When President Trump unleashed tariffs, many economists warned that prices would rise and consumer demand would cool. Yet, as Benzinga reports, inflation did not spike and the economy delivered a surprisingly robust 4.3% expansion in Q3 2025, a result many forecasters did not see coming. Lou Basenese, chief market strategist at The Basenese Group, has become a central voice in this debate. Speaking on Fox Business Kudlow, Basenese framed the tariffs as a strategic bargaining tool rather than a blunt tax on consumers, arguing that the 83% initial tariff rate was designed to bring trading partners to the table. He contends that the policy pushed partners to negotiate more seriously, while inflation remained comparatively tame. Basenese’s thesis hinges on a simple premise: tariffs can create leverage that yields policy concessions without triggering runaway inflation, at least in the near term.
The headline GDP figure—4.3% growth in Q3 2025—has become the focal point of the argument. According to Basenese and his supporters, the data signals a rebounding economy that leveraged tariff-related leverage into stronger demand. The upbeat interpretation contrasts sharply with mainstream forecasts that warned of higher prices and a slowing trajectory. The implied takeaway for Basenese is that tariff-driven negotiations can unlock growth if the policy environment remains calibrated and expectations stay anchored around negotiated settlements rather than punitive price spikes.
Not everyone in the economics camp agrees with this upbeat read. David Rosenberg, the veteran economist, characterized the 4.3% figure as fugazi—a slang term he uses to describe an appearance that belies underlying fragility. Rosenberg has argued that part of the growth reported in Q3 may reflect one-off drivers such as government spending, temporarily lower imports, and depleted consumer savings, rather than a sustainable expansion. In Rosenberg’s view, the real-picture growth could be substantially weaker once these distortions dwindle, calling into question how durable the tariff-induced rebound will prove to be.
Paul Krugman, meanwhile, notes that even if the headline numbers look strong, the economy may be entering a K-shaped phase where some sectors surge while others lag. Krugman has long warned that policy shifts—tariffs included—can produce diverging outcomes across industries, with winners and losers creating a split economy that masks broader weakness in certain segments. His framing invites readers to consider how long the current strength can be sustained if a subset of sectors carries most of the burden of demand and investment.
Beyond the quarterly numbers, Basenese points to a potential catalyst that could lift growth further in 2026: a revitalized real estate market. If housing and related sectors gain momentum, the economy could push toward or even beyond a 5% growth pace, assuming credit conditions stay favorable and consumer sentiment remains constructive. This optimistic scenario reflects Basenese’s broader thesis that tariffic policy can be part of a broader growth strategy, not merely a blunt instrument aimed at curbing prices.
Where did the tariff policy come from, and what was the claimed effect? Basenese argues the tariffs were intended as leverage to bring trading partners to the negotiating table—an approach designed to stiffen terms of trade without triggering runaway inflation. The debate now centers on what counts as success: a negotiated outcome and restrained price increases, or a temporary macro‑optimism powered by distorted data and uneven growth. Critics say that inflation did not spike is not the same as inflation staying low for the long run, and that the sustainability of thinly spread gains remains questionable.
As the data landscape evolves and more quarterly reports roll in, economists and investors will continue to dissect the tariff era’s effects. The conversation remains intentionally unsettled: a mix of bullish confidence from Basenese and cautious skepticism from Rosenberg and Krugman, all trying to interpret the same set of numbers through different lenses.