Trump Imposes Highest Tariffs Since the Great Depression

Details

President Trump implemented sweeping tariffs beginning in early 2025, raising the average effective U.S. tariff rate to 16.8%—the highest since 1935. The policy began with targeted tariffs on Canada, Mexico, and China in February, escalated dramatically on "Liberation Day" (April 2) with a 10% baseline tariff on nearly all imports, and continued evolving throughout the year with frequent changes, pauses, and exemptions. The tariffs have generated substantial government revenue but at significant cost to American consumers and businesses. Legal challenges are now before the Supreme Court.

Timeline of Major Tariff Actions

The tariff policy has evolved rapidly and erratically, making it difficult for businesses to plan. Key milestones include:

January–March 2025: Tariffs focused on America's three largest trading partners. On February 1, 2025, Trump imposed tariffs on Canada, Mexico, and China, citing fentanyl and illegal immigration. On February 10, Trump renewed and expanded Section 232 tariffs on steel and aluminum, removing all country exemptions and raising aluminum tariffs from 10% to 25%, effective March 12.

April 2, 2025 ("Liberation Day"): Trump declared a national emergency over the U.S. trade deficit and signed Executive Order 14257, imposing a 10% baseline tariff on nearly all imports, with higher "reciprocal" tariffs on approximately 60 countries. CSIS described this as the most sweeping tariff hike since the Smoot-Hawley Tariff Act of 1930.

April 9, 2025: Following a global market crash, Trump signed an executive order pausing country-specific reciprocal tariffs for 90 days, maintaining the 10% baseline for most countries. The exception was China, where tariffs escalated to 125% amid tit-for-tat retaliation that reached 145% from the U.S. (including prior 20% fentanyl tariffs). The announcement sent the S&P 500 up nearly 10% in one of the largest single-day gains in the index's history. More than a year later, Trump's annual financial disclosure revealed that his accounts had purchased 327 individual stocks the day before the pause (see below).

May 2025: U.S. and China announced a 90-day mutual tariff reduction, lowering bilateral tariffs from 125% to 10%. The U.S. Court of International Trade ruled against Trump's use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs, finding the law does not authorize such broad trade measures. The ruling was stayed pending appeal.

March 26, 2025: Trump signed an executive order imposing 25% tariffs under Section 232 on imported automobiles and light trucks, effective April 3 for vehicles and by May 3 for parts. The administration said the levies would push foreign automakers to build in the United States.

May 8, 2025: First trade deal announced with the UK, reducing auto tariffs from 25% to 10% on 100,000 vehicles and eliminating tariffs on airplane parts and metals up to quota.

June 4, 2025: Steel and aluminum tariffs doubled to 50% for all countries except the UK.

July–August 2025: Framework agreements reached with Vietnam (20%), Philippines (19%), Indonesia (19%), Japan, South Korea (15%), and the EU (15%). Higher tariffs (35%) imposed on Canada; punishing 50% levies on Brazil and India.

August 7, 2025: Reciprocal tariffs resumed on 60+ countries after Trump signed an executive order on July 31 reinstating country-specific rates.

August 29, 2025: The de minimis exemption ended for all countries pursuant to Executive Order 14324 signed July 30. Previously, shipments under $800 could enter duty-free; nearly 4 million such packages were processed daily.

November 14, 2025: Trump signed Executive Order 14360, exempting over 200 agricultural products—including beef, cocoa, coffee, bananas, and tropical fruits—from reciprocal tariffs, citing insufficient domestic production. Additionally, Switzerland's tariff rate was reduced from 39% to 15% as part of a trade deal.

January 24, 2026: Trump threatened to impose 100% tariffs on Canada if Prime Minister Mark Carney proceeded with a new Canada-China trade deal. Canada had negotiated lower tariffs on Chinese electric vehicles in exchange for reduced import taxes on Canadian farm products. Trump accused Carney of trying to make Canada "a 'Drop Off Port' for China to send goods and products into the United States." The threat came amid escalating tensions over Greenland and Trump's repeated suggestions that Canada be absorbed as the 51st state.

