In the latest episode of Power and Consequences, we (Gary Gensler and Simon Johnson) discuss tariffs and trade, with a focus on who is winning and who is not under the turbulent new trade system that President Trump is attempting to impose.
We discuss the key question of this moment, for the midterm elections, and beyond: who actually pays the taxes that are known as tariffs? The answer is… well, listen to the episode on any podcast platform or by downloading the audio file here.
We put developments in historical context and explain how we have financed our recent current account deficits. Spoiler alert: foreign residents like investing in the U.S., although we do need to worry about how much of that investment is productive.
We also walk through the basics, including important jargon such as the balance of trade, the current account, the balance of payments, and “Most Favored Nation”. All helpful material for when you read about trade policy or get drawn into a debate on the topic. If you want even more substance, look at the range of views discussed below.
Here’s Gary’s speech from 2023, linking strong capital markets (including proper regulation of those markets) with the international role of the U.S. dollar – and our ability to finance current account deficits.
In our conversation, Gary highlights this important essay by Michael Strain of the American Enterprise Institute, arguing that the positive impact of the Trump tariffs on US manufacturing is likely to be limited, at best.
For more on historical US trade Deficits, you can consult this source (the Federal Reserve Bank of St. Louis is typically reliable).
In recent months, Simon wrote two op eds on these issues with Stan Veuger of the American Enterprise Institute:
on the legal and economic problems with the Liberation Day tariffs imposed in 2025. A majority on the Supreme Court seemed to listen to arguments such as these when ruling that these tariffs were illegal.
on the latest (2026) arguments put forward by the Trump Administration, justifying their so-called Section 122 Tariffs
These op eds respectively drew on amicus briefs that Simon and many other economists signed – thanks again to Stan for his leadership on these.
before the Supreme Court, in Learning Resources/V.O.S. Selections
in the US Court of International Trade, Burlap and Barrel case
How do tariffs affect prices? See this piece from the St Louis Fed. And the work of Alberto Cavallo on this topic is excellent and typically definitive
To go even deeper on particular dimensions, we recommend:
‘State of Tariffs’, Yale Budget Lab, March 9, 2026
‘National Trade Estimate Report on Non-tariff Barriers and Regulatory Capture’, Coalition for New Trade, March 2026
‘Adapting Trade Policy for Supply Chain Resilience’, USTR, January, 2025. (For our MIT class, we required reading pages 1 – 9).
‘Supply Chain Resilience’, Katherine Tai, Remarks at the National Press Club, June 2023 . Katherine was US Trade Representative under President Biden.
In the CEPR volume on the (Preliminary!) Economic Consequences of the Second Trump Administration that Gary and Simon helped to edit in 2025, see these chapters which all address the burning issue of who really pays for tariffs:
Kim Clausing: on the distributional consequences of the Trump tariffs.
Marcelo Olarreaga and Sara Santander: Who Pays for US Tariffs?
Arnaud Costinot and Andres Rodriguez-Clare: What you really need to know about tariffs.
And for even more reading!! (All from ’TheEconomic Consequences of the Second Trump Administration: A Preliminary Assessment’, CEPR Press, December 1, 2025.)
‘From MFN to “Reciprocal Tariffs', Kevin Hjortshøj O’Rourke, Chapter 22.
‘Trumpian Tariffs- What, Why, What Next?’ Richard Baldwin, Chapter 23.
‘Second Round Estimations of the Effects of Reciprocal Tariffs’, Bouët, de Vaulchier, Guimbard, Mitaritonna, and Zheng, Chapter 25.
‘National Security Tariffs on the Auto Industry’ , Head, Mayer, Vicard, and Wibaux, Chapter 29.
