AIER’s Everyday Price Index (EPI) posted a 0.18 percent rise in May 2025, reaching 294.3. The index has now recorded six straight months of increases.

Of the twenty-four components making up the EPI, 13 recorded price increases from April to May, while two remained unchanged and nine declined. The most significant upward contributions came from recreational reading materials, tobacco and smoking products, and admissions to movies, theaters, and concerts. On the downside, the largest month-to-month decreases were observed in motor fuel, audio discs, tapes and other media, and intracity transportation services.

AIER Everyday Price Index vs. US Consumer Price Index (NSA, 1987 = 100)

Also on June 11, 2025, the US Bureau of Labor Statistics (BLS) released its May 2025 Consumer Price Index (CPI) data. Both the month-to-month headline CPI and core month-to-month CPI number increased by 0.1 percent, less than the 0.3 percent increase forecast for core inflation and the 0.2 percent projected for the headline number.

May 2025 US CPI headline and core month-over-month (2015 – present)

In May 2025, the all-items Consumer Price Index rose 0.1 percent, driven primarily by a 0.3 percent increase in shelter costs. The food index advanced 0.3 percent, with both food at home and food away from home rising by the same amount. Within food at home, gains were led by cereals and bakery products (+1.1 percent), other food at home (+0.7 percent), and fruits and vegetables (+0.3 percent), while declines were seen in meats, poultry, fish, and eggs (-0.4 percent), nonalcoholic beverages (-0.3 percent), and dairy products (-0.1 percent). The energy index declined 1.0 percent, reflecting a 2.6 percent drop in gasoline prices and a 1.0 percent decrease in natural gas, partially offset by a 0.9 percent increase in electricity costs.

Excluding food and energy, the core index also rose 0.1 percent in May, following a 0.2 percent gain in April. Shelter continued to rise, with owners’ equivalent rent and rent of primary residence both up 0.3 percent, while lodging away from home edged down 0.1 percent. Medical care increased 0.3 percent, supported by hospital services (+0.4 percent) and prescription drugs (+0.6 percent), though physicians’ services fell 0.3 percent. Additional increases were observed in motor vehicle insurance (+0.7 percent), household furnishings (+0.3 percent), personal care (+0.5 percent), and education (+0.3 percent). Offsetting these gains were declines in airline fares (-2.7 percent), used cars and trucks (-0.5 percent), new vehicles (-0.3 percent), and apparel (-0.4 percent).

For the 12 months ending in May 2025, the headline Consumer Price Index increased 2.4 percent, meeting the consensus forecast. The core CPI year-over-year rose 2.8 percent, lower than the 2.9 percent forecast.

May 2025 US CPI headline and core year-over-year (2015 – present)

Over the last year food prices advanced 2.9 percent, with food at home rising 2.2 percent and food away from home up 3.8 percent. Within food at home, the largest increases were in meats, poultry, fish, and eggs (+6.1 percent), driven heavily by a 41.5 percent surge in egg prices. Nonalcoholic beverages rose 3.1 percent, dairy products increased 1.7 percent, other food at home rose 1.4 percent, and cereals and bakery products edged up 1.0 percent, while fruits and vegetables declined 0.5 percent over the year. The energy index fell 3.5 percent year-over-year, with gasoline down 12.0 percent and fuel oil down 8.6 percent, offset in part by increases in natural gas (+15.3 percent) and electricity (+4.5 percent).

Excluding food and energy, the core CPI rose 2.8 percent over the past 12 months. Shelter costs advanced 3.9 percent year-over-year, remaining the largest contributor to core inflation. Other notable annual increases were seen in motor vehicle insurance (+7.0 percent), medical care (+2.5 percent), household furnishings and operations (+2.7 percent), and recreation (+1.8 percent).

US consumer inflation continued to moderate in May, with both headline and core measures undershooting expectations for the fourth consecutive month. Yet beneath the surface, inflation pressures are highly bifurcated. Evidence of tariff pass-through persists in categories heavily exposed to Chinese imports — including appliances, household equipment, toys, and certain electronics — but these gains were offset by widespread disinflation elsewhere. Durable goods prices remained weak, with both new and used car prices declining by 0.3 and 0.5 percent respectively. Services inflation decelerated to 0.2 percent, led by further declines in airfares and hotel rates, as consumer discretionary spending shows signs of softening amid growing income uncertainty. Diffusion measures reflect this divergence: while 41 percent of core categories saw price declines in May, the share of categories rising at an annualized pace above 4 percent climbed to 40 percent, underscoring a complex and uneven inflation backdrop.

Looking ahead, the disinflationary momentum raises the likelihood that the Federal Reserve will remain patient in the near term but face growing pressure to ease policy later this year. Market participants now assign a roughly 75 percent probability of a Fed rate cut by September, as softer inflation prints coincide with early signs of labor market cooling and still-elevated consumer price sensitivities. While temporary trade agreements between the US and China have eased some tariff-related price pressures, risks remain: additional tariff escalations could eventually feed through more forcefully into consumer prices, particularly if inventory buffers shrink. Firms including Walmart, Target, and major automakers have already signaled the likelihood of higher prices ahead. For now, however, the balance of risks continues to tilt toward a gradual disinflation narrative: one that leaves policymakers cautious but not yet compelled to act aggressively.

It comes as no surprise that divorce is harmful for children. Most would likely highlight the emotional strain imposed on children from the loss of normal relations between parents, but harmful effects can be economic. Dividing the family into two households means lower incomes and financially costly negotiations, which could impact children over the long term.

Some argue that bad relations between still-married parents would have the same (or worse) negative impact. By this reasoning, the negative outcomes of divorce are based on the underlying issues that cause the divorce rather than the divorce itself.

A new paper for the National Bureau of Economic Research (NBER) by economists Andrew C. Johnston, Maggie R. Jones & Nolan G. Pope helps adjudicate the question of whether divorce itself is harmful, or if the detrimental effects are merely the result of unhappy parents.

Let’s look at their results.

The Immediate Damage of Divorce

To account for the damage of divorce, the authors highlight several negative changes caused by divorce. First, divorce increases the distance between parents, with the average distance being 100 miles. This limits children’s access to their parents. 

Second, household income falls with the division of the household. This decline in income isn’t made up for by child support. The authors state, “combined, these increases [child support and welfare] in non-taxable income offset less than 10 percent of the drop in average household income.”

