“My plan,” Donald Trump said earlier this year, “will rapidly defeat inflation, quickly bring down prices, and reignite explosive economic growth.”

The plan: tariffs. The rates vary depending on Trump’s mood, but they’re generally 10–20% on everything from overseas, and 50–60% on goods from China. He’s suggested replacing income taxes with tariffs on imports, and called tariff “the most beautiful word in the dictionary.” His transition team is led by tariff-pusher Howard Lutnick, head of trading firm Cantor Fitzgerald, who said recently, “Don’t tax our people. Make money instead. Put tariffs on China and make $400 billion.”

But will it? Most economists say no.

The problem is that tariffs don’t work like that. Tariffs are levied on imports, which totaled $3.1 trillion in 2023. The income tax is levied on incomes, which exceed $20 trillion. The Treasury raises about $2 trillion in individual and corporate income taxes. Tariffs can’t replace income tax, said Simon Johnson, a co-winner of this year’s Nobel Prize in economics. “It’s a matter of simple arithmetic.”

Tariffs are effectively a sales tax on the U.S. consumer. The National Retail Federation says that American consumers would lose $46 billion to $78 billion in spending power each year if Trump’s import tariffs are put in place. “Retailers rely heavily on imported products and manufacturing components so that they can offer their customers a variety of products at affordable prices,” said Jonathan Gold, the Federation’s vice president of supply chain and customs policy. “A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter. This tax ultimately comes out of consumers’ pockets through higher prices.”

Here’s how that tariff arithmetic works: If a Chinese carmaker can produce and ship his car to the U.S. for $8,000, and sell it at $10,000, he pockets $2,000 in profits. Meanwhile, a U.S. carmaker spends $9,500 to get his car to market, pocketing a measly $500. A 50% tariff will add $4,000 to the Chinese company’s cost, so he’ll have to add $4,000 to his price. That means to make a $1,000 profit, he’ll have to raise his price to $13,000, because he’s not going to take a $2,000 loss on each car. After all, he’s a capitalist. The American carmaker looks at this and says to himself, “Ah, the new market price is $13,000.” So as a smart capitalist, he prices his car at $12,500 to win market share and pockets a profit of $3,000. The U.S. carmaker gets richer, the Chinese carmaker still makes a profit, and the U.S. consumer just saw the price of a new car shoot up by 25%.

In the world of big business, we call that “inflation.” It is not popular with voters.

A recent study by Yale University’s Budget Lab found that Trump’s tariffs would cost the average American family as much as $7,600 a year, and a study by the Federal Reserve found that the Trump tariffs left in place by the Biden Administration already cost American households about $1,200 a year.

Even farmers hate tariffs. The last time Trump slapped tariffs on China, China slapped tariffs on U.S. imports and started sourcing its soybeans elsewhere. That’s business U.S. farmers have not recouped. “The prospect of additional tariffs doesn’t sound good,” a Pennsylvania corn and soybean farmer named Leslie Bowman told the New York Times. “The idea of tariffs is to protect U.S. industries, but for the agricultural industry, it’s going to hurt.”

Then there are the taxes: Trump has said he wants to cut corporate income tax to 15% from the current 21% (he cut it from 28% in his first term). But economists point to the history of every single tax cut in U.S. history and note that many U.S. corporations shelter their income through various legal tax dodges and don’t pay anything like the headline rates (and never have). A recent study by the Institute for Taxation and Economic Policy found that America’s largest, consistently profitable corporations saw their effective tax rates fall from an average of 22% to an average of 12.8% after the Trump tax cut took effect in 2018. The study showed that the 296 largest consistently profitable U.S. corporations paid $240 billion less in taxes from 2018 to 2021 than if they had continued to pay the effective rates they’d paid before the Trump tax law. That’s money that’s not going into Medicare, Social Security, defense spending, paying down the national debt or building a border wall (the one Mexico still owes us for).

