There may be more better jobs in building a factory than staffing one. Who cares if it takes four years.
So this is a perfect example to demonstrate game-theory. Here is a sketch about the tradeoffs involve... these are just made up numbers, but the idea is that building a new factory is expensive and time consuming, and if the tariffs are removed, then it's basically a huge waste of time because it won't be competitive with the foreign factories:
Basically, the number in the left in each square represents the payoffs the company contemplating building a new factory, and the number on the right represents the payoffs to the people putting the policy in place. I don't want to argue about these numbers, this is just an illustration of a concept.
What game theory allows us to show (assuming these numbers are anywhere reasonable, but broadly, we could argue about them all day), is that the tariffs
could theoretically produce a net positive result, but only if the government sticks to the tariff regime. This is what I mean about the problem of using
emergency powers in this scenario, instead of going through Congress. If the tariffs are credibly going to be in place for the long haul, then yes, the capital investment, while painful for the companies, makes sense. However, if the tariffs are not going to be in place for the long haul, and I think it's important to remember that the gov't has strong, short-term incentives to remove them, then it's going to be extremely painful for companies who made capital investments.
This is what Steve means by "trust." The idea is that, for this type of policy to work, the tariffs need to be a credible threat to their business model
many years into the future. The idea that they are being implemented by emergency powers, while at the same time there are senators crossing party lines to remove them, really, really, really, undermines that credibility. Without credibility, we might end up in the worst possible outcome for policy makers, no domestic investment, while sticking to our guns on tariffs and making everything wildly more expensive, which puts even stronger incentives for the gov't to remove the tariffs.
So what are you predicting will happen?
Again, it's hard to say what will happen, which is why all of this is so worrisome. I would suspect that the administrations sticks to their guns until it gets so painful that various outcomes become possible: tariffs get pulled back to more reasonable levels via some face-saving mechanism (possibly through a Supreme Court ruling saying it's unconstitutional to delegate tariffs to the executive), Republicans get absolutely destroyed in the midterms, at which point tariffs staying or going is still a coin flip.
The main problem here is the Fed is in a real pickle. Typically, you would lower interest rates in a potential recessionary event (and it's important to note that tariffs, in general, are not recession creating, they just reduce efficiency, but these should create real frictional issues which could easily create one),
however, and this is a big however, if there is a recession, it will be an inflationary recession, which basically ties the hands of the Fed over their main tool for monetary policy... which is a problem.