Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, August 1, 2025

AI Summary. The average effective US tariff rate facing consumers is 18.3%, the highest since 1934, and 17.3% after consumption shifts to lower-tariffed goods, the highest since 1935. The authors estimate these tariffs raise $2.7tn over 2026-35, or $2.2tn after $466bn in negative dynamic revenue effects.

Ernie Tedeschi Yale University
Date Posted:

As of August 1, the US has an overall effective tariff rate of 17.3%. Dynamically scored, Ernie Tedeschi estimates this regime will raise $2.2T over 2026–2035.

How high are tariff rates and how much revenue do they raise?

Core argument: U.S. consumers face an overall average effective tariff rate of 18.3%, the highest since 1934.

Consumers face an overall average effective tariff rate of 18.3%, the highest since 1934. After consumption shifts, the average tariff rate will be 17.3%, the highest since 1935. All tariffs to date in 2025 raise $2.7 trillion over 2026-35, with $466 billion in negative dynamic revenue effects, bringing dynamic revenues to $2.2 trillion.

Takeaways by Macro Roundup® AI

  1. U.S. consumers face an overall average effective tariff rate of 18.3%, the highest since 1934.
  2. After consumption shifts, the average effective tariff rate falls to 17.3%, the highest since 1935.
  3. All U.S. tariffs imposed in 2025 raise $2.7 trillion over 2026–35, with $466 billion in negative dynamic revenue effects bringing dynamic revenues to $2.2 trillion.

Related Articles:

  • Tariffs are Dumb Enough to (Almost) Work — A universal 15% tariff on imported goods could raise roughly $300–$400bn annually, a fraction of what a value-added tax would generate but real revenue given U.S. imports of about $4tn. The author argues tariffs are a poorly designed form of consumption tax that could build political groundwork for replacing them with a more efficient value-added tax.
  • Are Businesses Absorbing the Tariffs or Passing Them on to Their Customers? — About three-quarters of manufacturing and service firms facing tariff-driven cost increases reported passing at least some of those costs to customers through higher prices, while roughly a quarter of each said they absorbed the full increase without raising prices. Nearly a third of manufacturers and about 45% of service firms reported full pass-through.
  • China Emerges From Trade Chaos With Record Exports, Surplus — China posted a record half-year trade surplus of about $586bn, with exports up 5.8% year-over-year to $325bn and imports up 1.1%. Shipments to the US fell 16.1% from a year earlier, while exports to the 10 Southeast Asian nations in the Asean group rose 17%.

AI Summary. Tariff-driven inflation is now showing up in furnishings and recreational goods—two heavily China-imported categories making up 25% of "core" goods in US inflation baskets—with monthly inflation running 100–120 basis points above seasonal norms. The author argues this impulse is large enough that the Federal Reserve may not cut rates at all.

Robin Brooks Robin Brooks Substack
Date Posted:

In furnishings and recreation goods, two sectors that comprise 25% of core goods and are largely reliant on imports from China, “monthly inflation in June 2025 is running between 100 – 120 bps above where it would be normally at this time of year.”

How large is the tariff inflation impulse in imported goods categories?

Core argument: Monthly inflation in June 2025 for furnishings and recreational goods ran 100–120 bps above typical levels for that time of year in both the CPI and PCE measures.

The tariff inflation impulse took longer than expected to show up due to tariff front-running and transshipments, but it’s now hitting with a vengeance. I focus on two categories of goods - furnishings and recreational goods - which make up 25% of “core” goods in the CPI and PCE inflation baskets. Furnishings is a broad category that includes furniture, household appliances as well as tools and hardware. Recreational goods include everything from video and audio products to sporting goods and pet supplies. Both categories of goods are heavily imported from China. The top row of charts shows the path of monthly inflation for furnishings in the CPI (lhs) and PCE (rhs), while the bottom row shows the monthly path of inflation for recreational goods. In all cases, monthly inflation in June 2025 (purple line) is running between 100 - 120 bps above where it would be normally at this time of year (black line). As of today, markets price 38 bps in cuts from the Fed for the rest of 2025. Given how big the inflation impulse from tariffs is, [it is] conceivable the Fed doesn’t cut at all this year, which means the Dollar may rise a lot further.

