America's Role in the World
Trade
Our Take
Donald Trump’s first trade war was an unmitigated disaster. But his second one – the one The Wall Street Journal called “The Dumbest Trade War in History” – has been even worse.
In truth, the only winners in this disaster have been lobbyists. In 2025, the 20 largest lobbying firms reported $824 million in revenue, an increase from $595 million during the final year of the Biden administration. In the fourth quarter of 2025, lobbying contracts that included anything about “tariffs” were worth $10.6 million, an increase of $1.8 million from the year before.
As we all well know, on April 2, 2025 – President Trump’s “Liberation Day” – he levied massive tariffs that sent shock waves through countries around the world and roiled global financial markets. By the end of the year, some people were saying that the economic calamity many people predicted hadn’t materialized – but don’t be fooled. That’s only because the tariff rate importers were paying was significantly lower than what President Trump originally announced.
Plus, for much of the year, large retailers like Walmart, Target, and P&G tried to avoid raising prices by absorbing some of the higher costs caused by the tariffs. An October analysis by Goldman Sachs estimated that companies were passing along only around half of the costs of higher tariffs on imported goods. However, by the end of the year, almost all large retailers were warning they would increasingly begin passing those higher costs through to consumers.
That’s not to say that prices hadn’t already started to rise because every one of us who goes grocery shopping knows they had. In 2025, costs for goods and services were up 25 percent from where they were in 2020. Even though the inflation rate was below the high it hit in 2022, certain things like coffee, beef and car repairs were way higher.
The fact that prices were increasing should have come as a surprise to NO ONE because it’s a fact that U.S. consumers pay for Donald Trump’s trade wars. The Chinese people don’t pay for them. Canadians and Mexicans don’t pay for them. Nor do people from any other country. Americans pay for them. Period. End of Story.
We learned this the first time around. A study by Aaron Flaaen of the Federal Reserve Board and Ali Horta and Felix Tintelnot of the University of Chicago found that “in response to the 2018 tariffs on nearly all source countries, the price of washers rose by nearly 12 percent; the price of dryers – a complementary good not subject to tariffs – increased by an equivalent amount. Factoring in the effect of dryers and price increases by domestic brands, our estimates for the 2018 tariffs on washers imply a tariff elasticity of consumer prices [or, the costs that pass-through to consumers] of between 110 and 230 percent.” That translated to an additional $1.5 billion a year on washers and dryers because of the tariffs.
Another study – released by economists Mary Amiti of the New York Fed, Stephen Redding of Princeton University, and David Weinstein of Columbia University – found that “the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018.”
The damage didn’t stop there. “The trade war also caused dramatic adjustments in international supply chains, as approximately $165 billion dollars of trade ($136 billion of imports and $29 billion of exports) was lost or redirected to avoid the tariffs. We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices, so that the entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters. We also find that U.S. producers responded to reduced import competition by raising their prices.”
In May 2019, the Peterson Institute found that U.S. consumers and businesses were paying over $900,000 a year for every job saved or created by Donald Trump’s tariff on steel – which was thirteen times the typical salary of a U.S. steelworker.
Also in May, the Federal Reserve Bank of New York issued a report on the impact of tariffs on $200 billion of U.S. imports from China (before, these imports were subject to 10 percent levies but, after a breakdown in trade negotiations, that increased to 25 percent): “As a result of this expenditure switching, we estimate that the annualized deadweight loss increases from $132 to $620 per household, bringing the total annual cost of the new round of tariffs to the typical household to $831.”
Cut to 2026, when the New York Fed revealed that, in 2025, “nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers.”
Research by the Kiel Institute for the World Economy, the Budget Lab at Yale, and by economists at Harvard Business School back this up – all finding that only a small fraction of the tariff costs was borne by foreign producers. This means that, rather than acting as a tax on them, the tariffs functioned as a consumption tax on us – which, of course, most of us knew all along.
After analyzing $4 trillion of shipments between January 2024 and November 2025, the Kiel Institute found that foreign exporters absorbed only around 4 percent of the burden of the Trump/Vance administration’s tariff increases by lowering their prices, while U.S. importers and consumers absorbed 96 percent.
President Trump eventually all but admitted this. In November, he moved to lower tariffs on beef, coffee, and over a hundred agricultural and food items. He also announced deals with several countries to relax tariffs on bananas and other consumer imports. On the last day of 2025, he delayed new tariffs on upholstered furniture, kitchen cabinets and vanities for a year.
Also in November, the president started floating a $2,000 tariff rebate to American consumers to make-up for the pain his border taxes were inflicting. He announced this on social media in his typical subtle manner: “People that are against Tariffs are FOOLS!” He went on to claim that tariffs are “taking in Trillions of Dollars” that will soon pay down the national debt.
This became one of his favorite mind tricks. Every time anything negative came up about tariffs, he would simply say that his tariffs were going to pay for this, of for that, or for this, or for that. The Cato Institute actually tracked his promises on how the tariff revenue would be spent and they discovered he had claimed the “windfall” from his tariffs would help cover almost $6 trillion in costs. There was only one problem – that was over 22 times more than his own administration was estimating the tariffs would bring in.
While it’s true that tariffs bring in real money – the U.S. collected $195 billion in customs duties in FY2025, more than double the year before – that is still only 3.7 percent of overall federal revenue. And not to beat a dead horse but, again, that amount was just shifted into a tax on American businesses and consumers.