February 20, 2026: The Supreme Court ruled 6-3 in Learning Resources Inc. v. Trump that IEEPA does not authorize the president to impose tariffs. Chief Justice John Roberts, joined by Justices Sotomayor, Kagan, Gorsuch, Barrett, and Jackson, wrote that the two words "regulate" and "importation" in IEEPA "cannot bear such weight" to justify sweeping tariff authority. The ruling invalidated the "Liberation Day" reciprocal tariffs and fentanyl-related tariffs—estimated to have collected $129–175 billion—but left Section 232 tariffs (steel, aluminum, autos) intact. Trump called the decision "deeply disappointing" and said he was "ashamed" of Gorsuch and Barrett for joining the majority.

February 20–21, 2026: Hours after the ruling, Trump announced a 10% global tariff under Section 122 of the Trade Act of 1974, effective February 24. The next day, he increased it to 15%—the maximum allowed under Section 122. Treasury Secretary Scott Bessent said the administration would also leverage Section 232 and Section 301 authorities, and that using these alternatives "will result in virtually unchanged tariff revenue in 2026." The 15% tariff excludes USMCA-compliant goods, products already covered by Section 232, and goods exempted under existing trade deals. According to the Council on Foreign Relations, the new 15% Section 122 tariffs bring the average effective tariff rate to approximately 13.7%—lower than the 16.8% peak under IEEPA, but still historically elevated. The Tax Foundation estimates the ruling shields the economy from $1.4 trillion in IEEPA tariffs that would have been collected over the next decade, but uncertainty continues as the administration pursues alternative authorities and the Section 122 tariffs expire in 150 days unless extended by Congress.

May 1, 2026: Trump announced on Truth Social that he would raise tariffs on European Union cars and trucks to 25% the following week, saying the EU was not complying with a trade deal that had lowered the rate to 15%. Speaking to reporters, he said: "I raised the tariffs on cars and trucks to 25%. That's billions of dollars coming into the United States. We have right now in the United States over $100 billion of car plants being built. It's a record." He added in the post that vehicles produced at U.S. plants would face no tariff and that "Many Automobile and Truck Plants are currently under construction, with over 100 Billion Dollars being invested, A RECORD in the History of Car and Truck Manufacturing."

May 7, 2026: The U.S. Court of International Trade struck down the Section 122 tariffs Trump had imposed to replace the invalidated IEEPA levies. A divided three-judge panel held that Section 122 requires the president to identify "balance-of-payments deficits" using specific 1970s-era metrics, not the trade deficits Trump had cited. The court declined to issue a universal injunction, so relief applied only to the three importer plaintiffs (the State of Washington, Burlap and Barrel, and Basic Fun); all other importers remained obligated to pay. The government appealed to the Federal Circuit on May 8, and the appeals court granted a temporary stay on May 12, leaving the tariffs in place pending appeal.

July 2026 (Section 122 sunset and Section 301 pivot): The Section 122 tariffs are set to expire July 24, 2026 under the statute's 150-day limit. Ahead of that deadline, the U.S. Trade Representative moved to replace them with Section 301 duties—reportedly around 12.5% on 46 countries—an authority that, unlike Section 122, carries no rate cap and no time limit. EU goods moved to the trade deal's 15% all-inclusive ceiling on July 1, exempt from the Section 301 reset. The maneuvering underscored the administration's determination to preserve the tariff revenue and rates even as one legal authority after another was struck down.

July 7, 2026: Toyota announced it would invest $3.6 billion to add a second assembly line at its San Antonio, Texas facility to produce the Tacoma pickup truck—currently built in Mexico—creating an estimated 2,000 jobs. Trump hailed the announcement as proof his tariffs were working; three days later the Wall Street Journal editorial board called it "a deflection from the dismal reality that his border taxes are raising costs and have failed to usher in a manufacturing renaissance" (see below).

Trump's Stock Purchases the Day Before the Tariff Pause

Trump's annual financial disclosure, a 927-page filing with the Office of Government Ethics reviewed by Sludge on July 1, 2026, revealed that on April 8, 2025—the day before Trump announced the 90-day tariff pause that sent the S&P 500 up nearly 10%, which Sludge notes was the index's third-biggest single-day gain since World War II—his accounts purchased 327 individual stocks worth as much as $12.8 million. The purchases included Apple, Microsoft, Nvidia, Amazon, and Alphabet, each valued at up to $250,000. NBC News confirmed the 327 unreported trades, and ABC News reported that the disclosure shows roughly 21,000 securities trades in Trump's first year in office.

