Why Are Progressive Democrats Giving President Trump a Free Pass on Tariff Price Hikes?

Donald Trump’s 2025 tariff barrage is rolling on relentlessly: 50 percent duties on steel and aluminum, 25 percent on cars and auto parts, and so-called “reciprocal” tariffs settling at 10 percent for most everything else—with more and higher levies looming in August.

Whatever your politics, one consequence is obvious: tariffs mean higher prices. They directly inflate the price of affected imports and their domestic substitutes. Indirectly, they drive up prices by raising imported input costs and coaxing domestic resources into sectors where America is relatively less efficient in production.

After steel tariffs were broadened to all countries, hot-rolled coil prices jumped 17 percent. SUVs are becoming more expensive and Hasbro has warned of price hikes for toys before the holiday season. With 70 percent of Americans critical of the Trump administration for its insufficient focus on cutting prices, attacking unpopular Republican tariffs should be political gold for Democrats—especially given how they suffered from voters’ anger about Biden-era inflation.

Or so you'd think. Instead, progressive Democrats like Senator Elizabeth Warren have chosen to shift blame for Trump’s tariff-driven price hikes onto large businesses. Last week, they dusted off—and expanded—their pandemic-era Price Gouging Prevention Act. While bemoaning Trump’s “chaotic” on-off tariffs, their real ire remains reserved for "greedy corporations," supposedly exploiting trade policy disruption to pad prices beyond what's needed to “cover any cost increases.”

This is the flawed "greedflation" thinking from 2022 getting reheated. Back then, Warren proposed the first ever federal anti-price gouging bill, which would have granted the government sweeping powers to curb “unconscionable” price hikes after crises like natural disasters or pandemics— unless big companies could produce court-level proof that their costs justified the price uplifts.

Economics aside, such a proposal had an obvious political appeal. It deflected blame away from the role of excessive monetary and fiscal stimulus in driving inflation, diverting focus onto those companies whose prices and profits jumped simultaneously as inflation took off. In effect, it embraced Isabella Weber’s kooky “sellers’ inflation” thesis – the idea that many companies, across many industries, were not seeing price rises due to an inflationary environment, but were making discretionary pricing decisions that actually caused inflation, taking advantage of the cost shocks from the pandemic and Ukraine war to raise prices higher than “necessary.”

The economics was always stupid. The idea that thousands of competitive firms could tacitly collude across industries and borders to gouge consumers without some deviating and undercutting their rivals defied common sense. And if this theory of inflation didn’t take competition seriously, it took consumers’ willingness to pay even less seriously. The more straightforward explanation for inflation was always that prices rose because excess money in circulation boosted total spending (indeed, consumers willingly paid the higher prices)—a demand shock that temporarily elevated both prices and profits across certain supply-constrained industries. The greedflationists were confusing the consequences of inflation with its cause, with businesses the scapegoats.

Fast forward to 2025 and the precedent for blame-shifting is now firmly established. I predicted a right-wing remix of the "greedflation" myth—this time, with Republicans blaming businesses for Trump’s own tariff-fueled price hikes. Administration officials had started the spin, claiming domestic prices shouldn't be affected by ballooning tariffs and warning businesses not to treat tariffs as “a green light for price-fixing.” What I didn’t foresee was that progressive Democrats would swoop in to do Trump’s dirty work for him, by reviving their anti-corporate price-gouging legislation.

But that’s exactly what’s happened. The Democrats' 2025 gouging bill is broader than ever, creating a standing prohibition against “grossly excessive” price hikes—loosely suggested at anything 20 percent above the previous six-month average—but allowing the FTC to pick its price caps “using any metric it deems appropriate.”

Worse, large companies would be guilty until proven innocent, committing a “presumptive violation” if accused of excessive pricing during “exceptional market shocks.” That term is now broadened beyond events like hurricanes and pandemics to include instances of "abrupt or significant shifts in trade policy." In other words, whenever Trump throws a tariff tantrum, the Federal Trade Commission can prosecute any firm raising prices by more than the FTC deems acceptable. Businesses then face the Kafkaesque ordeal of proving their price hikes match precise cost increases.