As a result of being unable to pool familial resources, parents work more and therefore see children less. They “find that mothers work 8 percent more hours after divorce, and fathers work 16 percent more after divorce.”

Finally, children tend to be relocated, which can be destabilizing, and is made worse by the fact that “divorcing families also move to lower-quality neighborhoods.”

The authors also examine the results of these changes, and they find two additional negative impacts of divorce: increased teen birth rates and increased mortality. These results indicate the immediate economic downside of divorce and how that can negatively impact children, but how do things shake out in the long term?

Long-Term Impacts

Where this new study shines is in examining the long-term impacts of divorce. In order to do this, the authors essentially compare the outcomes of children who are from the same families, but who have different amounts of time being exposed to the divorce.

If two parents got divorced, for example, when their oldest was 15 and their youngest was 5, the oldest would only experience the post-divorce life as a child for 3 years, whereas the youngest would face it for 13 years. 

The results are clear. When parents get divorced when children are younger, those children grow up to have lower incomes, on average. By age 25, someone whose parents got divorced before age six will have approximately $2,500 less annual income (or a nine to 13 percent reduction). The older a child is when the divorce occurs, the less negative the effect becomes. In other words, divorce at early ages means worse long-term outcomes.

Similarly, early childhood divorce increases mortality, and the effect diminishes with age. The same trend holds for increases in teen birth. The results about teen birth and incarceration are particularly alarming:

Experiencing a divorce at an early age increases children’s risk of teen birth by roughly 60 percent, while also elevating risks of incarceration and mortality by approximately 40 and 45 percent, respectively.

In analyzing what about the divorce in particular causes these outcomes, the authors find resource reductions drive a large part of the change in earnings, and the change in neighborhood quality drives the increased incarceration effect.

In other divorce impact studies, critics have a wide lane for critique. When statistics show children of divorce do worse, critics could always argue that there is a selection issue going on. For example, you could say, “It isn’t that divorce has negative impacts, it’s that the people who are more likely to get divorced are going to have other traits or behaviors which impact their children’s outcomes regardless.”

Johnston, Jones, and Pope, however, sidestep this critique by comparing children within the same families. If the thing causing the negative impact wasn’t the divorce itself, the divorce shouldn’t make children in the same family have worse outcomes. But it does. This implies that the divorce itself really is a cause of many of the issues, rather than some hidden underlying factor, as critics like to suggest.

These results shouldn’t be surprising. Parenting is a long-term, team project. Early in childhood, parents make plans and establish routines. These plans and routines lay the foundation for the rest of the child’s life. Like any joint project, whether in family, business, or politics, plans are made because the planning process adds value. Scrapping plans is akin to removing an essential part of the foundation.

When divorce occurs, this foundation crumbles at least in part, if not entirely. Laying a new foundation may not be impossible, but it does tend to be expensive, and this research suggests that children bear much of the cost.

The budget reconciliation legislation recently passed by the House of Representatives, better known as the “One Big Beautiful Bill,” contains several provisions that will benefit taxpayers, but there are opportunities for the Senate to make it even better.

The Senate should remove, for example, a provision in the House bill that would end the longstanding de minimis exemption that waives tariffs for low-cost imports.  

The United States has maintained some form of exemption for low-cost imports for over 100 years. Prior to 1938, the Treasury Department allowed local Customs officials to waive tariffs if they determined that collecting duties on low-value imports would be an inefficient use of federal resources. 

Congress enacted a formal exemption in 1938. The exemption was increased several times over the years. Most recently, in 2016, Congress passed the Trade Facilitation and Trade Enforcement Act, which increased the exemption from tariffs for low-value imports from $200 to $800. This made imports subject to the same rules as the $800 personal exemption for goods Americans bring back when traveling internationally. The legislation projected that increasing the exemption would provide significant economic benefits to businesses and consumers in the United States.

Since then, the Senate has resisted efforts to reduce the exemption for affordable imports. For example, former Finance Committee Chairman Chuck Grassley (R-IA) opposed efforts to reduce the level in implementing legislation for the US-Mexico-Canada Agreement (USMCA), writing that such a change would be contrary to congressional intent. 

When the exemption was increased to $800, no one could have expected the subsequent growth in low-cost imports. The number of goods entering under de minimis status surged from 139 million shipments in 2015 to nearly 1.4 billion in 2024. 

However, most of this growth was unrelated to the increase in the tariff exemption. The average value of a de minimis package in 2023 was just $54, much lower than the current $800 exemption but also much lower than the previous $200 exemption. This is why opponents of de minimis in the House proposed eliminating it instead of just returning it to the previous level. 

Sadly, some opponents of the exemption for low-cost imports have exploited the fentanyl crisis to support their position. For example, the National Council of Textile Organizations says the de minimis exemption impedes the fight against fentanyl trafficking. 

But the Drug Enforcement Administration’s 2025 National Drug Threat Assessment doesn’t contain a single reference to de minimis as a contributor to the fentanyl problem. Requiring the government to devote additional resources to assessing duties on 1.4 billion low-value packages could even divert resources that would be put to better use stopping fentanyl at the US-Mexico border. In any case, all imports, regardless of value, remain subject to US narcotics laws.

Other critics disparagingly refer to the de minimis exemption as a “loophole.” That’s like calling the standard deduction for income taxes a loophole. The de minimis exemption is not a loophole but a policy specifically designed to benefit not just consumers but also manufacturers who rely on affordable imported inputs to produce goods in the United States. 

While many critics of the exemption have focused on Chinese imports, notably, the House bill would impose tariffs on low-cost goods from all countries, not just China. Economist Christine McDaniel estimates that this change could cost Americans $47 billion a year, and economists Pablo Fajgelbaum and Amit Khandelwal found that low-income households would be harmed the most. 

Increasing tariffs on imports from our allies is unwise. And, for those concerned about cheap imports from China, there are ways to reduce reliance on de minimis that don’t involve a big tax increase. For starters, Congress could eliminate tariffs on clothing. The average US tariff on clothing is 14.6 percent. This high tariff encourages consumers to purchase clothing directly instead of from traditional retailers, whose goods are subject to US clothing tariffs. 

Regarding his plans to encourage US manufacturing, President Trump recently observed, “I’m not looking to make T-shirts, to be honest. I’m not looking to make socks.” Getting rid of our clothing tariffs would save families billions and reduce the use of de minimis. 

