In a lengthy thread on X and in the pages of the Wall Street Journal, former CEA-head-turned-Federal-Reserve-Board-member, Stephen Miran lays out a case for tariffs. Specifically, he says tariffs are not merely a national security tool, as was argued before the Supreme Court during the IEEPA hearing, but are also a clever use of tax policy. Foreigners, as he contends, bear most of the burden or will “in the long run,” so raising tariffs from their previously-low levels to where they are now actually increases national welfare. This is the idea behind so-called “optimal tariff” theory and Miran has argued that not only has that theory been vindicated, but that Trump and the Administration have masterfully demonstrated just how wrong the economics profession has been on this issue.
Unfortunately, he recommits the same errors that have misled his thinking and trade policy for the past 17 months. History and a little thing called “evidence” show that he’s wrong.
Access, Not Self-Sufficiency
Miran opens his thread by calling the case for tariffs “overdetermined,” with the standard national security argument headlining. “You need self-sufficiency in war equipment,” he says. But this just isn’t true. What you need is access to the materials necessary to wage war. Self-sufficiency is certainly one way to do it, but it’s a poor one.
Consider your own household. Surely, we can agree that putting food on the table is of utmost concern. A cute herb garden and the occasional tomato plant aside, almost none of us grows a meaningful amount of food in our backyard despite its vital importance. We buy our food from grocery stores around town and sleep perfectly fine at night. Because there are plenty of options for buying food, we do not fear any one of them “taking advantage” of us in any way. In short, we secure access to food through redundancy, not through self-sufficiency, and are all the more prosperous because of it.
Trade works the same way at the national level. Free trade between partners reduces the risk of war to begin with and globalization ensures that we have many potential suppliers from whom we can purchase the critical materials. Far from ensuring access to critical materials, protectionism reduces the number of potential suppliers and actually makes us less safe, not more. The only defensible counter to this is China’s dominance of so-called rare earths. But the simple fact that excessive environmental and labor regulations have given China the edge in this market. We could reverse this and Administration officials have done so by rolling back several of these onerous regulations already.
As if that weren’t enough, even if the Administration were to accomplish its goals of politically protecting crucial industries to the point where we could be self-sufficient, we would still be vulnerable. An industry in America that only survives because of political favors is itself a national security risk. What happens if the next Administration doesn’t share the same beliefs on which industries are crucial and which aren’t?
Optimal Tariff Theory in 2026
Miran lays out the economic case for tariffs by citing the literature on optimal tariff theory. To his credit, he clearly understands it and explains it pretty well. He uses economics jargon, such as “elasticity estimates” but what he’s really talking about is basically market power. Briefly, if a country’s economy is large enough to have dominant market power such that they can move world prices through their policies, then foreign nations and companies will pay a significant portion of any tariffs applied by cutting their prices in order to keep the sale.
In a world where international trade resembles a hub-and-spoke model, with the U.S. squarely at the center, then the theory holds and the US can be made better off through tariffs. But if 2025 and 2026 have taught us anything, it’s that this is not the world we live in. That same dense web of suppliers that makes supply chains so resilient also means that almost no buyer is irreplaceable. When the U.S. taxes imports from other countries, those sellers look for other customers and, in today’s global economy, they almost always find one.
There’s nothing hypothetical about this as it’s happening right now. When the US and China entered into a trade war in mid-2025, Chinese exports actually rose as they found new customers to purchase their wares.
Americans Are Paying While Miran Shifts The Goalposts
Miran claims that “in the long run,” foreigners will bear about seventy percent of the burden of the US tariffs. This is noteworthy for two reasons. First, it’s the same goal post shifting that tariff proponents have been using for over a year. In March of 2025, Howard Lutnick said the economy would “be humming” in Q4 2025. In December of 2025, Peter Navarro told us we needed to use “the right timeline” and that we must not grade trade policy “on a news cycle.” When manufacturing jobs don’t appear, we’re told to wait. When domestic prices rise, we’re told that these are “short term pains for long term gains.” When foreigners aren’t paying the tariff, we’re told that it’ll happen… eventually. This isn’t analysis, it’s buying time until the economy improves despite tariffs, at which point the Administration will claim victory.
Second, the claim that foreigners will bear the brunt of the tariffs flies in the face of evidence. The Bureau of Labor Statistics, complete with a Trump-approved Commissioner, publishes the grossly-underappreciated Import Price Index. Briefly, the IPI measures the price that American importers pay to foreign exporters. Importantly, this index does not include tariffs or any other fees for importing goods. And if we look at the data, what we find is that foreign exporters actually did lower their prices over 2025… by less than one percent.
