The San Francisco Fed’s Tariff Model Punches Itself in the Face
San Francisco fed economists have simply accidentally confirmed Trump’s pricing policy
If you were trying to make the prices look like a political disaster, you would do exactly What team of economists at the Federal Reserve Bank of San Francisco has just done: Suppose that each commercial partner retaliates just as hard and that America stands there and takes it.
This is the configuration behind a new Economic letter of the regional bank, which warns against the drop in wages, higher unemployment and the narrowing of GDP following the new prices of Trump. But when you dig into the underlying model, history collapses. And the punchline? The model ends up maintaining prices“Take them.
A trade war in a round where the United States surrenders
The Fed of San Francisco The basic line supposes complete foreign reprisalsAs if Canada, Europe and China are all reacting dollar for the dollar to American prices. But that also presupposes zero American response. It is not only unrealistic – it is the opposite of the declared approach of the Trump administration.
In a recent letter to the European Union, Trump clearly said it: “If for any reason, you decide to increase your prices and to retaliate, then, whatever the number you choose to raise them will be added to the 30% that we will charge.” A version of this sentence came out with all the letters announcing prices that Trump sent last week.
In other words, Reprisals trigger climbing. However, the model of the Fed of San Francisco ignores it entirely. He plans a trade war in which America arrives first, then politely refuses to respond while its business partners accumulate.
It is A boxing match where a side launches a punch then agrees to stay motionAkimbo weapons, for the rest of the match. When the model says it does not end well, are we supposed to be surprised?
Quantify the worst case
Behind the Economic letter is a detailed working document written by Andrés Rodríguez-Clare de UC Berkeley, Mauricio Ulate from the Fed de San Fran and José P. Vasquez de la London School of Economics. While the Letter Underlines the result of the “worst case”, the paper itself is more balanced – if you know where to look for.
In the reference scenario – which presupposes complete foreign reprisals, no counterattrale of the United States and a steep price sunset after four years – the model estimates that Real income gives us about one percent. Real wages decrease slightly, especially in agriculture and services, while manufacturing employment increases during the price period, but drops sharply when the prices are lifted. Unemployment remains low during the pricing years, but turns out to be that the economy readjusts.
Participation in the active population also decreases, but not because people are pushed out of the workforce. Instead, some workers voluntarily leave the low -wage sectors to engage in home production – a replacement for Unpaid domestic work as breeding children or taking care of the family. The sectoral prices increase the most in agriculture, followed by services, with manufacturing, seeing more modest increases. Overall, well -being – defined as life consumption – indicates a little less than half a hundred.
These are the figures of titles that make Fed Economic letter Soundon Grave. But they fully revolve on a scenario where the United States imposes prices, absorbs reprisals without responding, then searches politics as it begins to produce a structural change.
It is not a forecast. It’s a fan fiction for free merchants.
The real model tells another story
The same model includes partial reprisal scenarios and without reprisals. In these, the impacts are considerably smaller. In the scenario without reprisals, the to fall Real income is only 0.5% over four years—The rounding errors in national accounts. Unemployment remains close to zero. Manufacturing jobs increase and remain high. Real wages are increasing in the negotiable sectors.
One of the most important admissions in the newspaper is that Prices can improve the terms of the American exchange—Seaning, we pay less for imports and get more value for what we export. Even if the document emphasizes that the prices introduce a certain ineffectiveness by disturbing global specialization, the document shows that in the low -reduced scenarios, this commercial advantage cancels more than the cost of efficiency.
In other words, Prices can make Americans richerEven if the global economy has become slightly less effective. It is a radical gap in relation to the usual free trade dogma.
It should also be noted that loss of efficiency is itself based on an indefensible hypothesis that the current distribution of production is itself effective. This is a fairly common error in trade discussions. Economists ignore all distortions of global manufacturing caused by mercantilist policies From China, EU and dozens of other nations, assuming that products are currently manufactured when effective markets have decided that they should be due to a comparative specialization.
In reality, Production has been sucked in countries by their industrial policies. Thus, using prices to counter this does not necessarily produce loss of efficiency. On the contrary, we will probably see the efficiency improve when production has come back to the United States.
Prices and family economy
The politically explosive observation is buried in the labor market response. In each version of the model, unemployment remains low. Participation in the active population, however, slightly low. For what? Because some Americans voluntarily leave the formal workforce To engage in what economists call “home production”.
It is academic code for Unpaid interior work: raise children, take care of elderly parents, manage a household. They are not people pushed from work – they choose to move away from low -wage service jobs to invest their time in the house and the family.
In short, the model quietly shows that Prices allow Americans to choose family life more easily. The economy becomes more favorable to the manufacture where wages increase. At the same time, sectors such as services and agriculture shrink slightly. The overall result is a slight change in the incentives that allows households – in particular those workers – to opt for a single income without falling into poverty.
If you are looking for a policy that supports fertility, home and family cohesion, that’s all. The model involuntarily makes the conservative case: a strong industrial base gives families the economic space to develop.
Another underestimated result is that the model shows Capitals arise from services and in manufacturing. The investment does not disappear – it moves. The country becomes less uber and more industry. And because the manufacturing sector is more productive in terms of wages and production by worker, this change helps to increase wages for middle class workers.
It is not growth. It’s regrowth, with a new center of gravity.
The pain comes when the prices expire
What the Fed calls “damage” really comes from the instability of policies. In each version of the simulation, the United States imposed prices in 2025 and Then leave them suddenly in 2029. This triggers a strong contraction, in particular in manufacturing, while the economy tries to redirect the pre-tariff conditions. But wages do not fall quickly enough to make this transition smooth. The model includes the rigidity of the downward nominal wages, which means that workers are actually blocked at their higher salary levels as dry demand. It was at this time that unemployment increases. It was then that the GDP narrows. This is when the problem begins.
But the cause is not prices – This is the sudden removal of prices. A four -year plan without follow -up is a disruption recipe. The real lesson of the model is that protection must be consistent. If you snatch yourself after the economy has adjusted, you have to create pain.
A last point to note: The model completely ignores pricing income. The authors treat prices as a dead weight loss, but forget that they also collect funds. These income could be used to reduce workers, finance public investment or reimburse the debt. None of these advantages is included. It is an integrated anti-variety bias-the one that underestimates their budgetary and growth potential.
What the model really shows – if you read it honestly
Depage the artificial hypotheses. Replace complete reprisals without reprisals. Take out the arbitrary sunset. What does the model say?
Real income goals of less than half a hundred over four years, not per year, total. Unemployment never breaks above a tenth of percent. Manufacturing of booms. Real wages increase where they count. The prices remain relatively stable. Capital revolts in more productive industries. And some Americans, seeing more opportunities at home than at work, choose to raise children or take care of the family instead of staying in the active population.
It is not an economic disaster. It is economic realignment.
The real message: Stay with
The underlying logic of the model is simple: if you want to impose prices, keep them. Do not make them temporary. Do not pull the carpet after four years. Let the economy settle in a new structure – the one that supports industry, rewards production and gives families room to breathe.
The Fed of San Francisco has not modeled Trump’s real policy. He modeled an imitation without enthusiasm, in layers with hypotheses of reprisals the worst cases and a sudden elimination guaranteed to trigger a dislocation. And even then, in his own sensitivity tables, the real point to remember is clear: The lasting rates are not only manageable – they are beneficial.
They promote manufacturing. They stabilize wages. They let some Americans go home. In the end, the newspaper not only defends the prices. This pleads for a nation that can afford to have children again.
Economists behind the newspaper probably have no idea that they have just produced a striking justification for Trump’s commercial strategy, the one that increases American wealth and makes us a more family country.
