President Trump’s tariffs, highly touted as a lever to boost American industry, are now emerging as a substantial tax on business—putting pressure on corporate profits, labor markets, and prices, according to Morgan Stanley’s chief economist. Michael Gapen draws a striking conclusion in his Monday research note, US Economics Weekly: “Tariffs have been a tax on capital, so far.”
In the second quarter of 2025, U.S. corporations largely absorbed the escalating cost of tariffs, according to Gapen’s team, offsetting higher nonlabor costs with reductions in labor costs and profitability rather than passing them directly on to consumers. This is markedly different from the trends observed in 2021 and 2022, a phenomenon called “greedflation” by some, when businesses responded to rising costs by raising prices more than those costs, which led to boosted profits.