Takeaways by Macro Roundup® AI

  1. Monthly inflation in June 2025 for furnishings and recreational goods ran 100–120 bps above typical levels for that time of year in both the CPI and PCE measures.
  2. Furnishings and recreational goods, both heavily imported from China, make up 25% of "core" goods in the CPI and PCE inflation baskets, with furnishings spanning furniture, household appliances, tools and hardware.
  3. Markets price 38 bps of Fed cuts for the rest of 2025, but the author argues the size of the tariff inflation impulse makes no cuts at all conceivable, which could push the Dollar a lot higher.

Related Articles:

  • Are Businesses Absorbing the Tariffs or Passing Them on to Their Customers? — About three-quarters of manufacturing and service firms facing tariff-driven cost increases reported passing at least some of those costs to customers through higher prices, while roughly a quarter of each said they absorbed the full increase without raising prices. Nearly a third of manufacturers and about 45% of service firms reported full pass-through.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.
  • Tariff Endgame — New tariffs would add roughly 1% of GDP to a federal tax burden that was 17% of GDP, an amount that aggregate corporate profits near $4tn and disposable personal income around $22tn could absorb at the cost of modestly slower activity. The burden would fall unevenly, concentrated in import-dependent sectors such as autos and clothing.

AI Summary. Alphabet, Microsoft, Amazon and Meta are set to spend nearly $400bn on capital expenditures in a year, largely on artificial-intelligence infrastructure, exceeding European Union defense spending. Morgan Stanley projects $2.9tn in chip, server and data-center spending over four years, contributing up to 0.5% of US GDP growth annually, with a $1.5tn financing gap.

Rolfe Winkler, Nate Rattner and Sebastian Herrera Wall Street Journal
Date Posted:

Meta and Microsoft 2025 capex is approaching 40% of revenue. MS estimates there is a $1.5T gap btw the hyperscalers’ forecasted datacenter spending of $2.9T over the next three years and their ability to self-finance the spend.

Are investors backing Big Tech's massive AI infrastructure spending?

Core argument: Alphabet, Microsoft, Amazon and Meta are set to spend nearly $400 billion on capital expenditures this year, largely on AI infrastructure, exceeding what the European Union spent on defense last year.

Alphabet, Microsoft, Amazon and Meta are set to spend nearly $400 billion this year on capital expenditures, largely to build their artificial-intelligence infrastructure. That is more than the European Union spent on defense last year. Those firms and others plan to boost outlays even more. Morgan Stanley projects $2.9 trillion in spending from 2025 to 2028 on chips, servers and data-center infrastructure. The investments, the bank says, will contribute as much as 0.5% of U.S. gross domestic product growth this year and next. The infrastructure demands are so huge, though, that companies don’t have enough cash to pay for the investments, according to Morgan Stanley, which estimates a $1.5 trillion financing gap.

Takeaways by Macro Roundup® AI

  1. Alphabet, Microsoft, Amazon and Meta are set to spend nearly $400 billion on capital expenditures this year, largely on AI infrastructure, exceeding what the European Union spent on defense last year.
  2. Morgan Stanley projects $2.9 trillion of spending on chips, servers and data-center infrastructure from 2025 to 2028, and says the investments will contribute as much as 0.5% of U.S. GDP growth this year and next.
  3. Morgan Stanley estimates a $1.5 trillion financing gap, as the companies lack enough cash to pay for their planned AI infrastructure investments.

