departure from the “zero-zero” trade framework of the first Trump administration—zero tariffs, zero non‑tariff barriers over time. I served as chief economist at the White House’s Office of Management and Budget during that effort. Although imperfect and never implemented, the strategy aimed to open markets and boost U.S. competitiveness for greater economic growth.

Today, the only discernible objective seems to be disruption for its own sake.

Let’s set the record straight: tariffs are taxes—not clever leverage, not negotiating tools, and certainly not paid by foreign exporters. They’re embedded in the prices Americans pay at checkout. In 2024, the U.S. imported $3.8 trillion in goods, according to the Bureau of Economic Analysis. A flat 10% tariff on that volume amounts to a $380 billion annual tax hike—and that’s before factoring in the inevitable trade and consumer contraction.

The damage compounds when you consider what’s being taxed. Nearly half of Japan's and South Korea's imports—47% and 43%, respectively—are capital or intermediate goods, including machines, tools, and heavy equipment that power U.S. manufacturing. Taxing these inputs increases the cost of domestic production, undercutting the value of full expensing and placing working-class jobs at risk.

Meanwhile, the U.S. trade deficit in goods and services rose to $918.4 billion in 2024, or 3.1% of GDP—up from 2.8% in 2023. This prompts misguided calls for steeper tariffs. But the trade deficit isn’t a flaw—it’s a reflection of our spending, saving, and investment dynamics. Americans consume globally, and foreigners invest heavily in U.S. assets. That’s not exploitation—it’s confidence.

Attempting to “fix” trade deficits with tariffs is a revival of discredited mercantilism, which once stifled global economic growth.

Some claim tariffs are strategic tools to negotiate better deals. But in reality, you don’t strengthen your negotiating hand by shooting yourself in the foot. Tariffs are taxes on Americans. They raise prices, squeeze household budgets, and slow economic momentum. No central planner can predict the ripple effects of these policies—especially in a dynamic economy with billions of transactions daily.

This is why annual, real‑time fiscal impacts matter far more than 10‑year projections. OBBB may slow the growth of spending, but it doesn’t reduce spending levels. If Congress fails to rein in federal outlays, budget deficits will persist—and tariffs become a politically expedient, though economically destructive, revenue stream.

Unfortunately, we’re layering new tax burdens atop a framework designed to unleash opportunity without actually shrinking government. What America needs isn’t economic nationalism with hidden taxes—it’s sound fiscal policy, open markets, and limited government.

If lawmakers want to rescue OBBB’s promise, they should abandon protectionism and trust in free enterprise. Until then, the gains of OBBB will remain hostage to the rising cost of trade protectionism based on flawed mercantilism.