Here's the perspective of a start-up manufacturer of a physical good. Our product is made from steel parts that I'm currently in India to source. Plus off the shelf electronics and a lock that we import from China, because there is no other source.
We assemble the product in the US, creating jobs there. I *want* to manufacture in the US.
The electronics and lock have doubled in price since April. I'd love to cut and bend the steel in the US, but protectionist tariffs have increased local steel prices by 50%, reducing the advantages of domestic manufacturing.
So, tariffs are approximately 35% of the cost of the finished product. This is a struggle. Sometimes I want to bag it and just invest my money in something more predictable.
You're the living embodiment of the Diamond-Mirrlees model!
I wish more people out there realized that these abstract-looking econ models represent real people with real lives, and that this stuff is all very high stakes...
I think a lot of people know someone who has been laid-off or furloughed recently, and that is why perceptions of the economy are bad. Or the next best thing - they know people who are having trouble finding work.
Agree. This is much more simple. A shit ton of people just didn't get paid for 7 weeks, and probably aren't going to get paid for another few weeks or months. Right when property tax bills are due and people are needing to think about Christmas shopping. I would imagine almost everyone knows someone who was furloughed.
There's also a sense of impending doom about the seeming giant stock bubble that were all just waiting to pop. It doesn't feel like you can invest in anything right now, prices are too high. Everyone's waiting for the AI thing to start really causing job losses, just feels like a sword hanging over people's heads.
...Which makes everyone sympathize with the roughly 0.3 million workers fired by DOGE. Or the FBI & DOJ employees fired for political reasons.
GOP elites on the Hill don't get it that people who work hourly or on salary will always be sensitive to being suddenly fired for ideological or political reasons.
Then add to that the fear that AI will take your job--while simultaneously paying up to double for your electricity because of the AI data centers empowering the AI that will take your job.
This piece reminds me the single most important quality in a President is the will and ability to take counsel from qualified experts. And, just as important, listen to counter arguments. No President gets this exactly right, but none gets it as spectacularly wrong as Trump.
IMO, in this regard, there were forests of red flags vis a vis Trump from the results of his string of business failures.
Tariffs certainly are a big issue in manufacturing, but I am not sure why you are dismissing the role of immigration policy. The loss of a large low-cost labor force, especially in construction, would seem to be impactful.
I think every American will have a new understanding of the importance of the boring but essential supply chain ⛓️💥. It is biting the economy again but the cause is not Covid but the orange flu 🤧
I think we're basically seeing Trump's Afghanistan moment here, and Noah is right that policy perception plays a huge role.
The other day I found myself in the grocery aisle staring in disbelief at the prices of ground coffee. I'm the kind of person who tends to not much notice incremental price increases, and I wouldn't know about beef since I don't buy it. But this got my attention, because I'm a coffee junkie.
Mind you, I can't say exactly what the prices were before, and there was always a range (why is Dunkin Donuts coffee so relatively expensive?) But things I'm fairly sure used to cost around $10-11 were now $14, and I don't ever recall seeing any of the larger bags of anything for $17.
So let's not underestimate the effects grocery prices are having here, especially price jumps on certain staples of people's diet. That's arguably the principal driver of economic perceptions, and it's why things like eggs and cereal got so much attention under Biden. And that's an impression that tends to stick with you unless those particular items experience significant reductions.
But what I think is especially damaging for this administration is that "tariff" has now become a household word, whereas I'm doubtful most Americans could have even defined the term a few years ago. But people know where they learned it, and they won't soon forget, thanks to Trump's incessant rhapsodizing over "the most beautiful word in the English language", and more and more are coming to associate it with increased costs on consumer goods.
So I think tariffs are very much Trump's Afghanistan. Regardless of what happens with the Supreme Court, this has punctured the myth of Trump's economic acumen, causing many to question even his basic competence in this area, and polls show it. And once people believe that they're seeing behind the curtain, that's a difficult impression to shake.