Related Articles:

  • SPVs, Credit, and AI Datacenters — Companies funding AI data centers through jointly owned special purpose vehicles keep the borrowing off their own balance sheets while retaining shared control and use of the facilities. AI data center spending already exceeds telecom spending during the dot-com bubble, and weak returns would quickly wipe out the thin equity cushion above the vehicles' debtholders.
  • Microsoft’s Datacenter Freeze – 1.5GW Self-Build Slowdown & Lease Cancellation Misconceptions — Reported cancellations of about 2GW of Microsoft datacenter capacity cover only non-binding letters of intent, while the company holds roughly 5GW of pre-leased capacity under binding contracts slated to begin operating between 2025 and 2028. The authors estimate Microsoft accounted for more than 60% of all newly leased turnkey datacenter capacity over a recent six-quarter stretch.
  • Back to Our Regularly Scheduled Programming — The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.

AI Summary. Alphabet, Meta and Microsoft now hold property and equipment worth more than 60% of their equity book value, up from 20% a decade ago, and their combined capital spending with Amazon and Oracle exceeds that of all listed US industrial companies combined. Morgan Stanley estimates a $1.5tn financing gap between capital spending and cash flows over the next three years.

Economist Staff The Economist
Date Posted:

Driven by the AI buildout, Google, Meta, and Microsoft’s property and equipment constitute more than 60% of their combined book value, up 20% over the decade.

How will tech giants fund AI spending that outpaces their cash flows?

Core argument: Morgan Stanley's calculations indicate a $1.5trn "financing gap" between capital expenditure and cash flows at Alphabet, Meta and Microsoft over the next three years, with capex growing faster than cashflows.

Investors who bought shares in Alphabet, Meta and Microsoft a decade ago are sitting on eight times their money, excluding dividends. Spending on data centres means the firms possess property and equipment (accounting-speak for hard assets) worth more than 60% of their equity book value, up from 20% over the same period. Add the capital expenditure of these firms during the past year to that of Amazon and Oracle, two more tech giants, and the sum is greater than the outlay of all America’s listed industrial companies combined. Since 2023 Alphabet, Meta and Microsoft have divided $800bn of operating cashflows roughly evenly between capex and shareholder returns. Capex is growing faster than cash flows. Morgan Stanley’s calculations indicate a $1.5trn “financing gap” between the two over the next three years.

Takeaways by Macro Roundup® AI

  1. Morgan Stanley's calculations indicate a $1.5trn "financing gap" between capital expenditure and cash flows at Alphabet, Meta and Microsoft over the next three years, with capex growing faster than cashflows.
  2. Data-centre spending has lifted property and equipment at Alphabet, Meta and Microsoft to more than 60% of their equity book value, up from 20% a decade ago.
  3. Combined capital expenditure over the past year at Alphabet, Meta, Microsoft, Amazon and Oracle exceeded the outlay of all America's listed industrial companies together.

Related Articles:

  • Honey, AI Capex Keeps Eating … Everything — The author estimates that AI-related capital spending contributed between 0.6% and 1.3% of a quarter's 3% U.S. GDP growth, based on information technology equipment and intellectual property investment data. Google, Amazon, Meta, and Microsoft alone spent about $69bn in the quarter, roughly half of all information technology equipment spending on an annualized basis.
  • Back to Our Regularly Scheduled Programming — The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.
  • Honey, AI Capex is Eating the Economy — Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.

AI Summary. Just over half of violent crime victims know the perpetrator and have been attacked before, and much of it occurs away from public view, while snatch theft is almost always committed in public by a stranger against a first-time victim. Shoplifting erodes the sense of public order through visible security measures and locked merchandise.

John Burn-Murdoch Financial Times
Date Posted:

While the crime rate has fallen in the US and UK, incidents of fare evasion, driving offenses, shoplifting, and dog attacks have risen since the pandemic. As public disorder has increased, the % of those who believe overall crime has increased has risen.

Does petty theft shape public perceptions of disorder more than violent crime?

Core argument: Just over half of violent crime victims know the perpetrator and have been attacked before, and such crime often occurs away from public view, making it a distant phenomenon for most people.

