Special Edition: Responding to Stephen Miran’s Tariff Op-Ed
Former Chair of the Council to Economic Advisers to President Trump explains why he thinks tariffs are good policy.
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On June 26, 2026, Stephen Miran, former chair of the Council to Economic Advisers to President Trump and former member of the Federal Reserve Board of Governors, penned an opinion piece in the Wall Street Journal arguing in defense of tariffs (i.e. taxes on imports). He also posted a twitter thread covering the key points from his opinion piece. Today’s special edition will offer a quick response to some of the points made in the opinion piece.
Who Bears Tariff Cost
Miran in the op-ed says:
“Two centuries of optimal-tariff research show that tariffs are unique in that foreigners bear a material portion of the tax burden…Traditional estimates for the U.S. indicate that in the long run exporters will bear 70% of the burden of tariffs”
Response: Current data suggests this is false. Theoretically, the foreign exporter could bear some of the tariff cost by lowering the price of their goods to the importer. However, more granular research has shown that this is unlikely to happen. Prices faced by consumers are often increased by even more than the tariff amount. This is not surprising, as in a globalized economy, foreign exporters simply have other markets to sell goods to and do not need to reduce prices for US importers.
The difference between what economists are debating – do foreigners bear any of the ‘cost’ – and Miran’s claim that 70% of the cost is borne by foreign exporters could not be more stark.
Is Welfare Higher?
Miran in the twitter thread says:
“That means that when raising tariffs from low levels, overall national welfare including revenue increases. Eventually, the domestic share of distortions outweighs the benefit of revenue [Note: as tariffs are a tax they have an economic cost, but this cost is netted off against the revenue the tax raises]--the point at which this happens is called the “optimal tariff.”
Response: This question has now been repeatedly addressed by economists. Tariffs reduce domestic welfare – i.e. US consumers are worse off under tariffs. From our recent write up:
“Fajgeballum and Khandelwal (2026) (“FG”) find very interesting results – the overall impact on welfare in the US is extremely negligible with a 0.13% reduction in welfare measured in GDP terms – the reduction in welfare (happiness) is equivalent to having GDP lower by 0.13%.
But this lower overall welfare reduction hides the fact that the impact is very uneven:
Consumers lose out by about 2.6%;
Domestic produces gain around 1.4%, as they receive higher prices;
The government gains around 1.1% due to tariff revenue.”
What tariffs successfully do is re-distribute from US consumers to US producers, a de facto government subsidy.
Distortions and Intermediary Goods
Miran says:
“It’s even more of a victory given how the 2025 tax cut incorporated full expensing of equipment. If a tariff drives up the cost of an input or intermediate good, the purchaser is very likely able to get that back on tax returns—making tariffs even less of a burden on Americans. Effectively, intermediate goods are largely untariffed, as economists have long advocated.”
Response: First, Miran is correct that taxes (i.e. tariffs) on intermediate goods often end up leading to large negative economic effects. Tariffs on these goods are actually the key reason we’ve witnessed slightly higher inflation.
Why is tariffing intermediate goods bad? A tax distorts a firm’s production decision. Making inputs cost more means the producer will have to deviate from their optimal production plan (produce less of what they make or use a different mix of inputs), reducing firm efficiency.
This, in turn, makes the firm’s final good more costly. Such tariffs (aka taxes) can reduce employment, as firms may need to reduce production. Taxes on final goods (i.e. when the goods are sold directly to the consumer) do not make firms less efficient – the producing firm still gets to choose its inputs as it wants.
Coming back to the point made by Miran, where he argues that, because new legislation allows for ‘full-expensing’1, the tariff impact on the goods gets reimbursed back to the firm. The issue here is that both domestic and foreign-produced goods get ‘fully-expensed’, meaning the tariff distortion is still present, leading to lower imports, and therefore less efficient output.
Moreover, raw material imports are also taxed, which again distorts the production decision of firms. This all reduces US efficiency and reduces economic output.
Replacement of Other Taxes
Miran says:
“Far from creating marginal deadweight loss, raising them toward optimal levels is actually welfare-enhancing. And tariff revenue can be used to reduce highly distortionary taxes on capital or labor. Doing so is particularly effective because deadweight loss increases faster with higher tax rates—going from a 40% rate to 50% has a much higher cost than jumping from 10% to 20%. The median lifetime marginal rate on income is an astonishingly high 39%, according to recent research.”
Response: This is a misunderstanding of several economic concepts.
Deadweight loss is an economic concept that aims to capture how much overall welfare is lost due to a market distortion, such as a tax. Basically, how much less are we getting as a whole society, by an imposition of a particular tax (note – not all taxes have to create losses). Miran argues that since labor taxes are at a high level (the US highest marginal tax rate is 37%), by reducing the labor tax from a high level and offsetting it with a higher tariff-tax that is currently at a ‘low level’ (near zero), we will have more welfare. The problem with this notion is that deadweight loss doesn’t work that way. Taxes interact with each other. You cannot count the deadweight loss from each tax separately and then add it together.
Using an analogy made by Alan Cole of the Tax Foundation, imagine the labor tax creates a distortion of size X, while the tariffs creates a distortion of size Y. The deadweight loss would be the area – i.e. (X+Y) squared, which is X-Squared + Y-Squared + 2XY. Miran, in his piece, is ignoring the 2XY piece and simply assumes that (X+Y) squared is X-Squared + Y-Squared. He would, therefore, need to demonstrate that the joint change in tax rates would lead to lower deadweight loss.
Tax distortions interact with each other – we cannot just look at marginal tax rates and determine what the impact on deadweight loss will be.
Final Thoughts
It is good that Miran published his thoughts and assumptions. I have always advocated for being transparent about one’s own economic thinking. Thanks to the opinion piece, we can clearly see where the misunderstanding is, and the issue that economics research can further address.
Nonetheless, the assumptions made by tariff proponents like Miran sound good on paper, but in practice are incorrect. This includes:
overestimating how much foreign exporters ‘pay the tariff’;
underestimating how much of the tariff US consumers pay; and
underestimating the distortions created by tariffs.
Tariffs are simply an inefficient tax – we have better tools to achieve any goal that tariffs are supposed to achieve.
P.S. The “National Security” Argument
Separately, one argument I do not discuss much regarding tariffs is the “national security” argument. This argument has recently gained traction in public discourse, even with renowned economist Paul Krugman mentioning it regarding placing tariffs on Chinese vehicles. The reason I don’t talk much about the ‘national security’ argument is because it is not defined from an economic perspective – everyone appears to have their own definition of it. If, for example, as some say that the goal of tariffs is to have a US manufacturing base – what exactly does that mean? US manufacturing produces $3 trillion worth of goods, accounting for around 15% of the world’s manufacturing output (the US accounts for less than 5% of world population). Is this too small of a manufacturing base or big enough?
However we define ‘national security’, I do not see how tariffs help with achieving any of the commonly stated goals, and, on the contrary, they often make things worse, as they drain resources from efficient sectors.
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This refers to an accounting concept of expensing costs. Since certain goods, for example a computer, function for multiple years, the cost of acquiring it can be expensed over several years or one year (full expensing). This gives firms certain tax advantages.