This sea-change in public perception will also hurt--perhaps mortally--the GOP reputation for competence with anything to do with the economy.
2026 will almost certainly see Congress flip back to Dem control. But probably not with a veto-proof majority in the Senate. But as the effects of the recent GOP cuts to ACA subsidies kick in; and are massively amplified next Fall when roughly 50% of Medicaid and Food Stamps funding is cut, health insurance for the poorest 20% will disappear. And then double or triple in some markets for the remaining 80%.
The top 10% with money in the stock market will be insulated from this. But the bottom 90% will be spitting mad. 2027 is thus looking like it will release a tsunami of consumer outrage at GOP policies. Setting the stage for a full Dem sweep in '28.
I liked your post, but a lot more than the top 10% have stocks. If you have any sort of retirement plan, it’s invested in stocks for the most part. Even if you have a traditional pension, the money you pay in is invested in stocks. Large pension funds like CalPers are massive shareholders.
There seems to be a growing consensus that the equities market is seriously overpriced. It's in the nature of bubbles to *pop*.
If you had a crystal ball that could tell you when and by how much, you could become a very rich man indeed, selling short. And then buying up blue chip stocks for pennies on the dollar.
Economist could have told him that his immigration and high deficit creating polices woud also be bad. On all these things, he has been _even worse than Biden!_
I am curious, how easy would it be for the government to distinguish between intermediate good and final goods when establishing tariff rules. Would it be easy to cheat?
Well for some products it is easy. No one buys steel or copper as a final product. Same with computer chips. There may be a few museums that buy these just to exhibit them, but otherwise they get used to make something else. Agricultural products are harder to distinguish but even so the current system where your company lobbies (pays for a Mar-a-Lago dinner) or explicitly bribes with gold bars, watches or Boeing jets the President who then gives out specific exemptions to companies, countries or sub products, I wouldn’t put too much concern on who is cheating by avoiding a tariff on an intermediate good.
This comes off as somewhat surprised that Trump couldn't just fob off the economy on Biden.
It's like it doesn't understand why Murc's Law has failed.
"Murc’s Law is “the widespread assumption that only Democrats have any agency or causal influence over American politics”. In other words, Democrats are responsible for Republicans being the way they are and doing the things they do, either because Democrats provoked them or failed to control them.”
Noah Smith tends to believe this. Trump always had these bad ideas. But only now, people are holding him responsible and this violates the basic idea that Republicans are just a force of nature.
Trump’s approval rating is falling because for any one not in tech or Wall Street life feels like that the economy is not growing and their personal inflation experiences does not fit with what the statistics are saying. OER is distorting the aggregate data because we are in a cyclical oversupply of apartments that should have been absorbed, but are not because the economy is weaker than it was the last two years. Prices that people pay every month like insurance, HOA fees and health care are all up high single digits (or maybe not if you cut back on service level). People “experience” this - they also see business’s in their neighborhood closing or their favorite dining spot being almost empty. I forgot to mention electricity and natural gas prices (LP). In Florida electric bills were at an all time high in August in my city. That is front page news here.
People feel what the numbers don’t tell you. There also is a real resentment of those that are still doing well that I am sensing bubbling up since the success even with young is not normally distributed. If you run as a Populist you need to be aware of the issues of the Populous.
Kevin Hassert defends tariffs. He states inflation is low, and we haven’t seen the effects run through the economy. He also states that the deficit is down, and that GDP is between 3% and 4%. The market is doing well, notwithstanding this current correction. Finally, he says unemployment is low.
All the above seem to be true given the current or, should I say, past government data.
It is at this point I’ll say, "the dam rent is still too high,” meaning prices are still very high to me. Restaurants have gotten ridiculous for date night. Parts and repairs are insane. I have two dogs, and the vet bills were $900 this month. I get the down vibe.