The Trump Administration has made it a priority to tackle waste, fraud, and abuse. In particular, the DOGE effort focused on getting rid of waste in federal programs and shrinking the federal workforce. 

Terminating the de minimis exemption would undermine President Trump’s efforts to shrink the administrative state. According to Oxford Economics, the cost of limiting the de minimis exemption would be greater than increased revenues generated and would require the government to hire additional workers to assess duties on millions of additional packages. 

The Senate should improve One Big Beautiful Bill by removing the House’s proposal to terminate the de minimis exemption. That would be beautiful for consumers!

Reference to the Republican Party’s three greatest presidents can serve as a tool with which to judge and anticipate the still unsettled course of antitrust enforcement in the second Trump administration. Trumpian antitrusters have professed their intent to break from policies of the Biden appointees Lina Khan and Jonathan Kanter. However, the 47th president’s enforcement resembles the central planning of the 46th far more than his administration would likely care to confess. 

The administration is still young, however, just beginning its fourth month. Time remains for the Federal Trade Commission (FTC) and the Department of Justice (DOJ)’s Antitrust Division to unscramble themselves and ground policy in the sensible, pro-competitive, and constrained theories of regulation propounded for decades by antitrusters of both parties. The Trump administration can restore the balance that prevailed until the revolutions during the Biden years. It is, to invoke Ronald Reagan, a time for choosing.

Fresh off four years of standing athwart Khan and Kanter, some might find it odd that conservatives have begun mimicking their erstwhile nemeses. Indeed, Trump officials have begun to borrow talking points from their Democratic predecessors. Inexplicably, the Trump FTC and DOJ chose to retain the Biden-era joint merger guidelines. That guidance, breaking with decades-old policies, aimed to subject more mergers and acquisitions to the government’s veto. 

FTC Chair Andrew Ferguson justified the capitulation to Khan and Kanter’s arch-progressive guidelines as a boon for regulatory “stability,” arguing that “The wholesale rescission and reworking of guidelines is time consuming and expensive.” This resembles arguing against putting out a recently ignited fire that is burning down a beautiful old home. Dousing the flames and rebuilding would certainly require time, money, and manpower, yet it remains nonetheless preferable to allowing the blaze to continue. If the FTC seeks stability, it should pivot to the proven, economically sound M&A approach that obtained for decades until renegade progressive activists upended it less than 18 months past.

Moreover, Ferguson kept the Biden-era premerger notification rules, wrapping regulatory red tape around every attempt at M&A — not just the less than 2 percent (as of 2021) that attract additional scrutiny. “These rules will increase the hours needed to prepare filings from 37 hours to 144 hours per filing, and yield approximately $350 million in additional labor costs” (or worse), notes Jessica Melugin of the Competitive Enterprise Institute. Lina Khan’s tenure in government was short and widely panned — not to mention fraught with courtroom defeats — but Ferguson has undertaken to perpetuate her legacy.

“If we could first know where we are, and whither we are tending, we could better judge what to do, and how to do it,” Abraham Lincoln said in 1858. Gaining the same knowledge will clarify the causes of conservatives’ strange drift towards progressive antitrust and uncover better remedies to their diagnoses. 

In large degree, the right’s subjugation of its traditional free-market philosophies to quasi-progressive antitrust ideology springs from a distrust of the perceived progressivism of corporate America. “I think monopoly can be as dangerous in many ways as big government,” Ferguson stated. This distrust becomes particularly acute with respect to the tech sector, whose history of stifling non-liberal speech has rightfully angered many conservatives. Indeed, Trump FTC and DOJ have elected to continue outstanding cases against Big Tech companies, including Amazon, Apple, Google (twice), and Meta.

Attempting to tie content moderation (in some cases) to market power, the FTC in February began an inquiry into “tech censorship.” But this inquiry, in seeking to micromanage the content moderation of private platforms, defies clear Supreme Court precedents affirming a First Amendment right to editorial discretion for online platforms. The FTC’s case against Meta, Ferguson said, “is about addressing the power of Meta and making sure that the situation we had in 2020 can never arise again.” Likewise, Trump’s antitrust chief at the DOJ, Gail Slater recently defended the case against Google Search partially on speech grounds, saying, “You know what is dangerous? The threat Google presents to our freedom of speech.” 

Antitrust is a narrow tool designed to serve a narrow economic function, not to promote conservative speech or to wage a broader culture war. To safeguard free speech online, conservatives ought to begin by ending all attempts to influence private platforms’ content policies. Biden’s jawboning of social media should be succeeded by restraint, not by Trumpian jawboning or quixotic bids to shatter disfavored companies. Already, the market has begun to reshape itself after the censorial excesses of recent years. Notably, Elon Musk purchased Twitter, and in January, Meta overhauled its content-moderation policies.

Calvin Coolidge’s maxim, “If you see 10 troubles coming down the road, you can be sure 9 will go in the ditch and you have only one to battle with,” should guide antitrust enforcers. Market churn and creative destruction generally demonstrate the myopia of panicked assumptions that some firm has secured an unshakable market share or has gained too much power to be left alone. Running up the road to take the offensive against every far-off trouble cannot but damage the economy. Technocrats — whether of the right or of the left — cannot know enough, or foresee well enough, to plan an economy. Worse, doing so erodes the economic freedoms and property rights embedded in the American philosophy of justice and government. 

For Trump’s antitrusters, it is, indeed, a time for choosing.

Xi Jinping China’s long standing and presumably long-term leader, well known for his use of political purges to centralize power, and ensure his ongoing position within the Chinese Leadership.  In each of his previous terms he has launched at least one major campaign that has radically changed the make-up of China’s political establishment. Recently, The Economist reported that another removal of senior key officials, this time in the military is underway. This purge likely includes General He Weidong, one of two vice-chairmen of the Central Military Commission, who had been rapidly elevated by Xi, and was viewed as an increasingly important figure in the PLA.  His seeming removal comes after key defence ministry officials Wei Fenghe and Li Shangfu were removed with little explanation last year.  A key theme of Xi’s purges is that they serve a dual purpose. There is strong evidence that they remove truly corrupt individuals but also provide cover for eliminating political rivals in the process. Xi loyalists now dominate virtually every segment of Chinese public life and many of his hand-picked comrades are the ones being targeted in the latest round of ousters. 