The timing means the president's own portfolio bought the market dip one day before his own policy announcement triggered a historic rally. Under the Ethics in Government Act, such trades must be disclosed in periodic transaction reports within 45 days, but Trump filed no periodic reports for the April trades—or for virtually any of the thousands of stock trades he made throughout 2025. The trades surfaced only in the annual disclosure, more than a year later. The penalty for late filing is capped at $200, which he paid. Craig Holman of Public Citizen told Sludge: "These officials are in a unique position of having access to inside information about economic and business trends, offering a prime opportunity for insider trading." The disclosure does not establish who directed the trades or what the accounts' managers knew, but the episode—covered also by The New Republic and, for the separate first-quarter 2026 filing of some 3,600 trades, CBS News—underscores how the president's personal finances were positioned to profit from his own market-moving tariff decisions.

Auto Tariffs and Claims About Domestic Plant Investment

Trump has paired the auto tariffs with a recurring claim that unprecedented factory investment is flowing into the United States because of his trade policy. At the March 26, 2025 signing ceremony for the Section 232 auto order, he said the U.S. was "already setting records for new plants" and that automakers were building "at levels we've never seen." In a March 26 Newsmax interview, he said: "We have automobile plants being built at levels we've never seen anything like it, and they're going up fast."

Fact-checkers have found little support for the record-setting framing. PolitiFact rated the March claim Mostly False: the White House pointed to investment announcements by Hyundai, Honda, and Stellantis, but most involved expanding output at existing plants, reopening a shuttered facility, or building a steel mill—not a wave of new assembly plants. Experts told PolitiFact that plants are planned years in advance and that automotive manufacturing construction had already surged under the Biden administration, driven in part by the Inflation Reduction Act and the CHIPS and Science Act. The Detroit Free Press reported that no automaker had announced a new U.S. assembly plant in 2025 as of late March, aside from Hyundai's separate Louisiana steel-mill project.

Broader manufacturing data also cuts against Trump's later "$100 billion" and "record" claims. CNN's Daniel Dale reported in May 2026 that when Trump said "factory construction is up," total U.S. manufacturing construction spending—the metric the White House had previously cited—had declined every month of his second term through March 2026, according to Census Bureau data. FactCheck.org and PolitiFact reached similar conclusions: spending remains elevated by historical standards because of a boom that peaked under Biden in 2024, but it has trended downward since Trump took office. Analysts have also noted that high-profile "$100 billion" investment announcements during this period often concerned semiconductor manufacturing—such as TSMC's chip fabs in Arizona—not automobile assembly plants.

The pattern repeated in July 2026 with Toyota's announcement that it would spend $3.6 billion on a second San Antonio assembly line to build the Tacoma—currently produced in Mexico—creating about 2,000 jobs. Trump boasted on Truth Social that his tariffs had prompted the relocation. In a July 10, 2026 editorial titled "How Trump's Tariffs Really 'Work,'" the Wall Street Journal editorial board—an opinion voice that generally favors free trade—wrote that Trump was "grasping for good economic news to rescue his underwater job approval rating" and that the Toyota announcement was "a deflection from the dismal reality that his border taxes are raising costs and have failed to usher in a manufacturing renaissance." The editorial's sharpest line: "The President is right that his tariffs are at work—in destroying U.S. jobs and raising prices." It added that "U.S. companies, workers and consumers are picking up most of the tab." Notably, former Vice President Mike Pence amplified the editorial the same day, quoting its finding that the U.S. had "lost some 75,000 manufacturing jobs since January 2025, including 25,900 in motor vehicle and parts production" and writing that "the President is right that his tariffs are at work—in destroying U.S. jobs and raising prices." Pence has separately called Trump's tariffs the "largest peacetime tax hike" on Americans, and his advocacy group Advancing American Freedom has issued a running series of memos documenting the job losses (see below).

The administration maintains that tariffs are working. Commerce Secretary Howard Lutnick has linked major foreign investments to the threat of levies, and automakers including Hyundai and now Toyota have publicly cited localization as a strategy to navigate the tariff regime. But independent reviewers have found no data confirming that auto plant construction is at an unprecedented level or that the current round of announcements exceeds the investment wave that preceded Trump's return to office.

