One of the more thorough analyses of the potential consumer costs associated with the current iteration of the Trump tariffs comes from Goldman Sachs. Goldman estimates that, if the tariff system as Trump announced on April 2 is fully implemented, costs for the typical American household will increase about $3,500 annually. It is easy to oversimplify the potential effect of tariffs, as any projections require assumptions about the elasticity of import prices, how consumer behavior may shift, and impacts on currency. However, if this analysis is close to correct, the first order net effect to the average American household would be a cost increase similar to the increase in transportation costs (a mix of new/used car prices, gasoline and auto insurance) resulting from the Covid stimulus spending – and about 20% of the $18,000 increase in household expenses since 2020.

However, the impact of this tax hike has the potential to be amplified by several factors such as potential retaliation, weakening business sentiment, and supply chain disruptions.  The risk with this type of “shock therapy” approach to the economy is that the second order consequences are notoriously difficult to anticipate or forecast accurately. (See the unintended and unexpected consequences of Covid lockdowns for one recent example.)

There are two prevailing theories regarding Trump’s approach to trade policy.  One suggests that he genuinely believes in the long-term value of tariffs, while the other is that he views them as a tactical instrument used to pressure trading partners into more favorable deals. Though these perspectives differ in motivation and ultimate objective, they are not mutually exclusive – both are likely true to some degree.  During his first term, President Trump used tariffs as leverage in negotiating a trade agreement from China. At the same time, he has consistently expressed a deep-rooted belief in tariffs, once famously referring to the tariff as “the most beautiful word in the dictionary.”

Because tariffs are often used as a negotiating tool, the uncertainty surrounding their timing, scope, and scale can amplify their leverage by introducing fear and doubt into the equation. However, this same uncertainty poses a significant challenge for large U.S. businesses—many of which operate globally or rely heavily on foreign-sourced inputs. In the corporate world, uncertainty tends to breed caution: investment slows, hiring pauses, wage growth stalls, and consumer demand softens. There is real merit to the view once expressed by John Maynard Keynes that “the best tariff is the one that’s known.” In other words, tariffs are far more manageable when they are transparent and predictable, allowing both businesses and governments to plan and respond with greater confidence.

Thus far, this tariff plan is neither.

David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.