So, Noah, how can the above be true, and we feel crappy about the state of our lives? I feel like saying, two things cannot be true. Something is amiss, and I still don’t know what it is.
I agree with this completely, but isn’t Trump about to be inadvertently saved from himself by the Supreme Court? Last I checked betting markets are three or four to one that SCOTUS invalidates most or all presidential tariffs.
If/when this happens, Trump gets all the benefits of his negotiations with other countries (based on his threats) with none of the economic harm of actually shooting ourselves in the face. Inflation drops, manufacturing increases and international trade gets a shot of adrenaline.
As always very thought provoking. Looking at the data set (jobs in particular) listening to other voices in the market (Dutta, Jay Hatfield), and it feels (no hard data in my hands) clear there was a recession (in fact Moody’s has pointed to 18 plus states in a recession) that impacted a large part of the country, even though the aggregate national economy (lifted by AI CapEx) has not been in a defined (technical) recession. Perhaps that is part of the vibe-cession coming through now.
It will also be interesting to see how the planned investment (AI & manufacturing) comes through over the next few years, as much of the CapEx from my perspective seems to be heavy on automation and technology (hardware) with fewer jobs per dollar invested outside of the initial construction.
The magic of a Trumpian administration is that there is so much noise it’s hard to know if they are right on rates (restrictive Fed causing economic damage) and wrong on tariffs (arbitrarily reducing the markets for home made products, soybeans et all, while taxing consumption). Either way approval numbers seem to hold the administration responsible for now.
Here's the perspective of a start-up manufacturer of a physical good. Our product is made from steel parts that I'm currently in India to source. Plus off the shelf electronics and a lock that we import from China, because there is no other source.
We assemble the product in the US, creating jobs there. I *want* to manufacture in the US.
The electronics and lock have doubled in price since April. I'd love to cut and bend the steel in the US, but protectionist tariffs have increased local steel prices by 50%, reducing the advantages of domestic manufacturing.
So, tariffs are approximately 35% of the cost of the finished product. This is a struggle. Sometimes I want to bag it and just invest my money in something more predictable.
You're the living embodiment of the Diamond-Mirrlees model!
I wish more people out there realized that these abstract-looking econ models represent real people with real lives, and that this stuff is all very high stakes...
I bumped this comment to the main post. Thanks for this.
I think a lot of people know someone who has been laid-off or furloughed recently, and that is why perceptions of the economy are bad. Or the next best thing - they know people who are having trouble finding work.
Agree. This is much more simple. A shit ton of people just didn't get paid for 7 weeks, and probably aren't going to get paid for another few weeks or months. Right when property tax bills are due and people are needing to think about Christmas shopping. I would imagine almost everyone knows someone who was furloughed.
There's also a sense of impending doom about the seeming giant stock bubble that were all just waiting to pop. It doesn't feel like you can invest in anything right now, prices are too high. Everyone's waiting for the AI thing to start really causing job losses, just feels like a sword hanging over people's heads.
To be clear, I was not even thinking of government workers specifically. At least where I am, private employers are having a rough go at the moment.
...Which makes everyone sympathize with the roughly 0.3 million workers fired by DOGE. Or the FBI & DOJ employees fired for political reasons.
GOP elites on the Hill don't get it that people who work hourly or on salary will always be sensitive to being suddenly fired for ideological or political reasons.
Then add to that the fear that AI will take your job--while simultaneously paying up to double for your electricity because of the AI data centers empowering the AI that will take your job.
This piece reminds me the single most important quality in a President is the will and ability to take counsel from qualified experts. And, just as important, listen to counter arguments. No President gets this exactly right, but none gets it as spectacularly wrong as Trump.
IMO, in this regard, there were forests of red flags vis a vis Trump from the results of his string of business failures.
And from his first administration.
Tariffs certainly are a big issue in manufacturing, but I am not sure why you are dismissing the role of immigration policy. The loss of a large low-cost labor force, especially in construction, would seem to be impactful.