Manufacturing Jobs: No Renaissance in the Data

By mid-2026, employment data showed the tariffs had not delivered the promised manufacturing revival—and the sectors the tariffs were meant to protect were shrinking. The WSJ editorial (as detailed in Raw Story's and Alternet's accounts) reported that the United States had lost "some 75,000 manufacturing jobs since January 2025, including 25,900 in motor vehicle and parts production"—that is, more than a third of the total came from the auto sector the tariffs were meant to help. Independent tallies of Bureau of Labor Statistics data confirmed the direction and rough magnitude: CNN's fact-check of Vice President Vance found manufacturing "down 77,000 this term" as of May 2026, and FactCheck.org put the loss at 82,000 over Trump's first 14 months (January 2025 through March 2026), "following a loss of 186,000 in the preceding 14 months." An earlier Common Dreams tally counted roughly 72,000 factory jobs lost since "Liberation Day." (The figure is a net cumulative decline since the start of Trump's term, not a one-year or single-month number—manufacturing added a modest 5,000 jobs in January and 3,000 in June 2026 even as the cumulative total stayed deep in the red.) Section 232 auto tariffs had cost $35.2 billion through April 2026, and steel and aluminum tariffs another $17.5 billion. New vehicle sales averaged an annualized 15.9 million in the first half of 2026, down from 17–18 million pre-pandemic, as consumers bought used vehicles or delayed purchases—raising repair costs from longer ownership and depressing automaker employment as demand fell. As the WSJ editorial put it, "When people buy fewer cars, auto makers don't need as many workers."

Pence's advocacy group made the auto industry the centerpiece of its case. In an August 2025 memo to lawmakers, Advancing American Freedom accused the tariffs of "kneecapping" the auto sector, noting that carmakers had paid $11.7 billion in tariff costs in a single quarter. The group followed with additional memos as the job numbers worsened; its president, Tim Chapman, said "the jobs reports expose where tariffs are showing up most in the economy—jobs." A subsequent report timed to the "Liberation Day" anniversary concluded that Trump's bet that tariffs would bring factory jobs "roaring back" had not worked. That a group founded by Trump's own former vice president was among the sharpest documentarians of the tariffs' job toll underscored how far the criticism had spread beyond the political opposition.

Economist Justin Wolfers of the University of Michigan reached a complementary conclusion from the payroll data. In a July 2026 essay, "The Pink-Collar Economy Is Here," Wolfers calculated that since the start of Trump's second term, female-dominated industries had added 828,000 jobs while male-dominated industries—including the manufacturing sectors the trade war was designed to revive—had lost 218,000 jobs. Roughly 86% of net new payroll jobs (403,000 of 468,000 at the essay's data vintage) went to women, with nearly all female job growth concentrated in private education and health services; by early July 2026, Wolfers' updated figures put second-term payroll growth at about 716,000 jobs with roughly 90% going to women, and women crossed 50% of nonfarm payroll employment. Wolfers argued the administration is chasing an outdated vision of the economy—trying to revive male-dominated manufacturing through trade wars and subsidies—while actual growth is in "pink-collar" service sectors like healthcare, childcare, education, and elder care, a shift he attributes to rising productivity and an aging society rather than trade policy failures alone. Overall job growth, meanwhile, was anemic: CEPR's analysis of the June 2026 jobs report showed only 57,000 jobs added that month, with unemployment at 4.2%.

Effective Tariff Rates

According to The Budget Lab at Yale, as of November 17, 2025, consumers face an overall average effective tariff rate of 16.8%—the highest since 1935. After consumption shifts, the average tariff rate settles at 14.4%, the highest since 1939. The rate fluctuated substantially throughout the year, starting at 2.4% in early January and peaking at approximately 28% following the April "Liberation Day" announcements.

Who Pays Tariffs: Americans, Not Foreign Countries

President Trump has repeatedly claimed that foreign countries pay U.S. tariffs. Just before reciprocal tariffs took effect in April 2025, he posted on Truth Social: "RECIPROCAL TARIFFS TAKE EFFECT AT MIDNIGHT TONIGHT! BILLIONS OF DOLLARS, LARGELY FROM COUNTRIES THAT HAVE TAKEN ADVANTAGE OF THE UNITED STATES FOR MANY YEARS, LAUGHING ALL THE WAY, WILL START FLOWING INTO THE USA." During the 2024 campaign, he said "It's not going to be a cost to you, it's going to be a cost to another country."