The Chinese Communist Party (CCP) is notoriously opaque, but one thing is abundantly clear: Xi’s most recent round of purges, especially at this stage in his political career, show that China’s strongman leader views his position as potentially insecure where rivals, even seemingly loyal ones become increasingly problematic. On the one hand, these purges likely signal that Xi believes that the People’s Liberation Army (PLA) must be reformed, and strong evidence suggests that some of those displaced are being removed for just that reason. However, it is likely that many of the high profile officers being targeted are for political reasons, including Xi’s broader policy failures. Targeting them serves to remind the military if it were to be called on to shore up his political legitimacy, what he expects. 

The PLA’s Role in Politics 

The role of the Chinese military varies substantially from the role armed forces play in a Western style democracy. In countries like the US, the military operates as a function of the executive branch of government and reports to elected civilian leadership. However, in China, and in most, if not all Communist regimes, the military is an arm of the Communist Party and its loyalties belong to the Party, not necessarily the Chinese state. PLA soldiers spend much of their time reading political theory and taking loyalty oaths all the while high-level decisions are supervised by Party Commissars. 

The reasons for this dynamic are inherent to the revolutionary origins of the People’s Republic of China, and the nature of the CCP as being the all encompassing arm of power. As a result, in addition to the traditional role of a military, protecting the country, and advancing foreign policy goals, the PLA’s core mission also involves ensuring the CCP’s continued hold on power. As a result, leadership in the PLA is contingent upon Party loyalty and until recently, the leadership in the Party was often composed of top military leaders. Over time, however, the presence of large numbers of military officials in political leadership has declined, as the CCP has shifted away from a revolutionary movement to one that must govern rather than engage in perpetual revolution. As a result, more traditional civilian elites have emerged as the primary leaders of the Party. 

Placing Xi’s Purge in Context 

After over a decade in power and consistent purges, Xi has likely removed most of the political rivals that held power prior to his term. In late 2022, Xi achieved complete political centralization by pushing out all dissenting voices in China’s top governing bodies, the Politburo, and the Politburo Standing Committee, and replacing them with staunch loyalists. The most recent purges have been of party leaders who are Xi’s personal appointments but who have built their own power bases. 

Guoguang Wu, Senior Fellow at the Asia Society Policy Institute, provides an insightful explanation for this seemingly strange behavior. Wu compares Xi’s conduct to Joseph Stalin, who famously ran continuous purges throughout his tenure as leader of the Soviet Union. These purges enforced discipline and kept political leadership in line, especially after major policy failures, such as the use of forced agriculture collectivization that subsequently led to a massive famine, all while ensuring alternate power centers did not develop.

Although the PLA has certainly been plagued by corruption scandals, the most recent round of purges likely serve a dual purpose, both anti corruption as well as enforcing political discipline in the face of numerous challenges confronting the CCP’s hold on power. The Chinese economy has been facing significant headwinds with annual GDP growth below expectations and the recent round of American tariffs have exacerbated those headwinds and we see greater social unrest as a result. Xi has recently suffered a number of major policy failures, including the near collapse of the Chinese housing market, the disaster of his Zero-Covid response to the pandemic, and his chaotic attempt to reign in large tech firms with aggressive law enforcement during his “Common Prosperity” campaign. These policies have not only failed in reaching their objectives but harmed the credibility of the Chinese government to deliver competent solutions, and placed Xi in a more vulnerable position.

Xi likely targeted the military, not just officials in the departments directly responsible for these initiatives, because it is an essential tool to remaining in power if he were ever directly challenged. Furthermore, removing particular officials who were directly responsible for these policies would be an admission of failure by Xi, and further undermine his credibility. Indeed, some of the top proponents of his Zero Covid policy, such as the mayor of Shanghai, Li Qiang, who famously shut down a city of over 30 million people, were elevated to the highest levels of political leadership as a reward. Instead removing top military officials creates an air of fear within the broader party ranks to dissuade dissent without implying to backtrack on a particular policy. 

Given the nature of Xi’s military purge and the growing challenges facing China from slowing economic growth, geopolitical rebalancing, demographic decline, and the limitations of the Chinese political model, one should expect the purges like this to continue long into the future. Unless Xi’s grand schemes, such as his moonshot-style industrial policy agendas, succeed, one can expect the CCP general secretary to consistently resort to mass sackings to maintain his hold on power and order within the CCP. If this trend is not mitigated, one could expect the entire Chinese political and bureaucratic apparatus to be turned into anxious yes-men, drastically limiting Xi’s access to impartial opinions and competent subordinates.

Tariffs are economic policy tools employed for all kinds of purposes. They have been used to raise revenue, to shield domestic firms from foreign competition, as a negotiating tactic against other nations, and as a means of imposing economic sanctions. In certain situations, even the threat of tariffs is enough to impel other nations to change course.

But what are tariffs, and how are they determined? In this Explainer, we’ll seek to understand what tariffs are, who gets to set them, and under what conditions. We’ll also dive into some real-world examples of efforts to shape and guide policymakers toward tariffs for some sectors and away from others.

What Are Tariffs and Who Pays Them?

At their base, tariffs are taxes on imported goods. The wording of the definition matters here: they are taxes on imported goods. Since other countries do not import goods into the United States (they export them to the United States) and it is the US citizens who do the actual importing, the legal incidence of tariffs is paid by Americans who are purchasing the foreign-produced goods.

When thinking about imports, most envision what economists refer to as final goods, purchased by an “end consumer.” We might think of iPhones, laptop computers, fully assembled cars, fruits and vegetables, garments, and a litany of other goods. Fewer people realize that the US also imports many “intermediate goods” — such as automotive components, semiconductors, lumber, and fabricated metal parts — that go into the (domestic) production of final goods. We also import raw materials like rare earth minerals, oil/petroleum, iron, aluminum, and such. Tariffs apply to these, too, unless otherwise exempted.

Even though US citizens bear the cost of these tariffs, it is important to distinguish between what we call the legal incidence of a tariff and the economic incidence of a tariff. It is true that US citizens bear 100 percent of the legal incidence of the tariff because we are the ones who must actually send the money to the government. The economic incidence, however, refers to the share of the tax that is paid by the buyers and sellers. Whenever there is a tax, the buyers will pay some portion of it in the form of higher prices. Sellers will also pay some portion of the tax in the form of reduced revenue kept.