That's true!
I think every American will have a new understanding of the importance of the boring but essential supply chain ⛓️💥. It is biting the economy again but the cause is not Covid but the orange flu 🤧
I think you should probably put “intellectuals” in quotes when describing Oren Cass
Yup 👍
I think we're basically seeing Trump's Afghanistan moment here, and Noah is right that policy perception plays a huge role.
The other day I found myself in the grocery aisle staring in disbelief at the prices of ground coffee. I'm the kind of person who tends to not much notice incremental price increases, and I wouldn't know about beef since I don't buy it. But this got my attention, because I'm a coffee junkie.
Mind you, I can't say exactly what the prices were before, and there was always a range (why is Dunkin Donuts coffee so relatively expensive?) But things I'm fairly sure used to cost around $10-11 were now $14, and I don't ever recall seeing any of the larger bags of anything for $17.
So let's not underestimate the effects grocery prices are having here, especially price jumps on certain staples of people's diet. That's arguably the principal driver of economic perceptions, and it's why things like eggs and cereal got so much attention under Biden. And that's an impression that tends to stick with you unless those particular items experience significant reductions.
But what I think is especially damaging for this administration is that "tariff" has now become a household word, whereas I'm doubtful most Americans could have even defined the term a few years ago. But people know where they learned it, and they won't soon forget, thanks to Trump's incessant rhapsodizing over "the most beautiful word in the English language", and more and more are coming to associate it with increased costs on consumer goods.
So I think tariffs are very much Trump's Afghanistan. Regardless of what happens with the Supreme Court, this has punctured the myth of Trump's economic acumen, causing many to question even his basic competence in this area, and polls show it. And once people believe that they're seeing behind the curtain, that's a difficult impression to shake.
Well put.
This sea-change in public perception will also hurt--perhaps mortally--the GOP reputation for competence with anything to do with the economy.
2026 will almost certainly see Congress flip back to Dem control. But probably not with a veto-proof majority in the Senate. But as the effects of the recent GOP cuts to ACA subsidies kick in; and are massively amplified next Fall when roughly 50% of Medicaid and Food Stamps funding is cut, health insurance for the poorest 20% will disappear. And then double or triple in some markets for the remaining 80%.
The top 10% with money in the stock market will be insulated from this. But the bottom 90% will be spitting mad. 2027 is thus looking like it will release a tsunami of consumer outrage at GOP policies. Setting the stage for a full Dem sweep in '28.
I liked your post, but a lot more than the top 10% have stocks. If you have any sort of retirement plan, it’s invested in stocks for the most part. Even if you have a traditional pension, the money you pay in is invested in stocks. Large pension funds like CalPers are massive shareholders.
There seems to be a growing consensus that the equities market is seriously overpriced. It's in the nature of bubbles to *pop*.
If you had a crystal ball that could tell you when and by how much, you could become a very rich man indeed, selling short. And then buying up blue chip stocks for pennies on the dollar.
Economist could have told him that his immigration and high deficit creating polices woud also be bad. On all these things, he has been _even worse than Biden!_
This is a winning argument. Listen to economists. I just wish so many people didn't need to hear it.
I am begging Democrats to embrace Free-Trade. President Buttigieg should join the TPP
In Japan . Everyone is complaining about affordability !
Great post.
I am curious, how easy would it be for the government to distinguish between intermediate good and final goods when establishing tariff rules. Would it be easy to cheat?
Well for some products it is easy. No one buys steel or copper as a final product. Same with computer chips. There may be a few museums that buy these just to exhibit them, but otherwise they get used to make something else. Agricultural products are harder to distinguish but even so the current system where your company lobbies (pays for a Mar-a-Lago dinner) or explicitly bribes with gold bars, watches or Boeing jets the President who then gives out specific exemptions to companies, countries or sub products, I wouldn’t put too much concern on who is cheating by avoiding a tariff on an intermediate good.