Violent crime is especially alarming, but most of it is not random — just over half of victims know the perpetrator and have been attacked before. It also often happens away from public view, making it a distant phenomenon for the majority. By contrast, rapidly rising “snatch theft” is almost always carried out in public by a stranger on a first-time victim, giving a much greater sense that “this could happen to me”. Shoplifting is especially damaging to the sense of public order, as people witness not only the act but the lasting consequences: the growing presence of security personnel and protective casings or locks on items from steak to cosmetics. Fare evasion in London and New York is running much higher than a decade ago, hospitalisations for dog bites have more than doubled over the past 20 years and careless driving also appears to be ticking up.

Takeaways by Macro Roundup® AI

  1. Just over half of violent crime victims know the perpetrator and have been attacked before, and such crime often occurs away from public view, making it a distant phenomenon for most people.
  2. Fare evasion in London and New York is running much higher than a decade ago, and hospitalisations for dog bites have more than doubled over the past 20 years.
  3. Shoplifting is especially damaging to the sense of public order, as people witness both the act and its lasting consequences: more security personnel and protective casings or locks on items from steak to cosmetics.

Related Articles:

  • It’s Time to Talk About America’s Disorder Problem — A meta-analysis of 56 studies found that disorder policing consistently reduces crime, but that indiscriminate "aggressive order maintenance" arrests did not significantly reduce crime while problem-oriented strategies targeting specific sources of disorder often had sizable effects without spillovers. The authors note that a large share of disorder comes from a small number of people and places.
  • The Collapse of Broken-Windows Policing in New York City, Los Angeles, and Washington, DC, 2013–22 — Arrests for minor "broken-windows" offenses—counted as misdemeanors, violations, and infractions per 100,000 residents—fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles over the period studied, declining steadily in New York and Los Angeles.
  • As America’s Marijuana Use Grows, So Do the Harms — An analysis of federal survey data estimates that about 18m US adults — nearly a third of adult cannabis users — report symptoms of cannabis use disorder, with roughly 3m considered addicted. Among those aged 18 to 25, the cannabis use disorder rate of 16.6% matches the alcohol use disorder rate of 15.1%.

AI Summary. China's daily Central Parity Rate, nominally the midpoint of the yuan's trading band, now functions in practice as a cap on daily appreciation, since the onshore yuan almost never trades stronger than the fix. On the depreciation side, the fix minus 2% still bounds how far the yuan can weaken.

Brad Setser Council on Foreign Relations
Date Posted:

Setser notes that “in the last few years, the onshore yuan almost never trades ‘strong’.” He suggests that China’s de facto FX policy is to limit appreciation pressure by treating the Central Parity Rate (the “fix”) more as an upper limit than a target.

Is China's currency fix now a cap on daily appreciation?

Core argument: The onshore yuan has almost never traded stronger than China's daily Central Parity Rate in recent years, suggesting the fix now functions as the upper limit on daily appreciation rather than the midpoint of the trading band.

The daily Central Parity Rate (“fix”) is supposed to be the middle point in the daily trading band for China’s currency. But over the last few years, the onshore yuan almost never trades “strong” (numerically, a smaller number; the yuan is stronger if it takes six yuan to buy a dollar than if it takes seven or more) relative to the fix. It looks like—de facto—China has shrunk the band and shifted the role of the fix from the midpoint of the band to the upper end of the band. That of course allows China a lot more control over its currency on a day-to-day basis. The fix defines the upper limit on the day’s appreciation, more or less. [On the other hand], when the yuan is under depreciation pressure, the fix, minus two percent, still sets the limit on how much the yuan can depreciate.

Takeaways by Macro Roundup® AI

  1. The onshore yuan has almost never traded stronger than China's daily Central Parity Rate in recent years, suggesting the fix now functions as the upper limit on daily appreciation rather than the midpoint of the trading band.
  2. China's apparent de facto narrowing of the yuan's trading band, with the fix acting as a ceiling on appreciation, affords Beijing more day-to-day control over its currency.
  3. When the yuan faces depreciation pressure, the fix minus 2 percent still sets the limit on how far the currency can weaken.

