Ben Harris’ remarks on one year of ‘America First’ trade policy

Good afternoon, everyone. My name is Ben Harris; I am the vice president and director of Economic Studies here at the Brookings Institution.

Thank you all for joining us in person and online for today’s event: “One year of ‘America First’ trade policy: What did we learn, and what comes next?”

I would like to start by thanking Kari Heerman, Brookings director of trade and economic statecraft, for organizing this timely event.

Today, we will hear from policymakers, economists, and private-sector experts who will examine the impacts of the Trump administration’s dramatic shift in trade policy.  I’ll note, too, that we invited multiple Trump administration officials to join us and share the administration’s perspective. Regrettably, none were able to accept the invitation. 

The focus of my remarks today—which are intended to help frame the panel discussion—is to address the question: Why is the U.S. economy continuing on a path of slow, but sustained expansion—when the White House and Congress are embracing an agenda contrary to the conventional wisdom of mainstream economists?

Put differently, over the course of the past year, we have seen a series of sweeping, unprecedented policy shocks that many would have expected to slow the economy, if not crash it. And yet, the unemployment rate is below 5%, GDP is expanding at a moderate pace, stock prices continue to rise, and inflation—while above the Fed’s 2% target—is far from the generational highs we saw in the wake of the pandemic.

What explains this “conundrum of 2025”?

Before exploring potential answers, let’s precisely define what has happened. I see four distinct policy shocks.

The first, and the topic of today’s event, is an unprecedented assault on free trade. The first Trump administration, in what at the time felt like an extremely aggressive trade posture, raised the average trade-weighted tariff from 1.5% to 2.8%. This included the use of traditional trade actions in untraditional ways—like applying steels tariffs in the name of national security on our closest allies.

In the second administration, we saw a sharp escalation in the level of tariffs, alongside a dramatic expansion in their scope and unpredictability—touching allies and adversaries alike while creating significant uncertainty for firms, including legal challenges to the president’s use of these authorities. Trump’s second term has looked nothing like the first, as the average tariff rate jumped from 2.4% on inauguration day to a high of 28% in April. This escalation in tariffs has been accompanied by increasingly antagonistic geopolitical actions, including the threatened invasion of Greenland just weeks ago.

The second shock is that the U.S. has sharply curtailed net immigration unlike anything we have seen in recent memory. Prior to the second Trump administration, the U.S. immigration system roughly met the needs of domestic labor demand through both legal and illegal immigration. In most years, net immigration totaled between 500,000 and 1.5 million. In 2025, however, net immigration fell off a cliff. Newly published research by Brookings scholars Wendy Edelberg and Tara Watson, in collaboration with AEI scholars, estimates that net immigration last year amounted to between negative 10,000 and negative 295,000 people—far below the 25-year median of 1.2 million.

The third major shock is the U.S. taking on trillions of debt outside of a recessionary or wartime period. According to calculations by the Urban-Brookings Tax Policy Center, the president’s One, Big, Beautiful Bill will raise the public debt by $4.2 trillion, or 9% of GDP, over the next decade. This legislation has been a key driver of rising primary deficits, which CBO now projects will average 2.1% over the 10-year budget window.

The final major shock has been the dismantling of Federal Reserve independence. This includes continued pressure from the White House to lower interest rates; the attempted firing of Governor Lisa Cook under dubious pretenses; the appointment of a Fed governor who remains the sitting chair of the Council of Economic Advisers; and perhaps most egregious, the criminal inquiry of Fed Chair Jay Powell—which former Fed chairs and current Brookings distinguished scholars Ben Bernanke and Janet Yellen called “an unprecedented attempt to use prosecutorial attacks to undermine [the Fed’s] independence.”

Any one of these shocks is significant, and collectively they are extraordinary. If you locked 100 economists in a room one year ago and informed them of these developments today, I suspect virtually all would project the U.S. economy would be stagnant at best and cratering at worst. What explains this conundrum?

I see four possible explanations, which I will address in turn.

One possible explanation is these shocks are not as large as we initially thought. On trade, a combination of evasion, transshipments, and delayed implementation could mean that the sharp rise in the average trade-weighted tariff—that I cited earlier—is overstated. Similarly, net immigration may be closer to zero than negative 300,000, with a muted impact as the labor market continues to soften. On Fed Independence, perhaps markets see the attacks on Powell and Cook as constrained by the composition of the Federal Open Market Committee (FOMC).

