By Alfredo Carrillo Obregon
Thursday, April 16, 2026
Addressing the nation from the Rose Garden on the
afternoon of April 2, 2025, President Donald Trump declared America’s “economic
independence” from the nations that had long “ripped [us] off,” heralding the
start of a “golden age” for American consumers, companies, and workers. He
dubbed the event “liberation day.” The president assured the American people
that, through so-called reciprocal tariffs applied on nearly every country,
factories and jobs would come “roaring back” to the United States, foreign
trade barriers would be broken down, and consumers would benefit through lower
prices.
A year on, despite the president’s colossal promises of a
new golden age, the reality looks much different.
To begin with, the president’s “reciprocal” tariffs are
no longer. This past February, the U.S. Supreme Court invalidated the
president’s use of the International Emergency Economic Powers Act (IEEPA) to
impose these tariffs. Trump had declared a national emergency stemming from
“large and persistent” trade deficits. The Court’s ruling also invalidated
tariffs levied by the president through IEEPA pursuant to other national
emergency declarations. It thus overruled the primary mechanism of the
president’s tariff-setting agenda during his second term.
Even before the Court scrapped the Trump administration’s
reciprocal tariffs, however, these duties were riddled with tariff-rate
reductions and exemptions. First, the president paused the implementation of
the tariffs for 90 days following a stock market plunge in reaction to his
liberation day announcement, and he invited countries to negotiate lower rates
during that time. Several U.S. trading partners (including the European Union,
Japan, and South Korea) proceeded to negotiate agreements (or frameworks for
agreements) with the administration, locking in lower reciprocal tariff rates
in exchange for trade concessions and investment pledges. Then the president
issued many rounds of exemptions from the reciprocal tariffs, most notably for
semiconductors and certain electronics, including smartphones and computers,
products from countries that negotiated agreements or framework agreements, and
agricultural products.
As a result, the applied U.S. tariff rate fell from 21.5
percent, at its highest point in 2025, to 13.6 percent before the Supreme Court
ruling. Most notably, only 42 percent of U.S. imports (based on 2024 import
levels) were subject to IEEPA tariffs by the end of 2025. While these numbers
help explain why the tariffs were not as harmful as many experts feared in
April 2025, they also demonstrate that the president’s policies, from the
outset, were hampered by economic realities and influenced by political considerations.
***
Myriad exemptions and rate reductions notwithstanding,
the president’s tariffs undeniably raised prices for American consumers and
producers.
The emerging economic literature on the tariffs imposed
in 2025 broadly finds that Americans paid for most of the tariffs’ higher
costs. Studies published by the National Bureau of Economic Research, Goldman
Sachs, and the Brookings Institution, among others, find that, in the
aggregate, Americans bore 77 to 96 percent of the 2025 tariffs’ higher costs,
with American companies paying for most of this tariff pass-through. At the
same time, a Harvard Business School survey of products sold at large U.S. retailers
found that tariffs led to higher retail prices of both imported and domestic
goods in the same product categories. Not only did U.S. consumers pay for about
43 percent of the tariff-induced increase in the cost of imported goods, but
import-competing U.S. producers also marked up their prices.
The administration and proponents of protectionism often
point out that tariffs did not lead to an inflationary spiral. A low bar, to be
sure, yet many economists doubted this could happen from the outset. Even many
economists opposed to the tariffs doubted such a spiral, in part because
imports of goods accounted for only 11 percent of U.S. GDP in 2024.
These economic analyses consider tariffs’ visible costs —
that is, their effects on prices — yet tariffs also impose invisible costs on
Americans that, while harder to quantify, compound their economic damage. One
of these unseen costs is the uncertainty surrounding U.S. tariff policy. The
U.S. tariff code underwent 50 changes in 2025, most of them related to tariffs
imposed and modified by the executive branch. That is double the average number
of tariff changes in the preceding five years. It is no surprise, then, that
researchers have quantified that uncertainty surrounding U.S. trade policy
reached its highest point on record in April 2025. For businesses with global
networks of suppliers that took years to build, this uncertainty is crippling.
Another unseen cost is the degree to which the various
tariff regimes implemented in 2025 made the U.S. tariff code increasingly
difficult to navigate, even for seasoned customs experts. Complex rules
regarding “tariff stacking” (i.e., adding duty rates levied under separate
regimes) have made the process of importing a product into the United States
much more byzantine and costly than it was a decade ago. The rules’ opacity
eroded the system’s predictability. The Financial Times, for instance,
noted a case in which U.S. customs authorities assessed four identical
shipments from Europe with four different tariff rates. The costs of complying
with such complex import regulations and the prospect of higher tariff
liabilities or penalties act as an additional barrier to importation — one that
disproportionately affects small businesses.
The tariffs imposed real and significant economic costs
on Americans and fomented political dysfunction at home and abroad.
Domestically, the tariffs led to an explosion in special
interest politics. Driven by the opportunity to win exemptions from the tariffs
or higher barriers for overseas competitors, tariff lobbying in 2025 reached
levels not seen in years. Open Secrets data show that the number of registered
clients for tariff lobbying climbed to 382 in 2025, a 218 percent increase
relative to 2024. Bloomberg, meanwhile, reported that expenses on trade
lobbying reached more than $900 million in the first half of 2025 alone and
were 28 percent higher than in the first half of 2024.