For example, in 2009, President Barack Obama imposed a tariff on Chinese tires. The result of this was a 21.7 percent increase in the price of tires in the US, which was less than the tariff rates of 35 percent, 30 percent, and 25 percent. The sellers of the tires made up the difference in the sense that they got to keep fewer dollars after the sale of the tire than they did when there was no tariff.

How Tariffs Are Set: Non-Emergency Situations

Because tariffs are a tax, they are explicitly within the purview of the US Congress, as expressed in Article I, Section 8 of the Constitution, which grants Congress the power to “regulate Commerce with foreign Nations,” and the power to “lay and collect Taxes, Duties, Imposts and Excises.”

This is the constitutional basis by which the House Ways and Means Committee exercises original jurisdiction over tariffs. Here, “original jurisdiction” simply means that all bills pertaining to tariffs must originate in the House Ways and Means Committee. Other Congressional committees can have secondary jurisdiction over a bill dealing with tariffs. A change to the tariff rate on energy imports, for example, would originate in the House Ways and Means Committee but would likely then be referred to the House Committee on Energy and Commerce. The House Parliamentarian, in his advisory role to the House, would assist the Speaker in designating the path a proposed bill would navigate before reaching the floor for a vote.

The Speaker of the House, as the House’s Presiding Officer, has unilateral discretion to accept the House Parliamentarian’s advice or to ignore it. The only exceptions to this lie in situations where the Constitution itself dictates a certain legislative path a bill must traverse. All bills dealing with taxes (and tariffs), for example, must originate in the House Ways and Means Committee. No Speaker can override this rule.

From there, the proposed tariff bill would follow the standard process for any other bill. It must be approved by a majority of the House at which point it goes over to the Senate for approval and, once both Chambers have passed identical versions of the bill, it goes to the President for final approval.

All of this is the standard, or what we may call “normal” or “non-emergency” process, by which tariffs are set or changed.

How Tariffs Are Set: Emergency Situations

Congress was originally constituted as a “deliberative body” and intentionally designed to move slowly (see the Federalist Papers, especially numbers 41-43, 47-49, 51-53, and 62-66). In times of war or crisis, however, action may need to be taken more quickly than Congress can act. For this reason, it turned to the Executive branch. Because the President is elected by the nation as a whole, Congress expected the President could wield the power of tariffs judiciously and, more importantly, expeditiously in situations of genuine emergency.

Congress subsequently passed a series of laws which, under certain conditions, would grant the President “emergency powers” in areas that would typically be within the constitutional purview of Congress. Examples of this include the Trade Act of 1962 (President Donald Trump used Section 232 to impose tariffs in 2018) and Sections 201 and 301 of the Trade Act of 1974 (President George W. Bush relied on Sections 201 and 301 to impose steel tariffs in 2002, and President Obama invoked Section 421 to justify tariffs on Chinese tires). Numerous Supreme Court cases have upheld Congress’s authority to cede some of its power to the President.

Marshall Field & Co. v. Clark, for example, saw the Court uphold the Tariff Act of 1890, which directed the President to suspend duty-free importation of sugar, molasses, coffee, tea, and hides if the President believed that “any country producing and exporting [those products], imposes duties or other exactions upon the agricultural or other products of the United States, which… he may deem to be reciprocally unequal and unreasonable.”

In JW Hampton, Jr & Co. v. United States, the Supreme Court upheld the Tariff Act of 1922, which required the President “to increase or decrease tariff rates as necessary to ‘equalize . . . differences in costs of production’ between articles produced in the United States and ‘like or similar’ articles produced in foreign countries.”

The International Emergency Economic Powers Act

In 1977, Congress passed the International Emergency Economic Powers Act (IEEPA),  allowing the President to regulate a wide swath of economic transactions after declaring a state of national emergency. The IEEPA was an offshoot of the 1917 Trading with the Enemy Act, which gave the President the power to impose economic sanctions on enemy nations during wartime.

As the Congressional Research Service notes, the IEEPA gives the President the authority to “‘regulate’ a variety of international economic transactions, including imports. Whether ‘regulate’ includes the power to impose a tariff, and the scale and scope of what tariffs might be authorized under the statute, are open questions as no President has previously used IEEPA to impose tariffs,” (emphasis added). The report is quick to point out that President Richard Nixon used the Trading with the Enemy Act “to impose a 10 percent tariff on all imports into the United States in response to a monetary crisis,” which does engender some amount of a precedent for this type of activity.

Declaring a national emergency is straightforward. Between 1917 and 2025, a total of 90 national emergencies were declared, an average of once every 14 months. The National Emergencies Act (1976) requires that the President articulate that there exists an unusual and extraordinary threat, that he or she notify Congress immediately, and publish such a declaration in the Federal Register. Once that is done, a national emergency is officially declared and the authorities and powers of the IEEPA are “unlocked.” Dozens of these emergencies are still in effect today, with some dating back decades.

While scholars have contended that giving power over tariffs in situations of a national emergency has effectively nullified “the distinction between Congress’s constitutional power over tariffs and foreign commerce and the President’s national security and foreign affairs powers,” courts have traditionally sided with the President.

In Al Haramain Islamic Foundation, Inc v. US Dept of Treasury, the Court of Appeals for the Ninth Circuit said that they “owe unique deference to the executive branch’s determination that we face ‘an unusual and extraordinary threat to the national security’ of the United States.” In US v Groos, the Court of Appeals for the Tenth Circuit wrote that justices “cannot question the President’s political decision to deem this threat ‘unusual and extraordinary.’”

What these court cases establish is that 1) Congress has the power to delegate its authority to the President and that 2) the President is uniquely situated to understand whether a situation qualifies as a “national emergency.” Part of this is no doubt due to the simple fact that the President (presumably) has access to information that is privileged that the Court does not have. Because of that, the judicial branch trusts that Presidents will not abuse the IEEPA for political or procedural reasons. Another explanatory element, though, may be the Court’s hesitation to open Pandora’s box by hearing a challenge to a national emergency declaration. Once that box is open, the intent of the IEEPA would be effectively nullified as courts deliberate.

Beyond Procedure: How the Tariff Sausage Is Made

While this procedural explanation covers how a new tariff can be enacted, we must also consider where the idea for a new tariff comes from and what factors shape tariffs that are ultimately enacted.

