Swamp Notes: The economic fallout of ‘liberation day’

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0:17Marc Filippino: I don't know if you knew this already, but this week marks one year since U.S. President Donald Trump's Liberation Day announcement. Sweeping tariffs placed on countries across the world rocked economies everywhere. We've been covering this anniversary all week on the FT News Briefing, and so today for Swamp Notes, we wanted to share a special conversation with the FT's U.S. Economics Editor Claire Jones, who's been watching seemingly every detail of this story since last April. Claire, welcome. Hi, Mark. All right. So we're recording this on April 2nd, 2026, exactly one year after Trump's comments.

0:53Marc Filippino: Claire, the days and weeks following the tariff announcement, what were some of the things that, you know, occurred to you that would need to be ironed out? And one of the things that economists seem very unhappy about, which was the way in which the tariffs were calculated. They didn't think the rationale behind the methodology made sense. They didn't think it necessarily followed the sort of paths that previous tariff policies had. And it begged a lot of questions. And one thing that economists really don't like is uncertainty. And markets don't like that either, which I think explained the rather volatile reaction we saw from stock indices and bond markets too.

1:40Marc Filippino: Claire, seemingly there had to be some economic advantage to these tariffs. It was going to bring, in theory, or it did until the Supreme Court overruled these tariffs, a lot of extra revenue for the United States government. Yes? I'd say you have to be careful there. An economic advantage isn't the same thing as a fiscal advantage. Thank you. But clearly there is a fiscal advantage to having these tariffs. We did see that reflected over the course of the year in the revenue raised by the tariffs. And what would they have done? What would they have accomplished had they stuck? Well, I think they did accomplish quite a lot because that revenue was collected and what's yet to be seen whether or not there will be refunds.

2:25So there was definitely a fiscal boost from the customs revenue collected from the tariffs. I mean, the big picture on this is that economists thought this was going to more or less destroy U.S. growth last year, and it didn't. But having said that, it also didn't do what Trump claimed it would and create an awful lot of manufacturing jobs.

2:50Marc Filippino: Why did economists think that this was going to destroy U.S. growth and why didn't it? This was pretty much the biggest change in trade policy and the world's largest economy. For getting on for pretty much 100 years, I mean, you'd never seen a jump in the effective tariff rate like it really, and certainly not in the post-World War II period. And there's quite a broad consensus among economists that tariffs are a bad thing and free trade is a good thing. So the fact that these tariffs were so large and were applied in a way that economists didn't like and in a very uncertain way was something that people really thought was going to dent growth an awful lot in the US last year.

3:39However, you know, it probably did have an impact. That's not to say the tariffs did have a good effect other than the fiscal effect. But the negative impact on the economy and the impact on inflation that some economists thought the tariffs would have was not quite as bad as a lot of people feared.

4:00Marc Filippino: And why hasn't inflation hit growth as bad as economists thought? That's a very good question of probably one that I'll take years to unpack. But you saw this reflected in the Federal Reserve's decision making. They were very reluctant earlier on in the year last year to and over the course of the summer to cut interest rates, even though we were seeing the labor market weakening. However, Fed officials seem pretty sure now that tariffs are what they refer to as a one off shock. And what that means is that there has been some impact in prices. Some prices of some goods have gone up as a result of tariffs.

4:39But it hasn't seeped through into the broader economy. And there seems to be a pretty strong consensus among Fed officials now that it will be a one-off shock. And that, you know, there are other things such as the soaring oil price and other economic ramifications of the Iran war that are now taking precedence over the impact of tariffs on the U.S. economy.

5:03Marc Filippino: Now, you mentioned the tariffs did not accomplish what Trump had hoped. And he might argue that it would take more time for this to roll out in order for the goal to take root. And that's to bring manufacturing back to American shores. I mean, did we just not have enough time to see the tariffs have that intended goal play out? I think there's two factors here is one, the logic behind that was always uncertain. And I think tariffs may be able to help in that regard, but you need a strong industrial policy too if you're going to bring US manufacturing back home. The other issue is if you're going to create investments in factories and you're going to create manufacturing jobs, businesses want to see certainty.