Perhaps the most egregious aspect of this tariff-related
cronyism is its brazenness. Thousands of Americans watched as Apple CEO Tim
Cook presented Trump with a statue sitting atop a 24-karat gold base and
promised to invest $600 billion in the U.S. economy. Four days later, iPhones
(along with other products with embedded semiconductors) became exempt from the
IEEPA reciprocal tariffs. Cook was far from the only prominent CEO with direct
access to the president — an access that small businesses crushed by higher
tariffs did not enjoy.
Tariff-induced dysfunction has also put a strain on the
country’s judicial system. In anticipation of the Supreme Court’s ruling
invalidating the IEEPA tariffs, importers filed more than 2,000 lawsuits
seeking refunds. In the wake of the Court’s decision, the government owes more
than $160 billion in tariff refunds to more than 300,000 importers, with $700 million
in additional taxpayer-funded interest for every month it further delays
issuing refunds.
The tariffs also tarnished America’s reputation as a
reliable trading partner. The duties ran afoul of America’s commitments under
the World Trade Organization and free trade agreements (FTAs) it had previously
negotiated. And the president’s ongoing tariff threats further evince that U.S.
trade policy, built for decades through careful cooperation between the
executive and the legislative, runs on the whims of one man.
It should not be surprising, therefore, that the affected
countries are moving to establish alternative trading arrangements. Just in the
past few months, for instance, the European Union has inked comprehensive FTAs
with the Southern Common Market, Australia, and India, while Canada is moving
to conclude negotiations with the Association of Southeast Asian Nations and
reportedly looking to “broker a bridge” between the EU and the members of the
Comprehensive and Progressive Trans-Pacific Partnership.
Altogether, the Trump administration’s tariff policies
have accelerated a yearslong trend whereby other countries negotiate and enter
additional trade agreements while the United States — not having entered an FTA
since 2020 — stands on the sidelines. Threatening high tariffs may serve to
secure some purchase commitments and tariff concessions from foreign countries,
but it is less effective at creating long-term competitive advantages for
American farmers and businesses in foreign markets than traditional and
meticulously negotiated agreements.
***
Against the backdrop of high economic and political
costs, the administration’s tariff policies could be defensible only if they
had produced the golden age the president heralded in his speech announcing the
new tariff regime. The evidence so far suggests this is not happening.
Most notably, a tariff-induced “manufacturing
renaissance” has not materialized. While industrial capacity indeed increased
in 2025, this is only a continuation of a trend that started in early 2022.
Real manufacturing output is unchanged from 2022. Real manufacturing
value-added (i.e., output minus costs of intermediate inputs) appears to be on
track for a historic high, yet this record has been broken nearly every year
since the Great Recession in 2009. Meanwhile, inflation-adjusted spending on
manufacturing facilities precipitously declined throughout 2025. The post-2022
decline in manufacturing capacity utilization continued, and the economy added
no manufacturing jobs in 2025.
While the U.S. manufacturing sector, as a result of many
factors, has gone through fits and starts since 2022, the recent tariffs
clearly have not reversed the sector’s fortunes. On the contrary, they probably
worsened them. Industry surveys during 2025 indicated that higher,
tariff-induced prices and tariff uncertainty depressed activity and growth for
firms throughout most of the sector. Re-shoring, though appealing as political
rhetoric, is not a viable business strategy for many of these businesses.
Underscoring this point, the U.S. goods trade deficit increased
in 2025, reaching an all-time high. Much of this increase materialized in
the early months of the year, as firms front-loaded imports in anticipation of
the administration’s high tariffs; but mitigating the noise from this
front-loading and excluding trade in gold — which distorted trade figures
throughout 2025 — reveal that monthly U.S. trade deficits are hovering at the
same level as in late 2024. Meanwhile, declining bilateral deficits with
certain countries, most notably China, have been offset by increased deficits
with other countries, including Mexico, Vietnam, and Taiwan. In short, there
has been no discernible “improvement” in the U.S. trade balance, and higher
deficits point to the lack of substantial re-shoring.
The president’s lofty foreign investment goals have also
not been met yet. Indeed, quarterly foreign direct investment in the United
States declined in the second half of 2025, and the total for 2025 ($288.4
billion) was lower than the figures for the previous five years. The White
House claims that foreign countries have pledged to invest about $5.2 trillion
in the U.S. economy, yet this implausible figure would mean nearly doubling the
total “stock” of foreign investment in the U.S. economy ($5.7 trillion at the
end of 2024, not adjusted for changes in prices). Most countries’ reported
investment pledges exceed their total historical investment in the U.S.
economy, further raising questions about the feasibility of achieving the
president’s investment targets.
Liberation day did not launch the promised era of
economic prosperity. Taxes, prices, uncertainty, bureaucracy, and cronyism
increased, while U.S. manufacturing, foreign investment, and the trade balance
remained unchanged. And yet the administration is moving to re-create the IEEPA
tariff regime through other executive tariff authorities, including Sections
122 and 301 of the Trade Act of 1974. The most arbitrary and unpredictable
tariffs may be behind us, but elevated protectionism is here to stay — and most
Americans will be worse off because of it.
No comments:
Post a Comment