Related Articles:

  • The Case that China is Now Actively Resisting Pressure on the Yuan to Appreciate — The author argues China has been resisting pressure for the yuan to appreciate against the dollar, citing state bank foreign asset accumulation, balance of payments data, a yuan trading strong relative to its official fix, and positive foreign exchange settlement. Inflows from China's large trade surplus exceed private capital outflows.

Monday, August 4, 2025

AI Summary. Net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91bn in a quarter two years on, while their combined free cash flow fell 30% to $40bn, as heavy AI investment absorbs cash these firms once recycled into financial markets. That spare cash previously helped hold down long-term interest rates despite large federal deficits.

Greg Ip Wall Street Journal
Date Posted:
Is Database:
Database

Btw 2016 and 2023, Alphabet, Amazon, Meta and Microsoft’s free cash flow and net earnings ~ tracked each other; since 2023, net earnings have risen 73% and free cash flow has declined by 30% due to the AI buildout.

Does AI investment push up long-term interest rates?

Core argument: Combined net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91 billion in the second quarter from two years earlier, while their free cash flow fell 30% to $40 billion, according to FactSet data.

From 2016 through 2023, free cash flow and net earnings of Alphabet, Amazon, Meta and Microsoft grew roughly in tandem. But since 2023, the two have diverged. The four companies’ combined net income is up 73%, to $91 billion, in the second quarter from two years earlier, while free cash flow is down 30% to $40 billion, according to FactSet data. Between [the] crisis and Covid-19, these companies were generating five to eight times as much cash from operations as they invested, and that spare cash was recycled back into the financial system. It helped hold down long-term interest rates amid high federal deficits, as did inflation below the Federal Reserve’s 2% target and the Fed buying bonds. Today, government deficits are even larger, inflation is above 2% and the Fed has been shrinking its bondholdings. Meanwhile, corporations face steep investment needs to exploit AI and reshore production to avoid tariffs. Jason Thomas [head of research at Carlyle Group] estimates that since 2020, the companies’ cumulative free cash flow has been 78% lower, relative to GDP, than in the equivalent period following 2009.

Takeaways by Macro Roundup® AI

  1. Combined net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91 billion in the second quarter from two years earlier, while their free cash flow fell 30% to $40 billion, according to FactSet data.
  2. Jason Thomas, head of research at Carlyle Group, estimates the four companies' cumulative free cash flow since 2020 has been 78% lower relative to GDP than in the equivalent period following 2009.
  3. Between the financial crisis and Covid-19, these companies generated five to eight times as much cash from operations as they invested, and that spare cash, recycled into the financial system, helped hold down long-term interest rates amid high federal deficits.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • Honey, AI Capex is Eating the Economy — Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.
  • Back to Our Regularly Scheduled Programming — The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.

AI Summary. Federal Reserve Bank of Atlanta data show annual wage growth for the lowest-paid quartile of US workers, earning roughly under $806 a week, slowed to 3.7% from a peak of 7.5%, while pay for the top 25% rose 4.7% and the overall workforce 4.3%. Wage growth has slowed less for higher earners.

Delphine Strauss, Claire Jones and Steff Chávez Financial Times
Date Posted:
Is Database:
Database

Wage growth for the bottom quartile of American workers slowed to a 3.7% annual rate in June; under that of the top quartile, whose wages grew 4.7%. Since 2017, wage growth for the bottom quartile has generally outpaced that of their higher-earning peers.

Are the lowest-paid workers seeing the sharpest slowdown in wage growth?

Core argument: Wage growth for the lowest-paid quartile of US workers, those earning roughly less than $806 a week, slowed to an annual rate of 3.7% in June from a peak of 7.5% in late 2022, according to the Atlanta Fed.

