Trump’s tariff crusade has now be going on for almost half a year. Let us take a look at the results so far.
His brutal negotiation tactics seem to be working to a certain degree. He has cut trade deals on his terms with the European Union, Indonesia, Japan, Pakistan, the Philippines, South Korea, the UK, and Vietnam. He got what he has asked for: tariffs from 10 to 20% and no retaliatory tariffs against the US. However, he still has to reach deals with China, India, Brazil, Mexico and several other important countries. Trump boasts that the money from tariffs is pouring into the state coffers and talks about trillions. Other estimates are more modest. Trump’s Treasury Secretary, Scott Bessent, expects tariffs to generate USD 300 billion annually from 2026. Still a lot of money, but less than a third of the US military budget or of the annual interest payments on US Government debt.
Apart from tariffs, he is also pressuring US and foreign companies to invest in production in the US. This seems to a certain degree to be working too. Many deals have been announced. There is a list on the White House home page, which includes Apple, Micron, IBM, TSMC, Hyundai, Hitachi and so on, but how serious these deals are, we don’t know. Talk is cheap.
Regarding the foreign trade deficit, this has gone up rather than down. From January to July 2025, the deficit on US foreign trade in goods and services increased with 30%. There are no signs that the fiscal deficit is diminishing either, despite the increasing revenue from the tariffs.
Back in the days of the financial crisis in Greece and other Eurozone countries in 2010, there were economists theorizing about what a country can do when a devaluation isn’t possible (as is the case for the Eurozone countries). It is possible, at least theoretically, to mirror the effects of a devaluation by what has been called a “fiscal devaluation”, for example charging a general tariff on imports (Trump style) and using the proceeds to reduce the costs for exporters (for example as a subsidy to the wage bill), but it has to my knowledge never been tried in practice. This will of course only work, if the other countries don’t retaliate. Miraculously, Trump has been able to bully important commercial partners into accepting unilateral US tariffs, and he can probably get some sort of unilateral deal with China and India too, if he is less ambitious, particularly regarding the imports of Russian oil and gas. The Trump tariffs could therefore in principle work very much like a devaluation of the dollar, but only for the home market. It will not change the competitive position of US companies in the export markets (unless he subsidises exports and/or devalues dollar).
Several concerns have been raised regarding possible negative impacts from Trump’s tariff wars. Let us see, what has happened up to now.
One concern is inflation. As tariffs make imports more expensive, prices should go up. Prices have actually gone up, but still not much. Year-on-year inflation in August 2025 was 2.9%, which is almost unchanged from the start of Trump’s presidency. The trend is not clear, but it may be upwards. The average tariff rate has increased dramatically since the start of the year from around 2.5% to almost 18% in August 2025. As imports constitute 14% of US’ GDP, it should give a jump of around 2.2%1) in the overall price level, if the tariffs are transferred 100% to the sales prices. However, it seems that part of the tariffs has been absorbed by the foreign exporters and/or US companies, which can explain the rather muted impact on prices up to now. There is much speculation regarding how long that may last. Anyway, it is important to keep in mind that the effect of increased tariffs on prices is a one-off event. The tariffs should lead to a jump in the price level, but unless it starts a wage-price spiral, it should not in itself lead to continued inflation.
Another concern is employment. There has been a lot of confusion regarding the employment statistics, and Trump has fired the director responsible for these. It seems that, firstly, the employment estimates for 2024 (during the Biden Presidency) were way too high, and, secondly, the labour market is now cooling and unemployment is on the rise (despite the deportation of hundreds of thousands of people, which should lead to labour scarcity).
A third is the stock market. Some feared that the uncertainty regarding the tariffs would make investors less optimistic and hence lead to a fall in share prices (which would not necessarily be a bad thing). Stock prices have been somewhat volatile in 2025, but they are by now 10% higher than at the beginning of the year. So investors seem to be happy with Trump. However, there is a risk that a price bubble is building up in the stock market as the relation between share prices and earnings is higher than ever (and around 5% higher than at the beginning of the year). House prices are by the way also the highest ever recorded.
The Schiller PE Ratio gives the ratio of the price of a share over average earnings the last 10 years (adjusted for inflation). Graphic from https://www.multpl.com/shiller-pe
A fourth is the interest rate. The interest rate for a 10-year US Government Bond has been hovering around 4% to 4.5% since the beginning of the year. This is high compared to the post-2008 financial crisis period with its easy money and extraordinarily low interest rates, but it still implies a very modest real interest rate (nominal interest rate minus inflation) of around 1% to 1.5%. Even so, Trump is trying to bully the Central Bank into lowering the interest rate, and it looks as if he is succeeding.