5:52And what we saw over the past year was tariff policies changing an awful lot. And recently we've had the Supreme Court verdict, which has ruled that an awful lot of the tariffs that we saw introduced or announced a year ago are now no longer in place.

6:10Marc Filippino: That uncertainty for business owners, that uncertainty for economists, did everyone that I'm mentioning here breathe a collective sigh of relief when the Supreme Court struck down the AIPA tariffs? I don't think so because the suspicion and I think, you know, we've seen some of that realised is that, you know, the administration, if it doesn't use, even without the Supreme Court verdict, there are other ways that they can introduce tariffs. And they seem very intent on doing that. So the idea that the effective tariff rate is going to go down to what it was before Trump returned to office is not something that I think a lot of economists think is going to happen.

6:47I think the general view is that tariffs in some shape or form are here to stay.

7:06Marc Filippino: So Claire, we have mostly been talking about the U.S. economy and the impacts of tariffs at home. What about abroad? What kind of damage did the tariffs do to other economies? I think the big fear was what was going to happen to US-China relations, because at one point, the tariffs on China went to a point where they were a de facto embargo on Chinese goods. They were like 200%, right? It was like a 200 % floated tariff rate on China. I think it got up to 135, 145%. You might have to check on that. I think that was the moment that really spooked people from a global economy perspective that we saw, you know, tensions between the US and China ratchet up and the tariffs on China reach a level that was basically a de facto embargo on Chinese exporters sending goods to the US.

7:58That threatened to have very big ramifications for the global economy. Luckily, those tariffs fell back quite quickly. So again, it was a story of, you know, people fearing the worst. But what resulted, you know, while it wasn't exactly good, was a lot less bad than people had feared.

8:20Marc Filippino: Claire, do you think that there are any winners from Trump's tariff policies? That's a good question. there probably are some out there somewhere i mean i think it did have a benefit to the u.s fiscal situation the u.s is running very large fiscal deficits and it wasn't a perfect solution for that but it certainly did help and you saw that reflected in how rating agencies were judging the finances of the u.s they definitely seem to think from a fiscal perspective that tariffs were a positive thing. Also, there will have been pockets of U.S. industry that, you know, does feel on safer foot and as a result of tariff policies.

9:09Marc Filippino: Claire, we've spent the last six episodes, including this one, talking about the lasting impact of Trump's tariffs. Economically, do they matter as much as the economic shock that we're seeing caused by the war in Iran right now? I think that's an impossible question to answer because we just don't know how long the war in Iran is going to go on for. I think the shock's of a very different nature in a way too. The conflict in Iran, the Iran war, is a very dramatic shock to the supply of some of the world's key commodities, not only oil but goods such as fertilizer too. The impact of tariffs may be a more slow burn scenario where there is an equal amount of damage, but it's a lot more spread over time.

10:07And the impact is a lot less dramatic in that sense.

10:12Marc Filippino: So, Claire, what are some other impacts that you're looking out for? Even though from the standpoint of economists, the impact hasn't been that dramatic, I do think it really hasn't helped Trump politically in terms of how Americans see the economy. You know, we know coming into this that there were affordability pressures. We know there was a cost of living crisis. And I think tariffs have added to that sense that, you know, Trump compared with Biden has been no better on that score. And even though economists might not view the impact as dramatic or, you know, the Fed might not realize, you know, the Fed might not see the inflation impact as enduring.

10:57It is hitting Americans in the pocket at a time when they're very sensitive to the price of things. And I think it will hit Trump in the polls, too, even if U.S. growth remains broadly OK.

11:12Marc Filippino: Claire Jones is the FT's U.S. economics editor. Thanks so much, Claire. No problem, Mark. Thanks for having me on.

11:46Marc Filippino: is Cheryl Brumley, original music by Hannes Brown. Check back next week for more U.S. political analysis from the Financial Times.

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