Data from the Federal Reserve Bank of Atlanta shows wage growth for the lowest-paid quartile of workers — people earning roughly less than $806 a week — slowed to an annual rate of 3.7% in June, down from a peak of 7.5 per cent in late 2022, when post-pandemic labour shortages in industries such as hospitality were most acute. Wage growth has also slowed for higher earners but to a lesser extent. Pay for the top 25% of workers is up by 4.7%in the year to June, and for the overall workforce by 4.3%. Those in the highest quartile earn more than $1,887 a week.

Takeaways by Macro Roundup® AI

  1. Wage growth for the lowest-paid quartile of US workers, those earning roughly less than $806 a week, slowed to an annual rate of 3.7% in June from a peak of 7.5% in late 2022, according to the Atlanta Fed.
  2. Pay for the top 25% of US workers, who earn more than $1,887 a week, rose 4.7% in the year to June, exceeding both the 4.3% gain for the overall workforce and the 3.7% gain for the bottom quartile.
  3. Atlanta Fed data show wage growth has slowed for higher earners as well, but to a lesser extent, with the lowest quartile's late-2022 peak coming when post-pandemic labour shortages in industries such as hospitality were most acute.

Related Articles:

  • Life Under Two: Debt, Deficits, and the AI Discontinuity — The United States averaged annual GDP growth above 3% for decades, but 2% or less is now more likely. Over ten years, the author estimates that gap amounts to a $3.36tn larger economy, $3.7tn more tax revenue, and 6m more jobs, shifting public psychology from abundance toward scarcity.
  • AI Is Wrecking an Already Fragile Job Market for College Graduates — An analysis of labor data finds a shrinking share of each graduating class is landing jobs requiring a bachelor's degree. At the 15 largest tech companies by market value, entry-level hires as a share of total new hires have fallen 50%, and recent graduates made up 7% of new hires, down from 11%.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. Tariff pass-through to consumer goods prices has varied widely by category, with household appliances and household supplies passing on nearly all or more than the estimated tariff cost while clothing, new cars, and telephone equipment show minimal or negative price effects. Across 19 products the authors estimate about 50% pass-through to consumption goods prices.

Chris Marsh Money: Inside and Out
Date Posted:

11/20 sub-categories of core goods have likely reacted to tariffs, with an overall impact of 50% pass-through to consumption goods. Virtually all tariff increases for household appliances have been passed on whereas the prices of new cars have not risen.

How much of tariff costs are passing through to consumer prices?

Core argument: Across 19 product categories, the estimated overall tariff pass-through to consumption goods inflation is 50%.

Two of the sub-categories are shown [above] as an example, where cumulative PCE is contrasted with the estimated tariff impact. New motor vehicles have seen no inflation uplift since March and are running below the pre-pandemic norm through June. In contrast, with a short lag, household appliances have responded to the tariff strongly in May and June to nearly pass on the estimated tariff cost in full. Looking at the full range of products the ratio of the inflation outcome from March to June over the estimated tariff impact for that category over this period varies from more than 100% for some products (household supplies, for example), 50%-100% inflation for others (like sporting equipment) while goods such as clothes, new cars, and telephone equipment have minimal or negative impact — meaning seasonally adjusted inflation has been negative despite the tariffs. We suspect that car and smart phone producers have been able to absorb the tariff costs to date, including through deft use of inventories, hence the slow response for these categories. The overall inflation impact for these 19 products is a 50% tariff pass-through to consumption goods.

Takeaways by Macro Roundup® AI

  1. Across 19 product categories, the estimated overall tariff pass-through to consumption goods inflation is 50%.
  2. Household appliance prices responded strongly to the tariff in May and June, nearly passing on the estimated tariff cost in full, while household supplies show a pass-through ratio above 100%.
  3. New motor vehicles have seen no inflation uplift since March and run below the pre-pandemic norm through June, with clothes and telephone equipment also showing minimal or negative seasonally adjusted inflation despite the tariffs.