And finally, the dollar exchange rate. Some feared that it would go up, making US production less competitive, but this has not been the case. The dollar has actually depreciated with around 6% since the beginning of the year. It appears that Trump can’t make up his mind regarding the dollar. On the one hand he wants it to be weaker to increase competitiveness, but on the other hand he likes the strong dollar as a symbol of US power. Seems there is something strange with the wiring of his brain.
All in all, it thus appears that the expected negative effects of Trump’s tariff have failed to materialise. At least up to now. Trump’s tariff crusade is quite unusual, so the impact is difficult to predict, as there is nothing similar to compare with, at least not from recent times.
However, we can already now see the contours of some of the longer term effects.
Firstly, the trust in the US has taken a serious hit among its allies. That includes close allies/vassals as EU, South Korea, Canada and Mexico. As we all know, it takes a lot of time to build up trust, but it can be lost again from one moment to another. It will take more than a future change of President to regain that trust.
Secondly, much depends on private companies’ expectations regarding the durability of the new policy. What happens when Trump isn’t there in three years time? Will a new president continue with the tariffs or will they disappear again? It is difficult for companies to make long-term investment decisions on this basis. I guess the companies on the White House list will try to be seen as moving forwards with investments, so as not to anger the man, but at the same time go slowly, waiting for the dust to settle, before they sink in big investments. The same actually goes for a devaluation of the dollar: it might be short-lived and hence not a good basis for forward-looking decision-making.
Thirdly, some manufacturing that has been “off-shored” to lower cost countries will probably return to the US, for example car production, chip production and production of some high-technology equipment. Even a future President from the Democratic Party will probably insist on that too. I don’t think that for example manufacturing of clothing and footwear will return, but some other labour-intensive manufacturing may, albeit with a high degree of robotisation. For example production of motherboards and other electronic equipment.
Screenshot from satirical Chinese AI generated video showing Trump, Musk and Vance making shoes. Some manufacturing may actually return to the US, but hardly footwear production.
Fourthly, Trump’s tariff war is likely to hasten the tendency towards a weakening of US power projection around the world. The arrogant treatment of important countries such as India, Brazil and South Africa, which historically have tried to keep friendly relations with everybody, including the US, China and Russia, has pushed these countries closer to China (and Russia). Quite stupid, actually.
Finally, Trump’s foreign policy, which includes a continuation and intensification of Biden’s sanctions policy against perceived adversaries, will probably undermine the trust in US products, not only military equipment, but also for example products from US tech giants. Who will for example want an F35 aircraft or a Patriot Anti-missile system, if the US can render them useless remotely? Or an Nvidia chip which in the future may be deactivated automatically if it is in a ‘prohibited’ location (for example China)? This will hurt US exports in the longer run.
To conclude, a couple of words on the virtues of “free trade”, the principles of which Trump is so brazenly violating. In economics textbooks it is common to state that free trade will benefit all countries concerned and hence that tariffs and other trade barriers create distortions and lead to inferior outcomes for everybody. That is: free trade is optimal. But this is a static consideration. It is easy to set up a model that shows that it is a benefit for countries in the Global South to exchange raw materials for industrialised goods from the North. But the dynamic process, which over time can make the Global South produce their own industrial goods, as for example Japan, China and South-East Asian countries have done, is much more important than this static benefit.
It is easy to dislike Trump. Actually, it is difficult to find something to like about this narcissistic man. But even so, the left should celebrate that Trump has broken the almost universal consensus in the West regarding the virtues of the neoliberal globalisation. This constitutes an opportunity. Free trade and free capital flows can benefit a country, or they can do the contrary. Trump is mercilessly trying to skew this so it benefits big US companies. The Global South should try to twist it so it benefits themselves. And the left in the West should unashamedly work for twisting the trade and financial regime so that it benefits common working people in their countries. Not babble meaninglessly about free trade and a rulebased order, where the West sets the rules and gives the orders.
Notes:
1) As the average tariff level now is 18%, it implies that it has jumped with 15.5% from the 2.5% at the beginning of the year. The average price increase should therefore be 14% of 15.5%, which gives us around 2.2%. Assuming the tariffs are transfered 100% to the sales prices.
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I have written two earlier articles on Trump’s tariff wars, to read them click on the links:
September 3, 2025: Has Trump just created an India-China alliance?
September 14, 2025: Is there any logic in Trump's tariff war?