The Committee for a Responsible Federal Budget calculated recently that Trump’s plan, by reducing taxes but not cutting spending to match, would add a whopping $7.75 trillion to the national debt by 2035 (Kamala Harris’ plan would have added about $3.7 trillion). And most of the cuts flow to the wealthiest individuals and corporations. Many of the largest and most well-known corporations in the country—including Walmart, Verizon, Disney, and Meta—had the largest tax reductions after the Trump tax law went into effect.

What else happened the last time there was a tax cut? Stock prices surged (the Dow already gained 3.5% percent from Tuesday night to Thursday morning), making people who own stocks that much richer, but those tax savings did not translate into higher wages, new jobs, or more investment. They were used for share buybacks and high-priced buyouts of competitors, making option-holding executives and other shareholders richer, and reducing competition and its effect on lowering prices.

Then there’s the crypto world, which spent more than $130 million supporting Trump and other Republicans. Bitcoin led the way to a new high, breaking $75,000, and other cryptocurrencies are expected to surge as Trump-appointed regulators are expected to ease controls on the digital tokens. But that ignores crypto’s fundamental flaw: It’s not based on anything real—not gold, hard currency reserves, and not the strength of a national economy, and about the only thing you can buy with it is a Tesla. (Sorry, Bitcoin stans—Elon only takes Dogecoin.) While a digital currency may yet come into existence, it’s likely to be backed by hard assets or a strong national economy, as the U.S. dollar is.

One potential beneficiary is the news media, especially on the left. From for-profit media that saw their subscription bases boom in the first Trump Administration to do-gooder websites like ProPublica and National Public Radio, all are likely to see subscriptions and philanthropic funding rise from Americans who want the press to be a watchdog on Trump. Some $10.5 billion was spent on advertising for the 2024 election cycle, on races from president to local town councils, according to data compiled by the ad-tracking firm AdImpact.

Watch Big Business This Week on Cheddar—and YouTube!Elon’s World

Is it payback time? Musk also wants the Donald to hire several top employees of SpaceX into the new administration, including at the Pentagon, The New York Times reported. Musk’s companies receive a lot of help from the federal government, from rocket-launching contracts to Tesla’s carbon-trading arm, which relies on emissions credits established by the federal government. • Tesla’s share price is up about 18% since Tuesday, although it’s not clear how Trump’s promised China tariffs would help the electric car company, which gets many of its parts from China, and could be shut out of the lucrative Chinese market if a tit-for-tat trade war ensues. • Elon’s mom, Maye Musk, ripped into a New York Times reporter who she said is writing an article that may be critical of her son, and bizarrely mentioned the reporter’s ethnic origin, setting off a minor tweetstorm. • You know those $1 million checks Elon was giving away to random voters who signed a petition in support of gun rights and free speech? Guess what: The winners were not random at all! That’s what Musk attorney Chris Gober told a Philadelphia judge while arguing that Musk wasn’t conducting an illegal lottery. “The $1 million recipients are not chosen by chance,” Gober said. “We know exactly who will be announced as the $1 million recipient today and tomorrow.” • All those Twitter execs Musk fired when he took over the company may get their severance pay after all. A federal judge in San Francisco ruled that Musk must face claims from four former execs whose contracts said they’d get severance pay if Twitter was no longer a public company. If paid in full, the execs could be entitled to payments totaling about $200 million, according to Courthouse News. That’s gotta sting, because the execs claim they’re owed a year’s salary plus stock awards based not on Twitter’s current valuation (about $9 billion) but on its acquisition price: $44 billion. • That recent X campaign to get users to submit their X-rays to Grok, so the AI bot could learn to spot a malignancy? It didn’t quite go as planned, according to trade pub Diagnostic Imaging, which found radiologists were dissing the bot. Apparently Grok couldn’t even tell it was looking at a female breast in one image. When corrected, the magazine reported, “it failed to identify a big honkin’ malignancy within the breast.” AI may not replace radiologists for decades, the publication said.