This is false. Tariffs are fees paid by U.S. businesses that import foreign goods and are, in many cases, passed on to consumers. According to Goldman Sachs estimates, tariff incidence is paid approximately 40% by U.S. consumers, 40% by U.S. businesses, and only 20% by foreign exporters.

A January 2026 study from the Kiel Institute for the World Economy provides the most comprehensive analysis to date, examining over 25 million shipment-level transactions worth nearly $4 trillion. The researchers found that foreign exporters absorb only about 4% of the tariff burden—the remaining 96% is passed through to U.S. buyers. Event studies around discrete tariff shocks on Brazil (50%) and India (25–50%) confirmed that export prices did not decline; instead, trade volumes collapsed. The study concludes: "The $200 billion surge in customs revenue represents wealth transferred from Americans to the US Treasury, not from foreign producers. The claim that foreign countries 'pay' these tariffs is a myth... The tariffs are, in the most literal sense, an own goal."

By July 2026, this conclusion had been embraced well beyond academic economists. The Wall Street Journal editorial board wrote that "U.S. companies, workers and consumers are picking up most of the tab" for the border taxes—an assessment amplified by Trump's own former vice president.

A Hoover Institution poll (February 2025) found that support for tariffs varies dramatically based on who respondents believe pays them—those who incorrectly believe foreign companies pay are much more likely to support tariffs. The same poll found 64% of Americans believe tariffs raise consumer prices. Research from the Peterson Institute for International Economics confirms that through mid-2025, U.S. firms absorbed most tariff costs, with prices paid to foreign sellers changing very little.

According to CNN, businesses footed roughly 80% of the tariff bill in 2025, but JPMorgan projects that share could shrink to 20% in 2026 as companies increasingly pass costs to consumers. A Federal Reserve Bank of Boston survey found that small and medium businesses who believe tariffs will persist longer "anticipated passing through as much as three times more of their cost increases into consumer prices" compared to those who expected tariffs to be temporary.

Small Businesses Hit Hardest

When he announced the "Liberation Day" tariffs, Trump cast them as a defense of small business, telling the National Republican Congressional Committee in April 2025 that he was "the president who stands up for Main Street, not Wall Street." The data that came in over the following year told the opposite story: smaller firms, with fewer resources to absorb or evade the new costs, were among the hardest hit.

The most detailed evidence comes from the Federal Reserve Bank of New York's 2025 Small Business Credit Survey, fielded from September to November 2025 with roughly 6,500 respondents. Analyzing the results in a July 2026 Liberty Street Economics post, Fed researchers Will Aarons and Asani Sarkar found small businesses were "particularly challenged by higher tariffs in 2025." Tariff-related financial difficulties were reported by 55% of goods-producing firms, 67% of retailers, and 34% of service firms nationally, with rates higher still in the New York Fed's district. Roughly 80% of goods and retail businesses passed at least some of the higher costs on to customers—while about 60% also absorbed part of the hit internally—and firms reporting tariff strain expressed markedly "greater pessimism about generating employment and revenues in 2026." Notably, that pessimism did not extend to inflation expectations generally; it was specific to the tariffs.

Small businesses felt more pain despite trading internationally less than large firms do. About 70% of goods firms and 80% of retailers relied on imported inputs in 2024—far more than the 30% and 20% that recorded any international sales—and the Fed noted that 90% of manufacturers import at least some goods. Because most U.S. imports are raw materials and intermediate goods used to make other things, tariffs on those inputs are passed along the supply chain and reach even firms that never buy directly from abroad. Aarons and Sarkar identified a structural reason smaller firms fared worse: "Large firms may mitigate the incidence of higher input prices from tariffs by legal means and, more generally, have greater ability to maintain price markups. Smaller, less profitable firms with fewer resources are less able to do so." The dynamic is the mirror image of a principle conservatives usually invoke against regulation—that compliance and tax burdens fall disproportionately on small businesses that cannot spread the cost. As Reason's Eric Boehm observed, the tariffs "effectively hiked both regulations and taxes," generating piles of paperwork alongside the bills for imported goods—and the burden of getting a refund on the tariffs later ruled unlawful fell hardest on the smallest importers.

More of that cost is still coming. A companion July 2026 New York Fed analysis found that nearly half of firms that had paid tariffs directly—47% of service firms and 44% of manufacturers—still planned additional price increases, some expecting to raise prices six months or more into the future as fixed-price contracts expire and firms "trickle up" costs gradually rather than all at once. The finding reinforces JPMorgan's projection that the share of tariff costs passed to consumers would climb sharply in 2026.

