The decline in consumer confidence and persistent inflation have fueled economic unease during the early days of Trump’s second term. Trump’s administration has implemented tariffs against various countries, with a noticeable trend of threats, brief enforcement, and subsequent rollbacks. 

While the “tariff threat theater” has faced criticism, it might paradoxically aid in battling inflation. Heightening the cost of imported goods typically leads to higher overall prices. Nevertheless, the inconsistent application of tariffs through threats could yield unexpected outcomes. 

Threatened tariffs prompt consumers to reduce spending, fearing imminent price hikes. This reduced demand can effectively dampen inflation pressures, even if tariffs are not fully imposed. Essentially, Trump’s actions may generate the demand-reducing benefits of tariffs without the enduring price escalations. 

This strategy echoes the Federal Reserve’s “forward guidance,” where merely hinting at interest rate increases can influence markets. However, the unintentional anti-inflationary impact of Trump’s tariff threats contrasts with the Fed’s deliberate approach. 

Persistent ambiguity creates a unique incentive for businesses. Amidst temporary tariff threats, companies might absorb cost increases rather than passing them to consumers, wary of potential undercutting once tariffs vanish. This hesitancy further suppresses the inflationary effects of tariffs. 

With the Fed maintaining steady interest rates to manage inflation and prevent economic decline, any additional demand-reducing mechanism could prove beneficial. Trump’s tariff threats could enhance consumer caution without causing full disruptions that permanent tariffs would entail. 

While Trump’s approach isn’t primarily aimed at combating inflation, the unintended effect of decreasing inflation through tariff theatrics presents an irony compared to his economic policy goals. Policymakers should weigh the short-term benefits of reduced inflation against the long-term risks of governing through threats, considering the potential harm to economic planning, international ties, and policy credibility.