The tariff has become a price-control tool

Lower your prices, and the tariffs stay off. That is the transaction at the center of TrumpRx, the administration's drug-pricing program, which now covers more than 800 drugs — four out of every five American prescriptions ^[1]. Drugmakers get exemptions from the administration's tariffs; in exchange, they cut prices for cash-paying customers under most-favored-nation terms.

I am pleased to announce that TrumpRx.gov is adding another 160 Prescription Drugs, at highly discounted prices, for a new total of over 800 of the most commonly-used Prescription Drugs — Donald Trump

The same transaction, four times over. In semiconductors, TSMC's $165 billion investment pledge earns chip-tariff exemptions for the AI giants — Amazon, Google, Microsoft — sized to the company's domestic capacity ^[2]. In autos, Volkswagen is negotiating tariff rates below 15% in return for building an Audi plant in the United States ^[3].

We are counting on our own offer investing heavily in the US … and there we are in close contact and good talks with the US government, and we hope that we come to a quick solution also during the next weeks with the support from the US government to our investment. — Oliver Blume

And at the level of an entire country, Switzerland pledged $200 billion over five years to get its tariff rate cut from 39% to 15% ^[4].

Switzerland was too small to absorb the $200 billion, and had a long tradition of investing abroad. — Rudolf Minsch

The tariff was sold as a reshoring tool — a way to force companies to build factories in America. What it has become in practice is a negotiating instrument: threaten, then grant relief in exchange for a concession. The mechanism is identical whether the concession is a price cut, an investment pledge, or a country's checkbook. The problem is that the instrument works against itself on three fronts. The first is revenue. The Congressional Budget Office cut its deficit-reduction forecast from tariffs by $1 trillion — from $4 trillion to $3 trillion through 2035 — because the rates were lowered in deals with China, Japan, and the EU ^[5].

Modifications to tariffs, which on net lowered the effective tariff rate (although rates on certain products were higher in November than they were in August), also reduced the estimated effect on the deficit. — Congressional Budget Office

The very deals that function as price controls shrink the tariff base that was supposed to fund the deficit reduction. The second is reshoring. A Yale survey found 62% of CEOs do not plan to increase US manufacturing investment, and 71% say tariffs have hurt their businesses ^[6].

Though we are pleased to see some recovery in CEO plans for capex, there’s fragmentation among the various sectors, with trade-exposed industries like manufacturing facing headwinds. — Joshua Bolten

There is some genuine reshoring — Puerto Rico has drawn seven manufacturers and $220 million in investment as companies relocate to keep "made in USA" status ^[7] — but it is a rounding error against the economy as a whole. Instead of building plants, most companies are gaming the classifications: altering product composition, shifting component manufacturing to change a product's country of origin, using first-sale valuation to shrink the dutiable value ^[8].

Product engineering, as the name indicates, is to enable the importer to declare a different country of origin. — Lenny Feldman

And as rates have leveled, firms are drifting back to Chinese suppliers ^[9]. The third is the arithmetic. The administration advertises drug price cuts of 100 to 1,500 percent — figures that cannot exist, since a cut beyond 100 percent would mean negative prices ^[10].

Now drug prices are going to be going down 100 percent, 400 percent, 600 percent, 1,000 percent, in some cases. — Donald Trump

The Health and Human Services secretary's defense of the numbers was that there are two ways to calculate a percentage.

There’s two ways of calculating percentages. — Robert F. Kennedy Jr.

The administration's answer to all of this is that the deals have worked. Trump declared inflation "defeated" at a 2.3% annualized rate — in the same breath as announcing a 100% tariff on all Chinese imports ^[11].

inflation has been defeated — Donald Trump

His own Fed chair says otherwise.

It's really tariffs that are causing the most of the inflation overshoot — Jerome Powell

The administration is simultaneously claiming inflation is defeated while its own Fed chair attributes the overshoot to tariffs, and it has not reconciled the two.