Protected industries often gain from tariffs, which make the products and services of their foreign competitors more expensive, so industry actors will actively lobby policymakers to secure these powerful political favors. Requests for tariffs will often be couched in terms of “protecting critical industries,” or “necessary for national security,” and other such language. And while there is likely some degree of sincerity behind these statements, it would be foolish to assume that failing to tariff-protect every industry would result in the United States being unable to defend itself militarily.

Fortunately, policymakers actively soliciting cash payments in exchange for political outcomes is illegal in the United States. Directly bribing policymakers is similarly illegal under the Federal Election Campaign Act. Further, there are strict rules governing gifts for policymakers, making it difficult to blatantly offer a quid pro quo.

Less blatant corruption, however, is common. Promising campaign contributions, pledging endorsements or help with re-election, or casually mentioning that you might know of some highly-paid opportunities for a Congressperson after they leave office are not illegal activities. Savvy lobbying firms (and policymakers) can and often do find creative ways of arranging a sort of quid pro quo arrangement, regardless of stringent laws intended to prevent them.

Sugar tariffs, for example, protect domestic sugar producers by restricting imports and setting price floors, keeping US sugar prices artificially high — often double the world price. A small group of politically connected sugar growers and processors lobbies to maintain these tariffs. The result is a classic case of protectionist rent-seeking: concentrated gains for a few, who have not generated any additional value, and spread-out costs for many (including consumers and candy manufacturers).

Understanding Tariffs

The process of setting tariffs reflects a delicate balance of constitutional authority, wherein Congress holds unambiguous jurisdiction, and presidential powers during national emergencies and in his dealings with matters of foreign affairs. Examples such as the Obama tire tariffs through the use of the Trade Act of 1974 to Trump’s use of the Trade Act of 1962 to impose tariffs on steel and aluminum evidence how these emergency powers have been used by presidents in the past. Finally, acknowledging the role that lobbyists and special interest groups play in influencing and shaping tariff policy helps us understand the dynamics at play across both industry and government.

Understanding the procedural dynamics at play across the legislative branch, the executive branch, and industry equips both policymakers and citizens alike with the ability to critically examine tariffs in a way that not only allows for better, more informed discussions but also helps us keep the federal government in check. 

Understanding how tariffs are created, by whom, and for what purposes (both rhetorical and actual) is crucial to understanding their economic impact and political importance.

The latest Real Gross Domestic Product (GDP) release from the Bureau of Economic Analysis (BEA) shows a net decrease from Q4 2024. This net decrease “primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending…partly offset by increases in investment, consumer spending, and exports.”

The choice of phrasing can lead to some misunderstanding. Imports are subtracted from GDP as a matter of accounting, not because they hurt economic growth. Investment, consumption, and government spending already include imported goods so imports are subtracted from GDP calculations to avoid double counting.

Conversely, government spending is treated as a boon to economic growth while the cost of government spending is ignored. Government spending gets paid for through taxation, taking on debt, and/or printing money, all of which are a cost upon ordinary Americans.

It’s time our measures of economic growth reflect some hard truths: that government spending comes at a cost to our standard of living and that the economy grows despite government intervention, not because of it.

While the BEA publishes a measurement titled “Value Added by Private Industries (VAPI),” it does not get nearly as much attention as it deserves. The most recent data show that VAPI contributes to just under 89 percent of all economic growth. Despite this, GDP is still the more prominent metric, in part because the BEA treats government spending as a value added to the economy.

Last year, we examined GDP minus government spending, which we referred to as Gross Domestic Private Product (GDPP). Economist Murray Rothbard called this “Private Product Remaining.” Here are our latest findings.

This updated chart also shows the percentage of GDP made up by GDPP. Note that these percentages differ slightly from VAPI estimates. This is because VAPI includes private outputs that are purchased by government (i.e. a defense contractor) while GDPP treats those purchases as part of “Government Consumption and Gross Investment.”

A cursory glance at the BEA’s description of government assumes that all levels of government “contribute to the nation’s economy when they provide services to the public and when they invest in capital. They also provide social benefits, such as Social Security and Medicare, to households.”

The description also notes that the government gets its revenue taxes, transfers, and fines, as well as rent and royalties. It fails to mention, however, that government receipts come at a cost. That cost, what economists call opportunity cost, is the next-highest valued use of that money.

We can see this effect reflected in the BEA’s own data. When examining the growth of government and the private sector both before and after 2000 in our analysis published last year, government growth (both federal as well as state and local) outpaced that of the private sector. Below is an updated analysis of last year’s findings. Note that the same still holds true: Government outpaces the growth of the private sector, especially state and local governments.

Furthermore, we find that the private sector has grown 33 percent slower per year since the start of the new millennium. It is also important to remember that transfer payments, such as Social Security or unemployment insurance, are excluded from GDP estimates of government spending because those transfers are counted toward private spending.

As many Americans filed their income taxes earlier this year, their W-2 forms highlight how much money they hand over to the federal, state, and local governments. When they look at those amounts, they may be shocked to see how much was withheld and consider what they would have otherwise done with that money. Maybe it would be put toward groceries and gas, maybe it would be put toward car repairs or medical treatments, or maybe it would be set aside for a rainy day.

The same could be said for the government taking on debt. When any level of government issues debt, it takes private capital away from other projects in which private investors might have otherwise invested or provided financing for. Debt-financed spending also shifts tax burdens from the present to the future. While bond investors trust that their loans will be paid back with interest, future generations will bear the cost of government spending undertaken today.

Let’s not forget printing money. If the federal government finances spending with newly printed money, the resulting inflation destroys the purchasing power of the dollar, making everyday goods and services more expensive.

State and local governments also heavily rely on transfers from the federal government. These transfer payments allow policymakers at the state and local level to increase spending at the cost of federal taxpayers who live in other states.

Whether or not the benefits of government spending outweigh the costs is a debate worth having, but official metrics must more clearly communicate that government is a cost in the first place.

Consider Social Security payroll taxes, which the BEA claims, “employer and employee contributions to government social insurance.” If these contributions are not made, however, employers and employees could face penalties—including jail time. The sad truth is that employers and employees could have earned a better return on investment if they had put their payroll tax money in the S&P 500 instead of the required Social Security tax.

