Today marks the end of President Donald Trump’s 90-day pause before the sweeping and sky-high tariffs he announced on dozens of countries were supposed to take effect. Except that Trump has postponed them again, this time until Aug. 1, when he assures everyone that they’ll go live. Now that we’re months into Trump’s second trade regime, what can we make of its impact so far and where might this all be going?
Many economists, myself included, previously argued that we didn’t see much of the trade war in the hard data. But that seemingly benign period is behind us. In multiple ways, the administration’s chaotic, on-again, off-again approach to reshaping international trade is affecting the U.S. economy and the people in it.
The average tariff rate facing consumers is the highest it’s been since the 1930s.
Already, U.S. importers are paying record amounts of import taxes and they’d very much like you and I to share in the fun. Even without the separate country deals being nailed down, the average tariff rate facing consumers is around 17%, the highest it’s been since the 1930s. Last month U.S. importers paid $28 billion in taxes — a tariff is nothing more than a tax on imports — on the goods they bought from other countries. That’s by far the highest amount on record, with the closest competitor being May’s $24 billion. Pre-trade war, the monthly customs collection was in the $5-$6 billion range.
There are three important implications of this underpublicized fact. First, it is clear that, contrary to the administration’s claims, exporters are not “eating the tariffs.” Second, don’t let anyone tell you Republicans don’t raise taxes. They’ve stood by while their leader raised a painful sales tax that disproportionately falls on middle- and lower-income families, as imports are a bigger part of the things they buy than the wealthy. Third, these taxes have to come out somewhere, and you can be sure the importers will pass some share of them forward to consumers in the form of higher prices.
In fact, tariffs are showing up in prices, if you know where to look. True, we don’t yet see a big tariff price effect in the national price indexes. It takes a while for import taxes to get passed through to consumers at any time, and with consumers particularly price sensitive these days, businesses have to be more careful passing price hikes forward. U.S. importers also tried to front-run the tariffs by aggressively stocking up their inventories, creating a temporary buffer against consumer price hikes.
That said, a group of researchers from Harvard University and the Universidad de San Andrés have built a database covering prices from large retailers, with information on product country-of-origin. The database shows clear, though not yet large, price increases in imported goods; the researchers conclude that “the announcement of U.S. tariffs prompted rapid but still relatively modest price adjustments” and “increases for Chinese goods were both larger and more persistent” than those from other exporters.
I believe more passthrough to consumers is coming, especially as inventories are drawn down and profit margins start to take a hit. Forecasters expect tariffs to add about a point to the inflation rate by the end of this year, pushing the rate slightly above 3% when it would otherwise have been slightly above 2%. That’s not nothing, especially given the stress many Americans continue to experience around affordability.
Hardly a day goes by that doesn’t deliver another dose of Trumpian chaos.
Which brings us to a data point that’s been underreported: Consumer spending, after adjusting for inflation, has been flat since Trump took office. That’s a sharp reversal from the Biden years, when this spending was the main engine driving the economic expansion. The job market is still pretty solid, and real wages are still rising, so what’s behind this flattening of the metric that comprises almost 70% of our gross domestic product?
One reason is that a lot of people — consumers, employers, investors — are unsettled by the spate of Trump administration policies, from tariffs that never get resolved, to forced, illegal deportations, to the massively deficit-financed and deeply unpopular budget bill that he just signed into law. The great John Maynard Keynes identified this type of low “animal spirits” as a strong negative for growth.
Hardly a day goes by that doesn’t deliver another dose of Trumpian chaos. This new extension taking the 90-day tariff pause to a 120-day pause indicates a foundational problem with Trump’s economics.
There are two ways he could have easily resolved the tariff uncertainty. He could have declared victory and moved on. Yes, the TACO (“Trump Always Chickens Out”) trucks would have honked their horns, but so what? His MAGA devotees would believe him, markets would soar on the news, businesses and consumers could breathe easier, and the Federal Reserve would finally deliver the interest rate cut Trump so desires.
Or, he could just set the tariff rates and let everyone adapt to them. “Whatever deals there are going to be, let’s just ink it and move on,” Sue Spence, the chair of the Institute for Supply Management’s manufacturing business survey committee, told Axios.
Why has he taken neither path? Why stoke rather than stop the angst?
Because angst-creation is Trump’s not-so-secret power. To him the “art of the deal” is always about keeping his opponents, which in this case is every trading partner on that reciprocal-tariff list, off-balance. The president incessantly bangs on about who “holds the cards.” Inking deals means the hand is over, and that’s not where he likes to be, even though it’s exactly what the rest of us need.
That’s why I don’t trust for a second his pinky-swear that Aug. 1 is a real deadline. I hope I’m wrong, but if I’m not, there’s every reason to expect that the president will continue to squander the strong economy he inherited.