Inflation is not soaring, and economic growth is solid.

The Tariff Tantrum has proven that consensus was wrong about soaring inflation and an economic slump. Why? The exaggerated perception of tariffs’ economic impact stemmed from the belief that American consumers would bear the full burden of tariffs. Why were they wrong?

The first reason was that most analyses relied on a simplistic calculation of tariffs, treating supply chains as if they only involved buyers and sellers. Supply chains are very complex, and most exporters must deal with overcapacity challenges and working capital problems. Thus, the impact of tariffs is likely to be absorbed by numerous links in the supply chain, including transport, storage, distribution, manufacturing, retailers and purchasing chains.

Furthermore, most exporting companies face a significant problem of overcapacity and working capital; if they don’t sell their products fast and effectively, their debt soars, and the losses at warehouses can lead to a chain of bankruptcies.

In the past decade, the Chinese economy has expanded its central-planned neo-Keynesian model that simply cannot survive without a trade deal. The Chinese manufacturing sector has followed a running-to-stand-still strategy that simply cannot subsist without the enormous trade surplus with the United States.

The Chinese manufacturing sector overcapacity is not an anecdote. It is the norm. China produces 30% of the world’s manufacturing goods but consumes less than 18%, according to CKGSB. Additionally, China’s industrial capacity utilization rate fell to 74.1% in the first quarter of 2025.

The scandal over the alleged corruption of the founder of the World Economic Forum (WEF) in Davos would be just an anecdote were it not another example of what has happened recently with many international institutions. The Financial Times reveals that the WEF founder faces accusations of manipulating the organization’s analysis to gain favour with governments.

For years, many of us have watched with sadness as an important forum like Davos shifted from being a centre for debate and confrontation of ideas in defence of free enterprise to becoming a loudspeaker for the most interventionist ideas, the most damaging statism, and a whitewasher of authoritarian governments, spreading the destructive ideas of inflationism, socialism, and wokeism— which, in reality, are all the same.

I always get excited about a market correction when I read the Keynesian consensus predict a disaster. The same people who claimed massive money printing and soaring government spending wouldn’t cause inflation are the ones who know exactly how tariffs will impact aggregate prices. Fascinating.

In June 2016, sixteen Nobel Prize winners expected higher inflation from tariffs, and it never happened. Furthermore, many of those economists recommended enormous government spending and Federal Reserve quantitative easing in 2020, stating there were no concerns about inflation. However, this led to the highest inflationary burst in thirty years. Reality showed that there was no inflation in 2016-2019 and that the insane printing and spending spree of 2021 led to the current inflationary burst. This happens because many economic experts will always justify all government imbalances and tax hikes but raise alarm at any tax cut or supply-side measure. We should never trust experts that work painfully close to social democrat governments.