Why the True Economic Impact of Tariffs Is Unknowable and Why it Doesn't Matter
Whenever tariffs dominate headlines, both supporters and critics rush to claim victory or disaster.
But the truth is more complex—and far more uncertain.
Despite all the charts, commentary, and “studies,” the true economic impact of tariffs is unknowable in real time.
Even after the fact, it remains unclear.
Here’s why that matters—especially if your focus is on price trends, momentum, and volatility, rather than trying to predict policy outcomes.
Lagged and Diffuse Effects
Tariffs don’t hit like a lightning bolt. They seep into the economy over time. First, importers see price increases. Then companies rework supply chains. Eventually, those changes flow through to consumers, hiring plans, and capital spending.
This means the impact might not be visible for months—or years. And by then, it’s tangled up with other economic forces.
Counterfactuals Are Unobservable
We never get to see the world without the tariffs. If GDP growth slows or inflation rises, was it because of the tariffs—or was it central bank policy, global demand, or geopolitical conflict?
In economics, the most important variable is often the one we can’t observe: the alternative path that didn’t happen.
Tariffs Have Both Seen and Unseen Effects
The seen effects are easy to measure: higher prices, retaliation from trade partners, and changes in trade flows.
But the unseen effects are more powerful:
- Investment not made
- Supply chains not relocated
- Innovation not funded
- Jobs not created in downstream sectors
These second-order consequences often dominate over time—but are rarely measured or acknowledged.
Conflicting Data and Conflicted Interests
Different models, assumptions, and motivations lead to wildly divergent interpretations:
- Pro-tariff analysts point to job creation in specific industries.
- Anti-tariff economists cite job losses, higher costs, and lower growth.
The data gets filtered through political lenses, confirmation bias, and selective framing.
Behavioral and Strategic Adaptations
Companies don’t stand still. Some eat the costs of tariffs. Others raise prices, relocate factories, or abandon markets altogether.
Foreign governments retaliate in strategic ways—targeting swing states, core exports, or critical inputs. These tit-for-tat dynamics create feedback loops that evolve far beyond the initial policy.
Systemic and Structural Effects
Tariffs may accelerate structural trends like deglobalization, reshoring, or inflation regime shifts. These effects ripple through sectors in nonlinear ways.
The global economy is a complex adaptive system. One small policy change—like a 10% tariff—can trigger cascading effects across price behavior, volatility, and capital flows.
What Matters Most: The Trend, Momentum, and Volatility
At Shell Capital, we don’t try to predict whether tariffs will be good or bad for the economy.
That’s not where our edge is.
We focus on:
- The direction of the trend
- The strength of price momentum
- Volatility and its expansion or contraction
Markets tend to underreact to policy changes at first—then overreact later. That’s where we may identify asymmetric opportunities.
When price behavior shifts—regardless of the narrative—we adapt accordingly.
We don’t assume the market will interpret policy correctly or efficiently. We observe how the market is reacting right now and structure trades with predefined risk and convex payoff potential.
The Bottom Line
The real impact of tariffs is unknowable in the short term—and even over time, it’s difficult to isolate. That’s why we don’t try to predict policy outcomes. It's a complete waste of time.
Instead, we monitor the price trend, momentum, and volatility and respond to what the market is actually doing.
That’s how we pursue asymmetric returns—by focusing on behavior, not opinion.
The price trend is the arbiter.
It's how we've mitigated risk since February and have cash ready to reinvest once we see signs selling pressure is exhausted and becoming overwhelmed by the demand.
Eventually we'll see prices pushed down to a low enough point it attracts buying from tactical traders like us who had already raised cash in advance of this crash.
Mike Shell is the founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios, a separately managed account program with trade execution and custody at Goldman Sachs Custody Solutions. Mike Shell and Shell Capital Management, LLC, a registered investment advisor focused on asymmetric risk-reward and absolute return strategies, and profivides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as investment advice to buy or sell any security. This information does not suggest in any way that any graph, chart, or formula offered can solely guide an investor as to which securities to buy or sell, or when to buy or sell them. Securities reflected are not intended to represent any client holdings or recommendations made by the firm. In the event any past specific recommendations are referred to inadvertently, a list of all recommendations made by the company within at least the prior one-year period may be furnished upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on the list. Any opinions expressed may change as subsequent conditions change. Please do not make any investment decisions based on such information, as it is not advice and is subject to change without notice. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations and Asymmetric Investment Returns are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.