November 21, 2025

A broad package of import duties went into effect on April 2, 2025, which Trump called “Liberation Day:. It is now time to step back and evaluate their impact on the economy thus far. We believe in free trade. In a world without tariffs or quotas countries can produce those goods and services in which they have a so-called comparative advantage. Its citizens have a wider variety of goods available at lower cost than in the absence of trade. We believe that the only justifications for tariffs are in a situation in which some country is not playing by the rules — like China — or to protect an emerging industry.

But Trump sees it differently. He is concerned about the size of the trade deficit and suggests that all imported goods should be produced in the U.S. What better way to do that than impose massive tariffs on all imported goods, drive up their prices, reduce sales in the U.S., and get foreign countries to shift production of those items to the United States. In other words, the goal should be to eliminate imports. How’s that going?

When Trump announced the tariffs in January, firms looked ahead and tried to figure out how many imported goods they might need for the next several months and tried to import them into the U.S. before the implementation date on April 2.
As a result, imports surged in the January to March period. But in the spring imports plunged because firms had already imported everything they needed. Those goods were presumably sitting around in a warehouse somewhere.

What goes into the GDP calculation is net exports, or exports minus imports. As a result, the surge in imports and widening of the trade gap in the first quarter subtracted 4.7% from GDP growth in that quarter. The subsequent decline in imports and narrowing of the trade deficit added 4.8% to GDP growth in the second quarter. Tariffs distorted the economic data to such an extent that it was impossible to get an accurate reading on the underlying pace of economic activity.

Beyond the uncertainty, are the tariffs doing what Trump intended? As shown above, imports in August are 1.9% lower than they were in August of last year so Trump will probably conclude that his policy is working. But at the same time other countries have retaliated with tariffs of their own which has slowed the growth rate of exports from 6.1% in August of last year to 1.9%. Other countries are less willing to pay the higher prices of U.S. goods which has had a negative impact on exports growth.

Perhaps the best way to sum up the impact of tariffs on the trade sector is by looking at the sum of exports and imports. It had been growing steadily, but is now almost exactly where it was in August of last year. Trump may conclude that the drop in imports is a sign that his trade policy is working. We would suggest that despite all the hoopla throughout this year, the trade situation has changed very little

There is more to the story. The initial tariff levels were outrageously high and managed to scare consumers and businesses alike. But then tariff levels changed frequently. They were reduced for various countries as trade agreements were reached. They were sometimes increased on a whim if a foreign leader said or did something that irked the president. It became impossible for business leaders to plan. They had a hard time adjusting their supply chains because tariff levels could change suddenly for any given country. It was equally impossible to calculate their cost of materials. As a result, business leaders became cautious and postponed hiring any significant number of workers. Growth in payroll employment plunged.

Then there is the impact on inflation. With the except of the pandemic period, commodity prices had been essentially unchanged for years. But they suddenly started to climb in the spring which clearly reflects the impact of tariffs. In the past six months core commodity prices have risen 1.8% which, given their weight, has added about 0.4% to the core CPI rate of inflation. The year-over-year increase in the CPI is currently 3.0%. Presumably without the tariffs it might have been 2.6%.

While Trump might claim his tariffs are working, we do not see it that way. The elevated level of uncertainty has caused businesses to stop hiring which, in turn, has reduced GDP growth in 2025. At the same time, the uptick to inflation has made consumers nervous and is preventing the Fed from easing as quickly and as much as it otherwise would. The near-record low level of consumer sentiment is the clear result of the uncertainty and higher inflation associated with the tariffs.

Was the experiment with tariffs worth it? We do not think so.

Stephen Slifer
NumberNomics
Charleston, S.C.