Yep, Buzen is right. We can levy tariffs good by good, so we can put them only on stuff we know is a final good.
That said, we might want to tariff intermediate goods from a specific country (China) for MILITARY reasons.
Thanks for the comment. That makes sense.
I am not a big fan of any tariffs, but I can see the benefits of targeted tariffs on intermediate goods, particularly from China.
It is basically a form of industrial policy.
This comes off as somewhat surprised that Trump couldn't just fob off the economy on Biden.
It's like it doesn't understand why Murc's Law has failed.
"Murc’s Law is “the widespread assumption that only Democrats have any agency or causal influence over American politics”. In other words, Democrats are responsible for Republicans being the way they are and doing the things they do, either because Democrats provoked them or failed to control them.”
Noah Smith tends to believe this. Trump always had these bad ideas. But only now, people are holding him responsible and this violates the basic idea that Republicans are just a force of nature.
Yes the democratic historically have cleaned up after the republicans have screwed up the economy! So the law is true in a sense 🤨
Trump’s approval rating is falling because for any one not in tech or Wall Street life feels like that the economy is not growing and their personal inflation experiences does not fit with what the statistics are saying. OER is distorting the aggregate data because we are in a cyclical oversupply of apartments that should have been absorbed, but are not because the economy is weaker than it was the last two years. Prices that people pay every month like insurance, HOA fees and health care are all up high single digits (or maybe not if you cut back on service level). People “experience” this - they also see business’s in their neighborhood closing or their favorite dining spot being almost empty. I forgot to mention electricity and natural gas prices (LP). In Florida electric bills were at an all time high in August in my city. That is front page news here.
People feel what the numbers don’t tell you. There also is a real resentment of those that are still doing well that I am sensing bubbling up since the success even with young is not normally distributed. If you run as a Populist you need to be aware of the issues of the Populous.
Kevin Hassert defends tariffs. He states inflation is low, and we haven’t seen the effects run through the economy. He also states that the deficit is down, and that GDP is between 3% and 4%. The market is doing well, notwithstanding this current correction. Finally, he says unemployment is low.
All the above seem to be true given the current or, should I say, past government data.
It is at this point I’ll say, "the dam rent is still too high,” meaning prices are still very high to me. Restaurants have gotten ridiculous for date night. Parts and repairs are insane. I have two dogs, and the vet bills were $900 this month. I get the down vibe.
So, Noah, how can the above be true, and we feel crappy about the state of our lives? I feel like saying, two things cannot be true. Something is amiss, and I still don’t know what it is.
Two things can definitely be true.
I agree with this completely, but isn’t Trump about to be inadvertently saved from himself by the Supreme Court? Last I checked betting markets are three or four to one that SCOTUS invalidates most or all presidential tariffs.
If/when this happens, Trump gets all the benefits of his negotiations with other countries (based on his threats) with none of the economic harm of actually shooting ourselves in the face. Inflation drops, manufacturing increases and international trade gets a shot of adrenaline.
As always very thought provoking. Looking at the data set (jobs in particular) listening to other voices in the market (Dutta, Jay Hatfield), and it feels (no hard data in my hands) clear there was a recession (in fact Moody’s has pointed to 18 plus states in a recession) that impacted a large part of the country, even though the aggregate national economy (lifted by AI CapEx) has not been in a defined (technical) recession. Perhaps that is part of the vibe-cession coming through now.
It will also be interesting to see how the planned investment (AI & manufacturing) comes through over the next few years, as much of the CapEx from my perspective seems to be heavy on automation and technology (hardware) with fewer jobs per dollar invested outside of the initial construction.
The magic of a Trumpian administration is that there is so much noise it’s hard to know if they are right on rates (restrictive Fed causing economic damage) and wrong on tariffs (arbitrarily reducing the markets for home made products, soybeans et all, while taxing consumption). Either way approval numbers seem to hold the administration responsible for now.