By Leon Hadar
Washington policymakers have a habit of doubling down on failed strategies, repackaging them with new rhetoric, and expecting different results. President Trump's escalating tariff regime represents a textbook case of this phenomenon, a triumph of political theater over economic reality, where the costs are borne by American businesses and consumers while the promised benefits remain stubbornly theoretical.
Nearly a year into Trump's second-term tariff escalation, the evidence is clear enough for anyone willing to look beyond the White House fact sheets. The average U.S. tariff rate has skyrocketed from approximately 2.5 percent in January 2025 to over 20 percent by mid-year, the highest level in over a century. Tariff revenues have surged past $30 billion monthly, compared to under $10 billion before the policy shift. These are unprecedented numbers in modern American trade policy.
But here's what the administration doesn't emphasize: who is actually paying these tariffs? Despite Trump's repeated assurances that foreign countries would bear the cost, the data through mid-2025 shows U.S. businesses absorbing the vast majority of tariff expenses. Import prices paid to foreign sellers have barely budged, declining by at most 2.5 percent, while retail prices for imported goods rose only about 2 percent through August. The gap between a 13 percent effective tariff rate and a 2 percent price increase tells us everything we need to know: American importers are eating the costs, for now.
The Penn Wharton Budget Model projects that Trump's tariff policies will reduce long-run GDP by approximately 6 percent and wages by 5 percent, imposing a lifetime loss of roughly $22,000 on middle-income households. These losses, the model suggests, are twice as economically damaging as a revenue-equivalent corporate tax increase. Even if we take the more conservative estimates, we're looking at significant economic drag for dubious strategic gains.
The administration points to steel and aluminum as success stories from Trump's first term. And there's a grain of truth here—these sectors did see investment and some job gains when tariffs were first imposed. But context matters. Steel capacity utilization briefly touched 80 percent in 2021, only to fall back to 75.3 percent by 2023. Aluminum capacity utilization rose from 40 to 61 percent between 2017 and 2019, then declined to 55 percent by 2023. These are hardly the signs of a revitalized, sustainably competitive industry.
What the tariffs created was not global competitiveness but protective market share, a distinction that matters enormously. When protection becomes the business model, industries lose the incentive to innovate and become genuinely competitive. Meanwhile, downstream industries that use steel and aluminum as inputs face higher costs, undermining their competitiveness. A January 2024 study found that Trump's 2018-2019 tariffs had no significant positive employment effects in newly protected sectors, while foreign retaliation clearly damaged agriculture.
Perhaps most revealing is the administration's claim that tariff revenues could eventually replace income taxes. The mathematics are simply not serious. The federal income tax generated about $2.4 trillion in 2024. Trump's second-term tariffs have brought in approximately $167 billion so far this year. That's roughly 7 percent of income tax revenue. To close this gap, tariff rates would need to exceed 60 percent across the board, a level that would devastate trade volumes, radically distort the economy, and likely trigger a global depression.
Here's the paradox the administration won't acknowledge: the more successful tariffs are at achieving their stated goal of reshoring production, the less revenue they generate. If Apple were to manufacture all its iPhones domestically, as Trump encourages, those iPhones would generate zero tariff revenue. You cannot simultaneously use tariffs to reshape production patterns and count on them as a stable revenue source. It's economic magical thinking.
By September 2025, the economic damage was becoming undeniable. J.P. Morgan projected a U.S. recession, with global real GDP growth expected to fall to 1.4 percent in the fourth quarter, down from 2.1 percent at the start of the year. Recessions were already underway or expected in Canada and Mexico, our largest trading partners. The Tax Policy Center estimated that tariffs would impose an average burden of about $2,100 per household in 2026 alone.
The Court of International Trade ruled in May that tariffs imposed under the International Emergency Economic Powers Act were unlawful, potentially invalidating a significant portion of the tariff regime. The administration's response has been to explore alternative legal authorities, suggesting that the policy commitment to tariffs supersedes any particular legal or economic rationale.
In a way, what's most troubling is not that the administration is using tariffs—trade policy has always been a legitimate tool of statecraft—but that it's using them so poorly. Effective economic coercion requires clear objectives, careful targeting, coalition building, and realistic expectations about costs and benefits. Trump's approach features none of these elements.
The tariffs are simultaneously too broad and too narrow. They're too broad in that they hit allies and adversaries alike, undermining potential coalitions. They're too narrow in that they don't address the fundamental structural issues in the global trading system—intellectual property theft, technology transfer requirements, or currency manipulation by major powers.
Moreover, the administration seems unable to articulate what "success" would look like. Is the goal to reshape global supply chains? To generate revenue? To punish China? To revive manufacturing? To reduce trade deficits? These are different objectives requiring different strategies, yet they're all jumbled together in a policy stew flavored primarily by political expediency.
The irony is that there are legitimate concerns about America's economic relationship with China, about supply chain vulnerabilities exposed during COVID-19, and about the hollowing out of American manufacturing. These problems deserve serious policy responses. But serious policy requires acknowledging trade-offs, building coalitions, and accepting that reshoring high-value manufacturing is a long-term project requiring investment in education, infrastructure, and research—not just tariff walls.
The evidence suggests Trump's tariffs have been effective at one thing: generating political theater while imposing measurable costs on American households and businesses. They've been far less effective at achieving any of their stated economic or strategic objectives. The sad reality is that once you've invested this much political capital in a policy, admitting failure becomes nearly impossible—so we should expect more of the same, regardless of the mounting evidence of ineffectiveness.
This is how nations decline: not through dramatic crises, but through the accumulation of poor choices defended by increasingly implausible rhetoric, while the real costs are distributed across millions of households too diffuse to mobilize politically. Trump's tariff regime offers us a case study in this process, dressed up in the language of economic nationalism and American revival.
The question facing policymakers who come after Trump is not whether to abandon trade policy as a strategic tool, but whether they can develop a more sophisticated approach, one that acknowledges economic realities, builds on America's genuine strengths, and doesn't require citizens to accept increasingly absurd claims about who's paying the bill.