About Those Trump Tariffs....

Why have Trump's tariffs not been as damaging as expected?

Photo by Markus Winkler on Unsplash

Last month, in my newsletter about what I got wrong in 2025, I disclosed my surprise that Trump’s tariffs had not generated more economic chaos:

I should acknowledge that Trump’s myriad tariffs did not prove to be as economically catastrophic as I expected. To be clear, I was not a fan of the tariffs, and remain not a fan of them. The data shows that the tariffs have undeniably hurt the U.S. economy, reducing economic efficiency while driving up prices. And they are not popular, like, at all. But particularly after the Liberation Day nonsense, I was expecting more immediate and severe global effects, and that has just not happened — though the worst may be yet to come.

This kind of acknowledgment might seem like a vindication for Trump supporters about the inherent wisdom of Trump’s trade policy. The recent announcement that the monthly U.S. trade deficit was halved in October could be viewed as further vindication.

The thing is, it turns out that both the shrinking of the trade deficit and the lack of observable economic damage from the tariffs are typical Trump mirages; things that look very shiny from a distance and far more tattered upon closer inspection.

On the trade deficit, the New York Times’ Ana Swanson explains that the tariffs did play a role in reducing October’s trade deficit — just not in the way that Trump supporters would have predicted. In actuality, the trade deficit shrank primarily because the specter of Trump’s tariffs back in the spring caused a lot of importers to surge their inventories — buying before the price increased. For example, pharmaceutical companies bought a lot of stuff prior to Trump’s tariffs and are now spending down their inventory:

Economists cautioned that some of the trend resulted from temporary fluctuations in trade in certain products, like gold and pharmaceuticals. Because of a surge in imports earlier this year, the overall trade deficit from January to October was still up 7.7 percent from the previous year….

Mark Zandi, the chief economist at Moody’s Analytics, said that there was a lot of noise in the data for the month, and that gold and silver markets in particular had been “bonkers.”

Another force narrowing the trade deficit in the month was a collapse in pharmaceutical imports, he said. Drug companies stockpiled pharmaceuticals ahead of tariffs going into effect on the sector on Oct. 1, though many firms were ultimately spared from tariffs.

“Cutting through the noise and getting to the underlying signal in the data, it suggests to me that the deficit is as large as its ever been,” Mr. Zandi said.

What about the overall effect of Trump’s tariffs on the U.S. economy? As to that question, a separate Ana Swanson story provides an extremely plausible explanation for the moderate damage: it turns out that Trump’s statutory tariff rates are much higher than the effective tariff rates.

The [tariff] effects have not been felt as strongly as some experts predicted after early April when Mr. Trump announced double-digit tariffs on imports from countries worldwide.

A new working paper from economists at Harvard and the University of Chicago helps explain why. It shows that the tariff rate importers have paid is significantly lower than the tariff figures that Mr. Trump announced. The reasons include exemptions for certain countries and industries, rates that were lowered for some goods by the time they arrived in the U.S. and evasion of the rules by some companies.

By analyzing the government’s tariff revenue and the value of imports, the economists concluded that the actual U.S. tariff rate was 14.1 percent at the end of September.

The figure is about half the tariff rate that the administration had officially announced. The average trade-weighted tariff rate for the United States was nominally 27.4 percent in September, the authors estimated, down from a peak of 32.8 percent in April….

As concerns about affordability grow, the Trump administration may offer more exemptions and delays to planned tariffs. On Wednesday, Mr. Trump issued an executive order to delay a planned increase in tariffs on vanities, kitchen cabinets and upholstered furniture for one year. The Commerce Department has also pulled back on a preliminary plan to impose tariffs on some Italian pasta imports, saying some pasta makers had addressed U.S. concerns about unfair practices. A final decision is expected in March.

This phenomenon does not mean that tariffs don’t burden U.S. companies and consumers. The researchers demonstrated that Americans were bearing the cost of Mr. Trump’s tariffs, in contrast to what he and his advisers have claimed.

The actual working paper jibes with Swanson’s accounting of it: “On the one hand, shipping lags, exemptions, and enforcement gaps have kept the actual implemented rates at only half of the statutory rates, moderating the tariffs’ impact. On the other hand, tariff pass-through to U.S. import prices is almost 100 percent, so the United States is bearing a large share of the costs…. The 2025 tariff shock is not yet as large as the policy announcements suggest, but its costs are largely borne by the United States, as exporters have, on average, not dropped their prices.”

In a lot of ways, Trump’s trade policy is a synecdoche of the Trump administration’s overall policy shifts. There are horrible headlines, followed by policy that is only about 50 percent as horrible as the original pronouncement. Then Trump supporters exult in the fact that predictions of doom turned out to be false.

Of course, the effect is like praising a doctor because he only injected half as much arsenic as was previously thought into a patient.

Well, for all the costs of the tariffs, at least U.S. manufacturing is rebounding— oh, wait, what is this Reuters report I see here?

U.S. manufacturing jobs in December continued an eight-month skid that began last spring after President Donald Trump rolled out aggressive import taxes that he pledged would lead to a resurgence of blue-collar jobs by reshuffling world trade to favor U.S. workers.

The reshuffling has certainly occurred, with the U.S. collecting around $30 billion a month in tariff revenue, spread among U.S. consumers, importers, and overseas exporting firms, and as firms first frontloaded goods abroad to stock their shelves with tariff-skirting inventory, then slowed their purchases and brought down U.S. import levels….

The pace of job creation in the first year of Trump's second term has fallen more than two-thirds from what it was in the final year under President Joe Biden, to an estimated 49,000 per month in 2025 versus 168,000 per month the prior year….

Hiring in manufacturing, meanwhile, has been in the doldrums. The sector lost another 8,000 jobs in December, the Bureau of Labor Statistics estimated, and factory employment has dropped more than 70,000 since April to 12.69 million as of last month - the lowest reading since March of 2022. Construction jobs by contrast, while dropping in December, have continued the slow but steady growth seen throughout the post-pandemic era, goaded along recently by a boom in data-center investment.

The much smaller mining and logging industry has also been losing jobs, down to 608,000 as of December versus 626,000 in April.

That was the month Trump rolled out the “Liberation Day” tariffs that, while quickly scaled back after a brutal market reaction, set the stage for an upheaval in world trade and investment patterns that is still unresolved.

“Unresolved” is a good word to use to describe the effect of Trump’s tariffs on the U.S. economy. The damage of high tariffs to the U.S. economy was not as bad as expected because the tariffs were only half as bad as expected.

But there’s still time to ingest more arsenic.