Related Articles:

  • Are Businesses Absorbing the Tariffs or Passing Them on to Their Customers? — About three-quarters of manufacturing and service firms facing tariff-driven cost increases reported passing at least some of those costs to customers through higher prices, while roughly a quarter of each said they absorbed the full increase without raising prices. Nearly a third of manufacturers and about 45% of service firms reported full pass-through.
  • The Tariff Shock to US Inflation Is Massive — Tariff-driven inflation is now showing up in furnishings and recreational goods—two heavily China-imported categories making up 25% of "core" goods in US inflation baskets—with monthly inflation running 100–120 basis points above seasonal norms. The author argues this impulse is large enough that the Federal Reserve may not cut rates at all.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

AI Summary. The inflation measure preferred by Federal Reserve officials has risen faster in 2025 than in 2024 or 2023, with no progress since late 2022. A "supercore" measure stripping out volatile components is running nearly 2 percentage points above its pre-pandemic average, driven by accelerating goods prices excluding energy, groceries, and vehicles.

Matt Klein The Overshoot
Date Posted:

Matt Klein notes wage growth remains persistently 1–1.5pp faster than its pre-pandemic level, consistent with an inflation rate of ~3% before the impact of tariffs, which should be limited as imported goods are a small part of the US consumption basket.

Has inflation stalled above its pre-pandemic pace despite a strong job market?

Core argument: The "supercore" inflation measure, which strips out volatile components and those subject to idiosyncratic measurement issues, has run almost 2 percentage points faster than its pre-pandemic average in 2025H1.

The inflation measure preferred by Federal Reserve officials has been rising faster in 2025 than it did in either 2024 or 2023. In fact, there has been no progress since 2022H2. This is particularly evident when stripping out the components that are either volatile or subject to idiosyncratic measurement issues. So far in 2025H1, this “supercore” measure has been running almost 2 percentage points faster than its pre-pandemic average. While inflation in services excluding housing, utilities, and imputed services with no market prices has been gradually decelerating over the past 3-4 years, it remains about 0.7 percentage points faster than pre-pandemic. The problem is that prices for goods excluding energy, groceries, and motor vehicles and parts have accelerated massively and are now rising almost as fast as during the worst of the 2021H2-2022H1 inflation spike.

Takeaways by Macro Roundup® AI

  1. The "supercore" inflation measure, which strips out volatile components and those subject to idiosyncratic measurement issues, has run almost 2 percentage points faster than its pre-pandemic average in 2025H1.
  2. The inflation measure preferred by Federal Reserve officials has risen faster in 2025 than in either 2024 or 2023, with no progress since 2022H2.
  3. Prices for goods excluding energy, groceries, and motor vehicles and parts are rising almost as fast as during the worst of the 2021H2–2022H1 inflation spike, while services excluding housing, utilities, and imputed services run about 0.7 percentage points above pre-pandemic rates.

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  • Inflation, Trump, and the Fed — Nominal wage income is growing about 1–1.5 percentage points faster than before the pandemic, implying somewhat more inflation than in 2017–2019 if most of that extra income is spent and businesses cannot ramp up production. Cutting interest rates enough to reverse the budget deficit increase, without offsetting fiscal tightening, would be extraordinarily inflationary.
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AI Summary. US factories assembled 10.5m vehicles last year, close to the 10.3m annual average of the pre-NAFTA period back to 1969, while the industry's real value added and industrial production stand at all-time highs and employment totals 1m workers. Detroit's auto employment peaked in 1950 and halved by 1970, reflecting competition from other US regions rather than imports.

Adam Ozimek Economic Innovation Group
Date Posted:

Noting real value added in US autos is now at an all-time high, Adam Ozimek argues the “death of Detroit” was due not to globalization but to migrating production within the US; Japanese imports did not “nearly destroy” the industry in the early 80s.

Has the US auto industry actually declined?