This remains terrible economics, but today is baffling politics too.

Economically, it’s erroneous to presume, as the progressives do, that price increases not directly linked to cost shocks constitute “price gouging” or exploitation. When tariffs directly raise the price of imported goods, consumers or businesses will flock to competitive domestic substitutes. Even the expectation of future tariffs can trigger this demand shock, with consumers fearing supply chain disruptions and hoping to beat the consequences of future tax hikes.

In the short-run, even firms selling those substitutes in highly competitive industries face inelastic supply—they cannot instantly increase production due to limited resources, capacity constraints, or other rigidities. As more consumers engage in fiercer bidding wars over the limited stock, firms can charge higher prices because the willingness to pay is there, even though the company’s marginal production costs haven't yet increased significantly. Put simply: what’s changed is not that firms have taken advantage of new conditions, but relative demand has shifted.

What’s more, economists know these price rises are better than the alternative of price stability: higher prices that reflect the true relative scarcity of products ensure the goods flow to consumers who value them more highly. The same number of goods circulate, but flexible prices help assuage shortages by keeping lines short, dissuading hoarding, and providing incentives for sellers to ramp up production as quickly as possible.

Indeed, the price increase incentivizes firms to expand output, invest in additional capacity or overtime production, and enter the sector. As production quantity increases, the industry's overall marginal costs rise because new production is typically more expensive than before (e.g., using less efficient equipment or higher-cost inputs). Eventually, the market settles at a new equilibrium with increased supply and somewhat higher prices, reflecting the permanently elevated marginal costs.

The important point is that the path there, even in competitive markets, entails higher prices and higher margins. This can occur because of demand shocks or firms anticipating future cost shocks. In either case, higher prices and margins are not illegitimate exploitation—indeed, the story I’ve detailed here requires no assumption of “market power” or “market failure.” This is just a typical adjustment to the disruption that major changes to tariff policy might bring in a market economy.

But under Warren’s bill, these price moves may trigger accusations of “grossly excessive” gouging, forcing domestic producers to painstakingly prove, invoice by invoice, that every dollar uplift matched an actual cost increase. Large firms may prefer empty shelves over such legal risks and thus won't risk holding extra inventory to buffer future shocks—exactly the safety cushion consumers rely on in turbulent times.

If Warren’s anti-gouging price caps stop, say, Hasbro from adjusting prices upward to reflect underlying demand, shelves will be empty, parents will resort to online scalpers charging far higher mark-ups, and policymakers will have transformed a tariff-driven squeeze into a full-blown shortage. In that scenario, families will pay not with visible price hikes, but instead with frustration, wasted hours, and desperate searching.

If the economics of the bill are bad, though, then the politics are arguably worse.

Instead of owning the pricing fallout from his trade wars, President Trump can now point to Democratic cries of "corporate greed" and claim their proposed FTC crackdown proves that it’s businesses—not his tariffs—to blame for higher prices.

If these progressives have their way, the public debate flips from “tariffs raise prices” to “the FTC must crack down on corporate greed exploiting trade policy reform,” with Trump slipping off the hook. Meanwhile, the bill’s passage would mean economic damage multiplies as price caps create the perfect storm of shortages, empty shelves, and firms too fearful to invest.

These Democrats aren’t the first group ever to pursue policy based on flawed economics. Indeed, it arguably reflects their principled commitment to bad ideas that they advocate such legislation even when it’s politically disadvantageous—perhaps indicating their pandemic-era proposal wasn't as opportunistic as I initially thought.

Yet even if progressives genuinely believe Weber’s misguided theory—that firms exploit disruptions to gouge— shouldn't the real policy takeaway be to avoid unnecessary protectionist disruptions in the first place? By scapegoating businesses for rational market responses to chaos, the Democrats’ latest bill manages the rare feat of being both economically damaging and politically counterproductive.

My new RA, Nathan Miller, also contributed to this piece.