In just six months, President Donald Trump has remade global trade and upended a century of precedent.
Trump on Thursday announced higher tariffs — again — on just about every country in the world. Even as some countries’ tariff rates came in lower than they had feared, practically all goods coming in to the United States face a significantly higher tax than when Trump took office in January.
The new trade regime will put in place the highest tariffs America has imposed since 1933, during the Smoot-Hawley era — a tariff bill that contributed to the deepening of the Great Depression.
The higher tariffs threaten to disrupt the global economy again. Despite a milder-than-expected impact so far at home, there’s already some evidence Trump’s tariffs are — slowly — reigniting inflation and slowing the US economy.
That danger is why leaders of developed countries for decades have largely lowered tariff rates and welcomed globalization — actions that have fueled the services economy backed by Big Tech and finance, but have also contributed to the offshoring of factories and manufacturing jobs.
Last year, imports to the United States faced an effective tariff rate of 1.2%, a low tax that has fallen over the course of many decades. Declining tariffs in part persuaded US companies to make their products in foreign countries where labor costs were cheaper — and then ship those goods back into the United States while facing a relatively minuscule tax penalty for doing so.
But that rate is set to surge to more than 18% when Trump’s new tariffs take effect August 7, according to Yale’s Budget Lab. Those taxes will be shared between exporters, importers and retailers, but economists widely expect consumers will pay for some of those tariffs in the form of higher prices.
Companies that have for decades relied on overseas manufacturing to maximize profits and keep consumer prices low have declared massive tariff bills over the past few months. Apple on Thursday said it paid $800 million in tariffs last quarter and expects to pay $1.1 billion this quarter. Automakers, including GM, Stellantis and Volkswagen, also reported tariff costs of over $1 billion over the past quarter.
Many major retailers, including Walmart and Target, have said recently they wouldn’t be able to absorb all the tariff costs and would raise prices for their customers.
Trump’s tariffs are unpopular in polls, and businesses have fought them. But the White House has a decidedly positive view of its unorthodox strategy.
Despite some negative reaction on Wall Street Friday, stocks remain near record highs. US gross domestic product, the broadest measure of the economy, bounced back sharply in the second quarter by some measures. The labor market has remained resilient, and inflation is still reasonably close to normal levels.
That has given the Trump administration confidence that it can levy tariffs around the world to accomplish its multifaceted goals: Grow revenue, revive America’s manufacturing economy, impose maximum political pressure and restore the balance of trade between the United States and the rest of the world.
Tariffs have worked in many of those regards: The Treasury Department reports about $150 billion in tariff revenue since Trump took office, up considerably from previous years. Numerous American manufacturers have announced major commitments to build new factories in the United States. Trump has used the threat of tariffs to impose his will on multiple countries to negotiate everything from peace deals to lower taxes. And America’s trade gap briefly narrowed earlier this year.
However, each of those victories comes with considerable caveats.
Tariff revenue is paid in the form of a tax on US importers, not foreign countries as Trump routinely claims. Many of the companies’ factory announcements were already in the works or are years away from taking place, and — considering America has about 400,000 open manufacturing jobs it can’t fill — it’s not clear where the labor force for those factories will come from. Trump’s tariff threats don’t always work and sometimes penalize US consumers, who have to pay higher prices as a result. And the trade gap, after countries worked through their pre-tariff inventories, is widening again.
It’s unclear how history will view this moment. Trump’s grand trade experiment so far has paid off better than most had expected. But economists continue to fear a delayed shock reaction that could damage the global economy and take America’s standing in the world down a peg.