Core argument: American factories assembled 10.5m vehicles last year, below the post-NAFTA peak but well above the depressed 2000s and nearly equal to the 10.3m annual average of the pre-NAFTA period dating back to 1969.

Claims of vast deindustrialization ring true for textiles [e.g.] But the domestic auto industry is different, with 10.5 million vehicles assembled in American factories last year - down from the peak of the post-NAFTA boom, but well above the depressed years of the 2000s and nearly equal to the average of 10.3 million annual vehicles made in the pre-NAFTA period dating back to 1969. Real value added and industrial production are now at all-time highs. The auto industry today employs 1 million workers. Between 1950 and the signing of NAFTA in 1993, it averaged 1.1 million workers, just slightly higher. In Detroit, the decline of the auto industry is certainly not a myth. But its very real decline was caused by competition not with the rest of the world, but with the rest of the US. Auto manufacturing employment in Detroit had already peaked in 1950, at just over 220,000 workers. By 1970 the biggest declines had already occurred, with employment falling by more than half, to fewer than 100,000 jobs. One big factor was the militancy of local unions. In 1978, when imports hit a record high of more than 3mm vehicles, American auto producers had their best year ever, with 12.9 million cars assembled.

Takeaways by Macro Roundup® AI

  1. American factories assembled 10.5m vehicles last year, below the post-NAFTA peak but well above the depressed 2000s and nearly equal to the 10.3m annual average of the pre-NAFTA period dating back to 1969.
  2. The auto industry employs 1m workers today, only slightly below the 1.1m average from 1950 to NAFTA's signing in 1993, while real value added and industrial production stand at all-time highs.
  3. Detroit's auto manufacturing employment peaked in 1950 at just over 220,000 and fell by more than half to under 100,000 by 1970, a decline attributed to competition with the rest of the US rather than the world, with local union militancy one big factor.

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AI Summary. China detained a US defense supplier's 55-metric-ton shipment of Australian-mined antimony for three months while it was transiting the Chinese port of Ningbo, releasing it only on the condition that it be returned to Australia rather than sent to the US. The episode signals that Beijing is enforcing its critical mineral export bans against Western defense companies.

Jon Emont, Heather Somerville and Alistair MacDonald Wall Street Journal
Date Posted:

More than 80,000 parts that are used in Defense Department weapons systems are made with critical minerals now subject to Chinese export controls, according to data from defense software firm Govini.

Is China enforcing its critical mineral export bans against Western defense suppliers?

Core argument: China customs detained 55 metric tons of Australian-mined antimony belonging to United States Antimony Corporation for three months beginning in April while it was transloaded at Ningbo, a routing the company had used routinely.

Beijing is signaling that it takes its mineral export bans very seriously. Earlier this year, one U.S. defense supplier, the United States Antimony Corporation, tried to ship 55 metric tons of antimony mined in Australia to its smelter in Mexico. The load transited via the Chinese port city of Ningbo—until recently a routine practice. But in April, while the shipment was being transloaded in Ningbo, China customs detained it for three months, prompting United States Antimony to ask the State Department and White House for help. The Chinese released the shipment in July, on the condition that it be sent back to Australia and not to the U.S. When it arrived in Australia, United States Antimony learned that product seals had been broken. It is currently working out whether the antimony has been tampered with or contaminated. “The shipping company, everyone who was involved, they’d never seen this happen before,” said company CEO Gary Evans.

Takeaways by Macro Roundup® AI

  1. China customs detained 55 metric tons of Australian-mined antimony belonging to United States Antimony Corporation for three months beginning in April while it was transloaded at Ningbo, a routing the company had used routinely.
  2. The detention prompted United States Antimony to seek help from the State Department and White House, and China released the shipment in July on the condition that it return to Australia rather than go to the U.S.
  3. United States Antimony found product seals broken when the shipment reached Australia and is determining whether the antimony was tampered with or contaminated, with CEO Gary Evans saying the shipping company and everyone involved had never seen this happen before.

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