Earlier in the year, most economists and commentators predicted that other countries would retaliate against the tariffs that President Trump was threatening to impose on them. That kind of response was expected to trigger a full-blown trade war, leading, inevitably, to a global recession. That was the reason stock markets around the world tumbled immediately after “Liberation Day.”

The steep financial market losses prompted President Trump to pause his tariffs for 90 days. During that three-month period, many countries negotiated trade deals under which the administration imposed varying levels of tariffs on goods exported to the U.S. from those nations. The levies applied were generally lower than what the president had threatened previously. The European Union, for example, ended up with 15 percent tariffs instead of the 30 percent the president had originally talked about.

Although many countries kept threatening retaliation throughout the negotiation period, just a couple actually followed through. Most notably, China did because it knew it had significant leverage over the U.S. With its monopoly on rare earth minerals, it had the ability to do serious harm to the U.S. automobile and defense industries for which rare magnets are critical production inputs. That leverage is what forced the Trump administration to pull back and grant China an additional 90 days to negotiate a trade deal with the U.S. Canada, the only other country I am aware of that responded in kind, has just announced that it is rolling back its retaliatory tariffs.

The general absence of retaliation raises two important questions. First, was President Trump right all along when he repeatedly said that other countries were ripping off the U.S. in trade? Second, if that wasn’t truly the case, why did all those countries agree so quietly to the tariffs imposed on them?

The U.S. market is indeed indispensable to most countries around the globe. My sense is that because of President Trump’s unpredictability, many nations decided to play it safe. No country wanted to retaliate if doing so would increase the risk of getting hit with ruinous tariffs that could end up crippling its economy. I also highly suspect that the negotiated trade deals were perhaps not as advantageous to the U.S. as advertised, or in some cases, simply too good to be true.

One of the conditions for the reduced tariffs on imports from the European Union was the bloc’s agreement to buy up to $250 billion worth of U.S. energy products annually for the next three years. Many energy industry experts have said that such levels of purchases are impossible under any scenario. They argue that the U.S. doesn’t even have the capacity to produce that much extra oil and gas for sale to the EU, which is already importing large quantities of natural gas in the form of LNG from the U.S. after abandoning Russian gas in response to the war in Ukraine.

According to S&P Global Commodity Insights, a provider of energy market data and analytics, in 2024, the U.S. exported $78.5 billion in energy products (other than nuclear fuels) to Europe. The EU would therefore have to more than triple its purchases to come close to the amount agreed upon in the trade deal. Apart from the lack of U.S. capacity for all that additional production, the same industry analysts also note that Europe doesn’t have the infrastructure in place currently for those levels of imports. In spite of all that, the deal as agreed to appears to suit both sides nicely. The EU maintains its access to the vast U.S. market, while President Trump has a win to show to the American public.

In addition to the feared potential recession, economists seriously worried that the import tariffs would feed into consumer prices here in America. If that occurred, it would significantly worsen the already-high inflation that the Federal Reserve has been battling for the last few years. Stagflation in the U.S. was thus a real possibility.

President Trump has to some extent managed to browbeat companies into “eating the tariffs.” When Amazon announced a couple of months ago that it would display information on its website about the impact of tariffs on prices, the White House accused the company of “engaging in a hostile political act.” Amazon quickly backed off that idea. There is also a widespread view that for the time being, many companies are hesitant to fully pass through the cost of tariffs out of fear that it would drive away their customers. For those two reasons, the dreaded tariff-induced inflation is yet to materialize in a meaningful way.

The benign impact of tariffs thus far prompted Jason Furman to admit recently that he and his fellow economists had perhaps suffered from a bit of “tariff derangement syndrome.” But he also cautioned that we shouldn’t declare victory just yet because it’s still early days. He argued that some of the harmful effects of the tariffs are likely to manifest themselves at some point in the near future.

Lunch is never free. If consumer prices haven’t gone up as was widely feared, then the consumer price index (CPI) is not that informative and therefore we shouldn’t focus too much on it at this point. Sure enough, it turns out that someone else is paying for the lunch. According to the Wall Street Journal, it is American companies that are bearing that burden. The Journal reports that the producer price index (PPI) jumped 0.9 percent in July and 3.3 percent over the previous year. In contrast, the CPI rose only 0.2 percent in July and 2.7 percent for the past 12 months. This level of charity on the part of companies, the Journal argues, cannot go on for long. Sometime soon, consumers will be asked to start buying their own lunch.

In some ways, threatening and actually imposing the tariffs can be seen as genuine attempts by the Trump administration to get some nations to remove their non-tariff barriers that have long made it difficult for U.S. firms to do business in those countries. Also, it has been reported that billions of dollars have already flown into the coffers of the U.S. Treasury from the import duty collections. It may appear therefore that the tariff policy is a good move. But I am not completely sold.

Even if consumers were to never bear the tariff costs, those of us who buy goods and services would still be harmed in multiple ways. If companies continued to carry the burden, they would become less profitable. That would hurt their stock prices, and shareholders would see lower returns on their investments. Those who don’t own stocks would also suffer. With lower profits, companies would reduce hiring. Wages would not rise as much as they otherwise would. All that is before we consider what happens overseas as a result of the tariffs. Factories will start shutting down in other countries as American importers cut back on their purchases due to the higher costs. In effect, tariffs will likely slow down the entire global economy.

It is possible that tariffs on overseas goods will help restore American manufacturing somewhat, which is one of the key goals of the Trump administration. But there are just too many variables that make it nearly impossible to judge whether, overall, the tariff policy is beneficial or not. Whatever problems there were in our trading relationships with other nations, we must hope that the cure doesn’t end up becoming worse than the disease.