The New York Fed reports add to earlier evidence. A report from Congress's Joint Economic Committee documented job losses and declining sales among small businesses tied to the tariffs. Shirley Modlin, co-owner of a Virginia-based 3-D printing business, told the committee that "as a result of this upheaval which has created such uncertainty, our employees are suffering from stagnant wages and the possibility of loss of benefits," adding: "Our small manufacturers need predictability and stability." The instability of the tariff regime—the frequent changes, pauses, and legal reversals detailed above—compounded the direct cost, leaving smaller operators, which have the least cushion to plan around uncertainty, the most exposed.

Economic Impact

According to Yale Budget Lab research, macroeconomic research from the University of Geneva (Kaenzig 2025), and Tax Foundation analysis:

Price Level & Household Costs:
- Overall price level increase: 1.2%
- Average household cost: $1,700/year (pre-substitution)
- Lowest income decile hit hardest: $900/year (3.6% of income vs. 1.1% for top decile)
- Tariffs are a regressive tax—the burden on the poorest is more than three times that on the wealthiest

GDP & Labor Market:
- GDP growth reduced by 0.5 percentage points in 2025, 0.4pp in 2026
- Long-run GDP persistently 0.3% smaller (~$90 billion annually)
- Unemployment rate up 0.3pp by end of 2025, 0.6pp by end of 2026
- Approximately 460,000 fewer jobs by end of 2025

Sectoral Impact:
- U.S. manufacturing output expands by 2.9%
- Construction contracts by 4.1%
- Agriculture declines by 1.4%

Commodity Price Increases (Short-Run):
- Leather products (shoes, handbags): 20%+
- Apparel: 20%+
- Motor vehicles: 13% (~$6,500 per average new car)
- Electrical equipment and consumer electronics: 17–18%
- Food: 1.2%

While the Yale model projected modest manufacturing output gains, actual mid-2026 employment data ran the other way: roughly 75,000 manufacturing jobs lost since January 2025—including about 25,900 in motor vehicle and parts production—per the figures cited by the WSJ editorial board, and a net loss of 218,000 jobs in male-dominated industries over the second term per Wolfers' analysis.

Poverty Impact

According to Yale Budget Lab research, the Trump administration's 2025 tariffs will increase the number of Americans living in poverty by between 650,000 and 875,000 (0.2–0.3% of the U.S. population). Approximately 375,000 children will be pushed into poverty under the Official Poverty Measure, and 150,000 under the Supplemental Poverty Measure.

These estimates use the Global Trade Analysis Project (GTAP) model—a widely-used economic model that simulates how trade and prices shift across 65 commodity categories and 160 countries—combined with Current Population Survey data. The mechanism is straightforward: tariffs raise prices, which raises inflation-indexed poverty thresholds while leaving most incomes unchanged, pushing more families below the line.

The authors note several methodological limitations: the model assumes tariff policies remain in place indefinitely, and the analysis assumes the Federal Reserve does not counteract price increases with tighter monetary policy. Additionally, as Yale Budget Lab acknowledges, "economic models—even high-quality ones—make assumptions about the economy and may struggle in periods of high uncertainty or in periods that look significantly different from past history." The current statutory average tariff rate is the highest since the early 1930s, making model predictions less certain. The actual poverty impact will also depend on factors not captured in the model, including how much businesses absorb versus pass through to consumers, how quickly households adjust consumption patterns, and whether other policies (such as tax cuts) offset some effects.

Fiscal Impact

According to The Budget Lab at Yale, the 2025 tariffs, if maintained, would raise approximately $2.7 trillion over ten years (conventionally scored). After accounting for slower economic growth reducing other tax revenues, net dynamic revenue is estimated at $2.3 trillion.

By December 2025, tariffs had raised $250 billion in gross revenue for the U.S. government. However, this revenue figure represents only what is visible—tariffs collected by the Treasury. It does not account for the far larger invisible costs borne by Americans: the $1,700 average household loss in purchasing power, the hundreds of thousands pushed into poverty, or the reduction in GDP growth. Since tariffs are paid by U.S. importers and largely passed to consumers, the tariff revenue represents a transfer from American households and businesses to the government—not a net gain for the economy or a payment from foreign countries.

Why Hasn't the Economy Collapsed?