A recent review of the academic literature on government stimulus in the economy finds that government stimulus makes, at best, modest, short-term contributions to economic activity.  In the long-term, however, the review finds that government stimulus effects “often diminish or turn negative due to reduced private investment and consumption, emphasizing the role of anticipatory effects and private-sector responses.”

Economists, both past and present, have argued that calculating government contributions to the economy is more complicated than official GDP calculations claim. Economist Patrick Newman notes Nobel Prize-Winning Economist Simon Kuznets’s own objections that government was treated as “an ultimate consumer” on par with private consumers regardless of whether private citizens valued government consumption and investment. Newman takes Kuznets’s concerns further and argues that such positive treatment of government in economic growth calculations opened the door to the flawed views of Modern Monetary Theory.

Alternatively, economists Vincent Geloso and Chandler S. Reilly examine government consumption and investment minus defense spending, called “Defense-Adjusted National Accounts”. The result is a much lower level of GDP, but the clear lesson “that wars do not improve living standards.” These challenges to the status quo of economic growth calculations help, in the words of Geloso and Reilly, “bridge the gap between official economic data and the perceptions of the American public.”

If the average American can see the opportunity cost of the money the government takes from them, there’s no reason the economics profession or government officials cannot reflect and communicate those costs in economic growth measurements as well.

On January 1, 1993, the European Single Market came into being. The previous October, British Prime Minister John Major had looked forward to “a single European market of 330 million people…A market for British computers. British cars. British televisions. British textiles. British services. British skills. The biggest free trade area in the world.” 

By eliminating trade barriers within the European Economic Community, the Single Market would boost trade, economic growth, and, perhaps, political integration. These hopes have not been borne out. 

A report from the International Monetary Fund (IMF) in October found that while intra–European Union trade in goods increased from 11 percent to 24 percent of the European Union’s Gross Domestic Product between 1993 and 2023 compared to 8 percent to 15 percent for extra–European Union trade, intra–European Union trade in services — which account for 72 percent of the EU’s GDP — had grown at exactly the same rate as extra–European Union trade. Indeed, trade between EU countries is less than half that between US states. 

What accounts for this? As Luis Garicano, a former member of the European Parliament, notes in “The myth of the single market,” “The IMF puts the hidden cost of trading goods inside the EU at the equivalent of a 45 percent tariff. For services the figure climbs to 110 percent, higher than Trump’s ‘Liberation day’” tariffs on Chinese imports.” 

“The Single Market we all thought we have is largely a myth,” concludes Garicano, who gives three reasons for the Single Market’s failure.  

First, the principle of “mutual recognition,” which “states that whatever can be sold legally in one EU country can be sold in all others,” “fails in practice,” he writes. The principle “was never absolute,” he continues:

The EU’s treaties…do allow countries to block products for legitimate reasons like public health, security, or environmental protection. But these exceptions were supposed to be just that — exceptions, not the rule. The problem is the cost of enforcing the rule when a country claims an exception.

Among several examples:

Every product sold to French consumers must bear the national “Triman” recycling logo plus detailed sorting instructions specific to France. AkzoNobel’s paint cans fully meet EU chemicals and food-contact rules, but a single paint tin still has to carry France’s Triman recycling logo, Spain’s “Punto Verde,” and Italy’s alphanumeric material code. Space on a 1-liter tin is so tight that the firm now holds separate stocks for France, Spain, and Italy.

Second, “The EU directives do not harmonize EU legislation.” 

“There are two problems,” Garicano writes:

…first, rather than replacing national regulations, EU rules pile on top of them. Second, member states often engage in ‘gold plating’ – adding extra national requirements when implementing EU directives.

The result is that even when the EU does create common rules (directives or regulations aiming to harmonize), the outcome is often not a truly single market. New EU rules often don’t replace old national ones. Instead, they create additional layers of regulation.

As an example, he offers General Data Protection Regulation:

…which (in spite of being a regulation) still means we have regulators at EU, national and regional level. In January 2022, Austria’s data-protection authority held that NetDoktor’s use of Google Analytics breached the GDPR, and ordered the site to disable the tool or face fines. A few weeks later, the French data protection authority (CNIL) issued parallel decisions against three French websites, again declaring Google Analytics unlawful and instructing each operator to switch to an EU-hosted alternative. In June 2022, Italy’s authority (Garante) imposed the same ban on Caffeina Media, threatening to suspend its data flows to the United States unless it rewired its analytics stack within ninety days. A publisher that trades across the EU must now keep separate analytics setups for Austria, France, and Italy, while the same tool remains legal elsewhere. The Draghi report notes that there are around 90 tech-focused laws and more than 270 regulators active in digital networks across all EU countries. So much for the single market!

Finally, “The EU Commission is not doing its job in enforcing the Single Market.” “[E]xplicitly charged with ensuring the application of the Treaties,” Garicano writes, in the twelve months to December 2024, “the Commission opened just 173 new cases – only a quarter of the volume handled a decade ago.”

“There’s a paradoxical evolution in the Commission’s role,” he notes, “As it has taken on additional functions in areas like housing, defense, and geopolitics (the first von der Leyen Commission termed itself a “geopolitical commission”), it has retreated from its core task of policing the single market.”

An optimist might infer that the problem here is not too much EU but too little: the Single Market hasn’t delivered on its promises because it isn’t sufficiently “single.” A pessimist might note that if this hasn’t happened in more than three decades, it is unlikely to begin anytime soon. Yet another hefty report or review is unlikely to get the needle moving.  

This is bad news for John Major’s successor, Kier Starmer. With his government faltering less than a year into office, he has sought a new deal with the EU to improve Britain’s terms of access to the Single Market.

But services account for a relatively high 54 percent of British exports compared to 33 percent for the United States and just 31 percent for the EU, and this is exactly the sector in which the Single Market is most completely a fiction. This probably accounts for the British economy’s stubborn refusal to collapse in the wake of Brexit: whatever small benefit there is to being locked into a Single Market with a bunch of torpid economies is reduced still further when there are high barriers to you selling your main export to them — barriers that don’t appear to be going anywhere anytime soon.

If Starmer is hoping that his new terms of access to the “biggest free trade area in the world” will offset the economic harm done by his government’s disastrous fiscal policies, he is likely to be mistaken. It’s a myth.