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The Usual Suspects

• Trump Bump Slump: Trump Media & Technology Group Corp., the Truth Social parent that trades under the ticker symbol DJT, leapt from $32.80 at 5 p.m. Tuesday to $44.32 when trading opened Wednesday morning. But it must have bumped its head on the ceiling, because by Thursday morning it gave all that back and more, falling to $28.87. It may well be that once Trump has the White House podium, there won’t be much point to Truth Social. Grab your popcorn and catch the trend line on Google.
• Buffett’s Big Stash: The question on every investor’s mind: What Is Warren Watching? Warren Buffett’s trillion-dollar holding and investment company has been cashing out of Apple, and is now sitting on $325 billion in cash. Two years ago, Buffett called Apple one of the four giants of Berkshire’s portfolio, telling shareholders that “unless something dramatically happens that really changes capital allocation strategy, we will have Apple as our largest investment.” Now all eyes are on what Berkshire will do with all that cheddar.
• Is Boeing Back? Boeing’s 33,000 union machinists finally agreed to a company offer of a new contract on Monday, and are returning to work after a two-month walkout. But will that be enough to turn around the troubled plane maker? Probably not. “Resolution of the strike was low-hanging fruit,” Jonathan Root, a senior vice president for Moody’s Ratings, said in a statement on Tuesday. Boeing still has to pump up production of its workhorse 737, which has plummeted amid regulatory scrutiny after crashes in 2018 and 2019 and a door panel blowout in January. It will take time to gear up production and chip away at a 10-year waiting list. It’s also got to come up with a new plane: The 737 is based on a 60-year-old design. Then there’s the spinning off of part of its space portfolio (the two astronauts from that mishap-plagued Starliner spaceship are still playing cards in the International Space Station) and reeling in Kansas-based fuselage maker Spirit Aerospace. The strike cost Boeing alone $6.5 billion. Shares dipped several points, but are now about where they were before the strike settled.
• WWJD? At the Fed, all eyes were on Jerome Powell. The Fed met just days after Donald Trump won the presidency, to consider another rate cut. With inflation falling, it was a no-brainer—they cut rates by a quarter-point—but the shadow of Trump’s economic policies, which are likely to be highly inflationary, was hanging over the decision. Most observers say that with inflation for now at about 2.1% (the Fed’s target is 2-ish percent), another few quarter-point rate cuts are baked in for the next half a year. But even as the labor market is cooling, consumer spending has been strong.

The Short Stack

• Gaze Into This Crystal Ball: Palantir, the data analytics and defense contracting firm owned by PayPal co-founder Peter Thiel, reported a 30% jump in third-quarter revenue, and the stock is now up 235% for the year, on what the firm says is high demand for its AI software. That’s got Palantir trading at an astronomical 100 times earnings, well beyond the high end of 30x for top tech stocks benefiting from the AI boom, like Oracle and Microsoft. U.S. government contracts account for about 40% of its revenue. Thiel has been a major backer of Donald Trump, donating millions to his campaign, and was a key mentor and funder of VP-elect J.D. Vance.
• TGIB: If that atmosphere of forced jollity, oversweet cocktails, and overpriced potato skins and burgers made you sick of TGI Fridays years ago (the officially killed the apostrophe some time back), you may rejoice at the fact that the chain has filed for bankruptcy protection. That means they may still survive as the ultimate destination for a Bad Office Party. All 39 company-owned U.S. locations will remain open. Another 56 restaurants owned by franchisees are not part of the bankruptcy plan.
• Get It On, Ed Sheeran! A federal court has ruled that Sheeran did not infringe on the copyright of the Marvin Gaye 1973 classic “Let’s Get it On” when the tousle-haired guitarist wrote “Thinking Out Loud” in 2014. The New York appeals court affirmed that Gaye’s songwriting copyright in “Let’s Get It On” was limited to the bare-bones sheet music that the song’s publishers had deposited with the U.S. Copyright Office. Gaye’s recording itself, with its distinctive bass line, wasn’t protected.