Despite economists' dire predictions, the U.S. economy performed better than many expected in 2025. According to PIMCO's December 2025 analysis, real GDP grew between 1.5–2.0%—down from 2.5–3.0% in 2024, but "much better than many expected." Core inflation remained at 3%, "more benign than many had feared." CPI inflation held at 2.7% and unemployment rose only from 4.1% to 4.6%.

Several factors explain the muted impact:

AI Investment: Harvard economist Jason Furman's analysis reveals that U.S. GDP growth in the first half of 2025 was almost entirely driven by AI data center investment. Excluding technology-related investment, GDP growth would have been just 0.1% on an annualized basis. As Furman noted, "The U.S. economy is moving simultaneously down two tracks in opposite directions."

Business Absorption: Companies absorbed most tariff costs rather than passing them to consumers. According to the Federal Reserve Bank of Minneapolis, many businesses were "reluctant to pass on price increases to customers, especially if trade deals could soon emerge." Firms also built up inventories before tariffs hit.

Delayed Effects: Many economists believe the worst effects are still coming. Jeffrey Frankel of Harvard notes that "measurement errors from a government shutdown, postponed tariffs, importer stockpiling, and margin absorption by US firms have deferred the most severe effects." JPMorgan projects businesses will shift from absorbing 80% of tariff costs to just 20% in 2026.

However, economic uncertainty remains at record levels—higher than during the financial crisis—driven "almost entirely" by trade policy. The constant changes to tariffs act as "a negative demand shock" on the economy. And by mid-2026, some of the delayed effects appeared to be arriving: manufacturing payrolls were shrinking, new vehicle sales were running well below pre-pandemic norms, and overall monthly job growth had slowed to 57,000 in June 2026.

Nvidia/AMD Revenue-Sharing Deal

In an unprecedented arrangement, the Trump administration secured deals where Nvidia and AMD agreed to pay 15% of revenues from AI chip sales to China to the U.S. government in exchange for export licenses. In December 2025, Trump announced he would allow Nvidia to ship H200 chips to China with a 25% fee to the U.S. Treasury.

Trade experts have criticized the arrangement. Christopher Padilla, former head of the Commerce Department's International Trade Administration, called it "astonishing": "If the Trump administration is allowing companies to buy their way past export controls imposed to protect US national security, we are in very dangerous waters." Peter Harrell of the Carnegie Endowment called it a "terrible precedent" for linking national security export controls to monetary payments.

Scotch Whisky Tariffs Lifted "In Honor" of King Charles

On April 30, 2026, hours after King Charles III and Queen Camilla concluded a four-day state visit to the United States, Trump announced on Truth Social that he would remove tariffs and restrictions on U.K. whiskey "In Honor of the King and Queen of the United Kingdom, who have just left the White House." He framed the move around "Scotland's ability to work with the Commonwealth of Kentucky on Whiskey and Bourbon," citing the wooden barrels used to age both spirits, and added: "The King and Queen got me to do something that nobody else was able to do, without hardly even asking!" Speaking to reporters in the Oval Office, Trump said he "just took all the restrictions off, so Scotland and Kentucky can start dealing again," and "did it in honor of the King and Queen who just left." He also noted he was "not a big drinker."

The episode crystallized the personalist and ad hoc character of the tariff regime: a president who had imposed a 10% tax on most British goods without an act of Congress removed it as a courtesy to a visiting monarch. Trump's post was initially ambiguous about whether the relief applied to bottles of Scotch or only to barrel materials, but U.S. Trade Representative Jamieson Greer clarified that, as part of the implementation of the U.S.–U.K. Economic Prosperity Deal, the United States would "allow preferential duty access for whiskey produced in the United Kingdom." The U.K. government confirmed the change applied to all whisky tariffs, including Irish whiskey.

The 10% tariff, in place since the April 2025 trade framework, had hit Scotland's largest whisky export market hard; the Scotch Whisky Association said export volume to the U.S. fell 15% after the tariffs were announced. Scotland's First Minister John Swinney called the removal a "tremendous success," noting that "people's jobs were at stake" and "millions of pounds were being lost every month from the Scottish economy," and thanked both Trump and King Charles. Chris Swonger of the U.S. Distilled Spirits Council likewise interpreted the post as lifting the 10% duty on U.K. whiskey.