The House of Representatives narrowly passed the One Big Beautiful Bill Act (HR 119) in dramatic fashion (215-214) last month. Most of the drama was on the Republican side. The House Freedom Caucus favored preserving the 2017 tax cuts but only if there were sufficient budget cuts to pay for it. 

A central sticking point was Medicaid, both in terms of rules and in terms of funding. In the end, the cuts were larger than almost anyone expected, $880 billion over the next 10 years, and all but three House Freedom Caucus members voted yes. Every Democrat voted no.

The Obamacare “expansion” changed the original mission of Medicaid, which was to ensure the working poor and disabled didn’t end up without healthcare insurance. Medicaid had been, up until the Affordable Care Act of 2010, the default form of insurance for anyone who was poor or unable to work. Since then, even the young and perfectly able-bodied can qualify for Medicaid. Adding millions of newly eligible enrollees burned through money that could have been put toward elements of Medicaid’s original mission, things like investing in prenatal care for poor women.

Medicaid’s budget woes worsened with the onset of COVID-19. Spending increased even more rapidly, in part from the absence of normal coverage interruptions that were eliminated during COVID’s continuous enrollment provisions. At the same time, an aging population has led to rapidly rising long-term care costs among the poor elderly. Finally, a Byzantine system of below-market mandated reimbursement rates at the state level has become increasingly onerous to save money, especially in states with ballooning rolls like California, where Medicaid has been opened up to illegal aliens. Below-market mandated rates have caused price-shifting distortions to accumulate, and make the entire healthcare system less efficient.

Medicaid is an outstanding example of how not to structure a government program. Its daunting complexity results in people frequently migrating into and out of the program (this is especially problematic for programs that provide some kind of insurance because of adverse selection problems). Because it is fundamentally a government bureaucracy, problem-solving is mostly through top-down edicts or acts of Congress. In contrast, in many parts of American society entrepreneurs continuously adapt, adjust, and innovate to deal with new problems and to take advantage of new opportunities to improve service, reduce costs, or both.

The bill now faces an uncertain future in the Senate. Changes to Medicaid are going to produce a political backlash, even in some red states, since there will be political pressure for state governments to pick up the slack. But most importantly, a very large and dysfunctional system will remain intact and dysfunctional.

The problem with Medicaid goes far beyond Medicaid. In a rich society like ours, everyone is going to get a fair amount of healthcare one way or another. We are empathetic, sympathetic, interconnected, and rich, so most of us feel compelled to do something to help the uninsured and those without access to care. If a person is writhing in pain because he can’t get healthcare, most likely neither you nor anyone you know personally would just step over him without concern.

This is the real problem: healthcare in America has effectively become a non-excludable good. A non-excludable good is one we cannot keep others from consuming (e.g., national defense). Long ago, economists worked out why such goods are inevitably underprovided by the private market because of free riding. Since virtually everyone is going to get at least some healthcare when they need it, some take advantage of that by not buying their own health insurance.

Among the many economic challenges specific to healthcare markets, economists of all political stripes agree that this is the deepest problem. Recall that perhaps the biggest bone of contention with Obamacare was the individual mandate, put into the bill specifically to address the free rider problem. Many opposed the individual mandate for a variety of reasons, but did not challenge its premise, which was that there was a deep free rider problem to be dealt with in American healthcare.

The bold — but probably politically impossible — course of action would have been for House Republicans to eliminate the federal role in Medicaid. But if they are not going to return this issue, and its financing, to the states, then rather than further tweaking Medicaid and creating new problems, a better approach would be to find an alternative path to get government out of the business of healthcare for the poor. In short: provide basic healthcare insurance through vouchers. 

To put it simply, eliminate Obamacare, Medicare, and Medicaid and replace them with a national healthcare voucher system. This transformative change for American healthcare could be limited to the level paid for with a national sales tax, and our unfunded liability problems would simply disappear. While, for practical reasons, this would likely have to start at the national level, the goal could be to then spin it off to the states. 

Milton Friedman introduced the idea of using vouchers with respect to education 70 years ago. His ideas were summarily rejected as too naïve, too impractical, and even as irresponsible. Now we are in the midst of an explosion of school choice across the nation. How much better off would we be if we had listened to him long ago?

Friedman did not advocate using a voucher system for healthcare insurance. While his diagnosis of the problems confronting the American healthcare system was unimpeachable, he did not explicitly consider the problem of de facto non-excludability. Since this induces some citizens to save money by not buying healthcare insurance, it guarantees there will always be uninsured citizens. That, in turn, ultimately guarantees some level of government provision of either healthcare or healthcare insurance.

I believe that if he were alive today, Friedman would support vouchers for healthcare insurance. Vouchers provide the government with a means of funding a solution without having the government be the mechanism that provides the solution. As such, it mostly avoids the ever-growing creeping bureaucracies that suppress competition and introduce innumerable distortions and never-ending political opportunism.

We can eliminate Medicaid, Medicare, and Obamacare by implementing a national voucher program for healthcare insurance for all citizens. By structuring the budget process to be self-balancing, we can ensure future generations are no longer saddled with a combination of increasing debt they never agreed to and lower quality of service than those who were responsible for that debt were able to enjoy. 

Ever notice that when the topic is unfunded liabilities, Medicaid is rarely mentioned? Is that because Medicaid is on a healthy budget path? Hardly. Medicaid is not included in such conversations because Medicaid is not a self-funding program in the sense that it does not have its own dedicated payroll tax funding. At the federal level, it is funded out of the general budget.

If the federal budget were experiencing year-over-year surpluses, one could argue that it is not burdening future Americans because it is being cross-subsidized. But we are, in fact, experiencing year-over-year deficits, so any dollar the federal government spends on Medicaid is effectively a dollar of additional federal debt at the margin. Rising federal spending on Medicaid equals rising federal debt. 

Far from a principled stand or a change in national direction, the latest Republican budget does little more than kick the can down the road — to avoid the political cost of actually doing what is best for the country.

How much more dysfunction and irresponsibility are we going to tolerate so we can pretend that our healthcare system is only for the deserving? We should be honest about the fact that we do, and will continue to, treat everyone. This is nothing to apologize for but it’s something we need to come to grips with.

A voucher program would redirect government power to unleash market competition among healthcare insurers and among healthcare providers. They will hate it. The NEA’s response to school vouchers should tell you everything you need to know.