The drag on the economy from President Donald Trump’s tariff agenda could outweigh the benefits of more tax cuts, some free market economists warn.
Republicans are looking to extend the 2017 Tax Cuts and Jobs Act through budget reconciliation, a legislative process that allows for bills to bypass the filibuster and pass with only a simple majority in the Senate. They also want to add new tax cuts into the mix. But simultaneously, Trump has imposed 10% tariffs against dozens of countries and massive tariffs against China, with more promised.
Robert Barro, a Harvard economist known for his work on economic growth and fiscal policy, told the Washington Examiner that such an aggressive tariff policy by the Trump administration has the potential to negate the positive benefits of extending and expanding the 2017 tax cuts.
“I think the tariffs are sufficiently negative, they’ll probably more than outweigh the benefits from the tax cuts,” said Barro, a self-described libertarian.
Barro said that he did a careful estimate of the 2017 tax cuts and estimated that they would raise growth by 1% per year in the short term.
“So that should still apply of course, since it’s basically the same legislation just being extended or made permanent,” he said. “But you know, the tariff thing is really dominating everything that shows up in terms of the stock market fluctuations and volatility.”
One argument in favor of the tariffs is that they will offset some of the revenues lost from extending the tax cuts. The Congressional Budget Office said last week that making the 2017 tax cuts permanent and adding other tax breaks sought by Trump would add $6 trillion to the deficit over the next decade.
Some Republicans in Congress hope to cut enough spending and tax breaks to offset some of the lost revenues from extending the tax cuts.
But if they don’t, the nonpartisan budget scorekeeper projected that the added debt would raise interest rates and thus slow growth in the long term, a contrast to a recent analysis from the White House Council of Economic Advisers that extending the tax cuts would boost growth and wages.
Tariff revenues could help with that problem, in theory. But Ryan Young, a senior economist at the libertarian Competitive Enterprise Institute, said that, for sake of argument, even if tariff revenue canceled out the revenue lost from extending and expanding the tax cuts, it would still be a net negative for the economy.
“The tariffs will still cause a lot of net harm, which will in turn reduce other types of tax revenue — you don’t see an income tax cut extension wiping $6 trillion from the stock market,” Young told the Washington Examiner.
Young said that the volatility in the markets and harm that tariffs might end up inflicting on the economy is the result of not just the tariffs themselves, but also the uncertainty that comes with them about timing, scale, and potential retaliation.
“The income tax cut extension would have a small stimulus effect, but any effect it does have is likely going to be way smaller than the damage from the tariffs, just from supply chain chaos, uncertainty over implementation, slowing investment, foreign investment fleeing the country,” Young added.
Barro said he was “completely surprised” by the scale of the Trump tariffs. He had expected that the tariffs would end up being similar to those imposed by Trump during his first term and that Trump would be “more rational” in his second term.
“So this has been extraordinarily harmful,” Barro said.
He said that the stock market reaction is the best indicator of what the long-term consequences are from Trump’s tariff agenda. If, as Trump officials have claimed, the tariffs will cause only short-term pain and the economy will benefit in the longer term, that dynamic would be reflected in the stock market.
The benchmark S&P 500 has fallen nearly 5% in the past month alone and has dropped by 8% since the start of 2025. The tech-heavy Nasdaq has declined 5.5% in the past month and 12.8% since the start of the year.
Adam Michel, director of tax policy studies at the libertarian Cato Institute, also said the harm from the tariffs is likely to outstrip the benefits from tax reconciliation. He also pointed to the stock market and said that while sometimes the daily ups and downs in the market are read too much into, a sustained decline over time would show investors aren’t confident about longer-term prospects.
“I think certainly a decline in the stock market should at least be taken as one piece of evidence that the tariffs are economically destructive,” Michel told the Washington Examiner.
It is unclear how long Trump actually intends to keep tariffs in place. He recently announced a 90 pause for the biggest individual tariffs on countries in order to facilitate trade deal negotiations, but there is much uncertainty about just how aggressive the administration intends to be on trade in the coming months and years.
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China has already shown a willingness to retaliate, and if other countries escalate tariffs against the United States, it would be more damaging to the economy.
“More retaliation makes it worse, and the longer these things stay in place, the worse it is,” Michel added.