I see some merit to this explanation. Tariff collections have increased by less than $200 billion on the year—painful for U.S. consumers and businesses—but insufficient to upset a $30 trillion economy. To date, our trading partners have barely retaliated against our tariffs, which dampens their expected impact. And attacks on Fed independence have not yet translated into a monetary policy stance that markedly deviates from traditional frameworks.

A second possible explanation is that there are offsetting stimuli that counteract these negative shocks. The flipside to the $4 trillion in new debt owing to OBBBA is a meaningful rise in disposable income, with Goldman Sachs estimating a 0.4 percentage point bump in disposable income over the first half of 2026. Looser capital restrictions are likely be driving investment to a certain extent, and the AI boom comprised about 40% of GDP growth to date according to the St. Louis Fed. At the same time, the president’s trade frameworks have embedded large investment promises coupled with commitments to purchase more American products.

As with the first explanation, I see a hint of merit. The AI investment boom is real and has helped sustain growth. But, on the flipside, the tax refunds will benefit U.S. households in 2026 and probably do less to explain 2025 growth. The same is true for expanded access to capital.

The third candidate explanation is that our economic models are simply wrong. Is it possible the economics profession overstated the value of immigration, free trade, Fed independence, and a sustainable fiscal outlook?

I sincerely want to come to this possibility with humility. Indeed, I believe that this volatile episode in American policymaking will lead to a greater understanding of the U.S. economy.

I suspect one enduring lesson—learned both over the course of 2025 as well as during the pandemic—is that the size and diversity of the U.S. economy usually protects it from sharp downturns.

I also believe that this episode will help reinforce that these policy decisions are not necessarily “good” or “bad” in absolute terms but rather a series of tradeoffs to be precisely measured and identified.

In terms of open trade, the practical decision over trade liberalization was to grant millions of American households access to cheap goods, open up massive new markets for U.S. investment and exports, provide access to cheap capital for U.S. debt and entrepreneurs, and strengthen geopolitical alliances. But these benefits came at a cost, namely sacrificing economic autonomy, hurting select industries and communities through sharply increased competition, and foregoing an imperfect—but still significant—source of revenue in the form of tariff collections.

On the narrower question of whether economists were wrong about the near-term impacts of various shocks, it is simply too early to tell. After all, it has been just a few weeks since the Department of Justice announced its investigation of Chair Powell. It’s also important to note we have indeed seen a deterioration in the near-term economy. Since inauguration day, the headline unemployment rate has risen by 40 basis points, while a broader measure of labor demand known as the U-6 has jumped by 90 bps. Non-shelter inflation has risen by 20 basis points. Risk premia on Treasuries have risen by 30 basis points. By many metrics, we are a bit worse off now than we were a year ago.

This brings me to the final explanation for why the 2025 economy has not stagnated: that it simply takes some time for these shocks to move through the system.

This explanation is consistent with economic theory and evidence. The positive economic impact of immigration can take years to materialize—like the link between higher legal immigration and increased innovation. The Congressional Budget Office has established a causal link between government debt and crowd out of private capital, but it also found that this relationship often plays out over the long run. And Fed independence is not a goal for its own sake but rather how it translates into monetary policy decisions. The complexity of the FOMC’s composition means that it may take years until we see the full impact of political influence. And on tariffs, as we have heard from our western trading partners last week in Davos, only now have they begun to explore alternatives to the U.S. in terms of trade and investment decisions.

To sum up: 2025 was a year like no other. One measure of policy uncertainty—the St. Louis Fed’s Economic Policy Uncertainty Index—peaked at a reading of 460 after having never surpassed 250 outside of COVID. If nothing else, this past year has tested the limits of our understanding of the potential impacts of policymaking on the economy.

I outlined four possible explanations to the 2025 conundrum: Why haven’t simultaneous shocks—previously thought to be catastrophic—derailed the economy? I see four possible explanations: the shocks are not as large as some may think; offsetting stimuli compensate for the negative impact; prior understanding of the economy is misguided; and it will take time to realize the full impact of recent policy decisions. Ultimately, my conclusion is more pessimistic than I would hope for: If these policy shocks persist, their impact will likely be more damaging than what we have observed so far. I sincerely hope I am wrong.

As we transition to the panel, I’ll conclude by noting that this question deserves far more study. And here at the Brookings Institution, we will continue to do what we have always done: tackle the most pressing policy questions from a position of curiosity, integrity, and independence. And with that, I will turn it over to Kari.