Legal Challenges

The legality of Trump's IEEPA tariffs was contested throughout 2025. On May 28, 2025, the U.S. Court of International Trade ruled unanimously that Trump overstepped his authority in imposing tariffs under the International Emergency Economic Powers Act (IEEPA).

On August 29, 2025, the U.S. Court of Appeals for the Federal Circuit affirmed in a 7-4 ruling that IEEPA does not authorize the broad tariffs Trump imposed. In its published opinion, the court temporarily stayed its decision until October 14, 2025, allowing time for the government to appeal.

On February 20, 2026, the Supreme Court ruled 6-3 that IEEPA does not authorize the president to impose tariffs. Chief Justice Roberts, writing for the majority, held that the words "regulate" and "importation" in IEEPA "cannot bear such weight" to justify sweeping tariff authority. The Court applied the "major questions" doctrine, reasoning that Congress would not delegate such "highly consequential power" through ambiguous language. Justices Gorsuch and Barrett—both Trump appointees—joined the majority, while Thomas, Kavanaugh, and Alito dissented.

The ruling invalidates the "Liberation Day" reciprocal tariffs and fentanyl-related tariffs but leaves Section 232 tariffs (steel, aluminum, autos, copper, lumber) intact. The Court did not address refunds, leaving that issue to lower courts. Justice Kavanaugh warned in his dissent that refunds could require the government to repay "billions of dollars" and that the decision "could generate uncertainty regarding various trade agreements." The surviving Section 232 sectoral tariffs are the ones whose costs the WSJ editorial board quantified in July 2026: $35.2 billion from auto tariffs through April 2026 and $17.5 billion from steel and aluminum tariffs.

The legal defeats did not stop there. The 15% (later effectively 10%) Section 122 tariffs Trump substituted after the IEEPA loss were themselves struck down by the U.S. Court of International Trade on May 7, 2026. A divided panel found that Section 122 requires the president to identify "balance-of-payments deficits" using specific 1970s-era metrics rather than the trade deficits Trump had invoked. Because the court declined to issue a universal injunction, only the three named importer plaintiffs won relief; every other importer remained obligated to pay while the government appealed to the Federal Circuit, which granted a temporary stay on May 12. The Section 122 authority is in any case time-limited: it expires July 24, 2026 under a 150-day statutory cap. Ahead of that sunset, the U.S. Trade Representative moved to replace it with Section 301 duties—reportedly about 12.5% on 46 countries—an authority with no rate cap and no time limit. The pattern by mid-2026 was one of serial legal defeat followed by substitution of a new statutory hook to keep the tariff wall standing.

Summary

The 2025 tariff policy represented the most aggressive use of trade barriers since the 1930s, with the effective tariff rate reaching 16.8%—the highest since 1935. The economy weathered the shock better than predicted—no recession, moderate inflation, substantial tariff revenue. However, the costs were real: Americans, not foreign countries, paid the tariffs. Households faced higher prices, low-income families were hit hardest, and hundreds of thousands may have been pushed into poverty. AI investment may have masked damage to other sectors.

On February 20, 2026, the Supreme Court struck down Trump's use of IEEPA to impose tariffs in a 6-3 ruling. Trump immediately imposed a 15% global tariff under Section 122 of the Trade Act of 1974, bringing the effective rate to approximately 13.7%—still historically elevated but below the 2025 peak. Those Section 122 tariffs were in turn struck down by the Court of International Trade on May 7, 2026 (stayed pending appeal) and expire July 24, 2026, prompting the administration to pivot to Section 301 duties of roughly 12.5% on 46 countries. The legal battle over refunds—potentially $175 billion—continues in lower courts. Uncertainty remains the defining feature of U.S. trade policy.

By mid-2026, the verdict on the tariffs' central promise—a manufacturing renaissance—had turned sharply negative even among natural allies of a Republican administration: roughly 75,000 manufacturing jobs lost since January 2025 (including about 25,900 in motor vehicle and parts production), male-dominated industries down 218,000 jobs over the second term, and the Wall Street Journal editorial board and former Vice President Mike Pence—the latter through his advocacy group Advancing American Freedom—publicly arguing that the tariffs "work" chiefly by destroying U.S. jobs and raising prices. Meanwhile, the July 2026 disclosure that Trump's accounts bought 327 stocks the day before his market-moving tariff pause added an ethics dimension to a policy already defined by legal defeat and economic cost.