Tariffs Damage Economy: Zandi Warns of Consumer Crisis

Economists are divided on the impact of tariffs implemented over a year ago, with Mark Zandi of Moody's Analytics asserting they have significantly damaged the U.S. economy. He notes that job growth has slowed, with only the healthcare sector adding jobs meaningfully. Additionally, inflation has accelerated, with the consumer expenditure deflator rising to a 3% year-over-year pace, exceeding the Federal Reserve's 2% target.

This perspective challenges arguments from U.S. Treasury Secretary Scott Bessent, who believes supply shocks do not cause lasting inflation. Bank of America economists disagree, stating that supply shocks shift the aggregate supply curve upward, leading consumers to spend less in real terms. Data since the tariffs show a slowdown in real consumer spending and a decline in the saving rate.

Despite economic concerns, the U.S. Treasury's balance sheet has benefited. In 2025, customs duties, taxes, and fees collected by the U.S. Department of Homeland Security amounted to $287 billion, a 192% increase from the previous year. This revenue helps fund large fiscal packages without increasing national debt.

However, the legality of some tariffs is in question. The Supreme Court ruled certain tariffs unconstitutional based on the International Emergency Economic Powers Act (IEEPA). While the White House has sought alternative legislative bases, revenues collected under IEEPA may be subject to redistribution by international trade courts.

Meanwhile, a new supply shock is emerging from rising oil prices due to the conflict in the Middle East. Economists like Zandi warn that higher energy and commodity prices could inflict further economic damage, threatening growth and increasing inflation. The resilience of the U.S. economy is set to be tested.