Source: https://fred.stlouisfed.org/series/IR
The research on the tariff pass-through rate, which is the amount of the tariff that is passed on ultimately to consumers in the form of higher prices is equally disturbing. The Harvard Pricing Lab, which President Trump cited in a WSJ opinion piece as being credible, found that just six months post-Liberation Day, American consumers were eating an average of twenty percent of the tariffs. For Trump’s first-term tariffs, that pass through rate stayed under five percent for a full year. In other words, this time around, the tariffs are hitting the American people harder and faster than before and there’s evidence that this pass-through rate will only continue to climb, not fall.
Far from demonstrating that the U.S. is a dominant economic superpower, it demonstrates instead that the US does not have the market power to move world prices by enough to justify tariffs in the way Miran alleges. Instead, what the IPI indicates is precisely what professional economists have been warning about for years now: Americans, not foreigners, are paying the overwhelming majority of the tariffs.
Negative Retaliation?
Another of Miran’s major points in his thread is noting that foreign retaliation simply didn’t materialize. He goes even further, claiming that countries actually engaged in “negative retaliation” by lowering their barriers and pledging to invest in America.
This is an interesting interpretation of events. China responded to Liberation Day within 48 hours, announcing an additional 34 percent tariff on all U.S. goods effective April 4, 2025 and, on the same day, imposed rare earth export restrictions that American defense and automotive companies rely on. Just a few months later, automakers were reporting production disruptions. The Center for Strategic and International Studies reports that in the eight months after Liberation Day, the U.S. imported 17 tons of yttrium compared to 333 tons over the eight months before, reflecting a 95% decline, which affects the U.S. automotive, aerospace, and defense industries.
But the deeper problem with Miran’s claim of “negative retaliation” is one that is not measured in tariff rates and it’s not captured in “frameworks” of trade deals that the US reaches. It’s captured in relationships and trade patterns. The EU closed a deal with Mercosur after twenty-five years of stalling. They also reached a deal with India, which Ursula von de Leyen referred to as “the mother of all deals.” Canada, our closest ally and largest trading partner, went looking for energy customers in Asia and now describes Beijing as “more predictable” than the US. This year’s G7 meeting was built around reducing protectionism and encouraging a “stable and predictable economic environment worldwide.”
The truth is that other countries are looking elsewhere for trading partners that are more reliable and less erratic than the U.S. The most expensive cost of these tariffs won’t show up in pass-through rates, BLS reports, or a BEA release. It’ll show up in missed opportunities for Americans. If this is what Miran refers to as “negative retaliation,” one shudders to think what he would define as “retaliation.”
So It Was About Revenues?
But the most egregious part of Miran’s thread is the part at the end, where he explains why he had to stay quiet for most of last year. Administration officials justified the IEEPA tariffs on national emergency grounds, namely the large and pervasive trade deficits. At the oral arguments for Learning Resources v. Donald Trump, U.S. Solicitor General John Sauer said, before the Court, “I want to make a very important distinction here. We don't contend that what's being exercised here is the power to tax. It's the power to regulate foreign commerce. These are regulatory tariffs. They are not revenue-raising tariffs. The fact that they raise revenue is only incidental.”
Miran admits, in plain language, that the publicly given legal justification for the IEEPA tariffs and the real economic purpose were two different things, that he knew about it, and that he deliberately stayed quiet because “it would have interfered with the legal case if I had said that tariffs were good for revenue and tax purposes even if that’s not actually the reason we gave in law for the tariffs.”
Fortunately, the Supreme Court recognized what Miran had explicitly been careful not to say. In a 6-3 decision, the Court struck down the IEEPA tariffs, holding that the power to impose them is, in Chief Justice Roberts’s own words, “very clear[ly] a branch of the taxing power” that is reserved to Congress. Administration officials had very clearly dressed the taxing power up in the clothes of “emergency” and now we have the admission.
Conclusion
Far from being “overdetermined,” tariffs have been overapplied and have over-failed. The theory required a country with market power to make foreigners pay. The evidence says that Americans are paying. The theory required trading partners with nowhere else to go. They went and are going elsewhere. The legal case required everyone to pretend that this was never about revenue. Miran admitted that it was.
It’s time to end this experiment with tariffs and protectionism once and for all.