Chair of the Federal Reserve Jerome Powell certainly understood all this – which is one of the reasons Donald Trump has it out for him. After “Liberation Day,” Mr. Powell warned that “it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth… while tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.”
By September 2025, Powell was warning that “companies that sit between the exporter and the consumer” were bearing the biggest impact of the tariffs.
Of course, this was already painfully apparent in the real world, where the tenacles of tariffs were long and poisonous. According to the Federal Reserve Bank of Atlanta, 86 percent of U.S. companies that import goods by sea have less than 50 employees. By the end of 2025, many of these small businesses – which are critical drivers of U.S. employment and growth – had already reached a breaking point.
The Trump/Vance administration stopped even smaller things that could help small businesses and consumers out, like the de minimis exemption which allowed businesses and individuals to import up to $800 of goods duty-free each day. This was a real bummer because Americans took advantage of this rule to the tune of over 1.3 billion packages in 2024.
The official word from the Trump/Vance administration was that the de minimis exemption was out because it was helping facilitate drug smuggling, but even this must be weighed against higher consumer prices, delayed shipments, and increased costs for businesses that rely on small imports (it’s also important to note that law enforcement has gotten pretty good at screening these packages).
A 2025 research paper from the National Bureau of Economic Research revealed that ending the de minimis exemption could cost American consumers as much as $13 billion. Researchers also found that low-income and minority consumers will disproportionally feel the negative impacts since they rely more on cheaper, imported purchases.
But then, the real twist happened.
On February 20, 2026 – in a huge loss for President Trump and an equally huge win for separation of powers – the U.S. Supreme Court struck down the Trump/Vance administration’s sweeping emergency tariffs they had levied without Congressional approval. A 6-3 Supreme Court majority essentially erased the 10 percent tariff President Trump imposed on Liberation Day on almost every country in the world, as well as targeted, higher tariffs on some of the top U.S. trading partners, including Canada, China, Japan, Mexico, the European Union, and South Korea.
Chief Justice Roberts explained it this way in the majority opinion: “Recognizing the taxing power’s unique importance, and having just fought a revolution motivated in large part by ‘taxation without representation,’ the Framers gave Congress ‘alone . . . access to the pockets of the people.’”
Unsurprisingly, our calm, cool and collected president lashed out at the Justices who ruled against him, calling them “unpatriotic and disloyal to our Constitution.” Then, he immediately invoked another trade law, Section 122 of the Trade Act of 1974, to impose a new across-the-board tariff. Section 122 expressly grants the president authority to impose tariffs of up to 15 percent across the board for up to 150 days “to deal with large and serious United States balance-of-payments deficits” – but after that he must get Congress’s approval.
But this probably won’t fly with the Supreme Court either. This provision is not about trade imbalances; it’s about financial imbalances, particularly severe ones that put the U.S. dollar at risk… and right now, no such problem exists.
Now, it’s left to poor Judge Richard Eaton – a judge on the Court of International Trade – to decide how to hand out $166 billion in refunds now that the sweeping global tariffs were ruled illegal (within a week of the high Court’s ruling, at least 1,800 companies had filed lawsuits seeking refunds from the government).
In his dissent, Justice Brett Kavanaugh warned that refunding tariffs would be messy, and I’m sure it will be. However, there is absolutely zero alternative. It’s not the government’s money, plain and simple.
Thank God the Supreme Court did the right thing, but in many ways the damage was already done.
Far from President Trump’s promise that his steep tariffs would reduce U.S. imports, shrink our trade deficit, and bring American manufacturing “roaring back” – beginning in April, U.S. manufacturing employment declined every month in 2025 (factories employed 72,000 fewer people at the end of the year than when he declared “Liberation Day” in April). This extended a contraction that has seen over 200,000 roles vanish since 2023.
American imports grew in 2025 and the trade deficit in goods hit a record high. It’s true that the total trade deficit (i.e., trade in both goods and services) shrank slightly as growth in exports narrowly outpaced growth in imports. However, that was solely the result of an expanding trade surplus in services. Even though the global tariffs announced by the Trump/Vance administration in April were designed to specifically target the trade imbalance in goods, the trade deficit in physical goods rose to a record $1.24 trillion, up from $1.22 trillion the year before.
Tariffs have massively disrupted America’s service industry – the largest and faster-growing part of the economy that employs over 80 percent of U.S. workers. < Our service industry includes a wide range of businesses that provide intangible services rather than physical goods, like education, finance, government services, healthcare, hospitality, information, professional services, real estate, retail and wholesale trade, transportation, and travel. >
The service industry is the dominant sector of the U.S. economy BY FAR. The value of exported U.S. services was $90.94 billion as of the second quarter of 2025. Even for a protectionist president who clearly doesn’t understand trade, putting it at risk in any way makes zero sense because the U.S. ran a surplus in services trade of $293.4 billion in 2024.
< Sidebar: The service industry is also suffering terribly from the Trump/Vance administration’s immigration policies, which has caused a significant drop in foreign visitors. The U.S. Travel Association estimates that the number of international visitors fell from 72.4 million in 2024 to 67.9 million in 2025, and that the numbers will continue to fall in 2026. >
… and the hits just kept on coming. Tariffs on timber, wood, furniture and kitchen cabinets – together with hefty tariffs on steel and aluminum – also raised the costs of building and buying a home, further depressing an already weak housing sector and worsening the nationwide housing shortage by slowing the pace of new home construction ($14 billion of all goods used in new residential construction comes from overseas). This got so bad that, as I mentioned earlier, President Trump had to delay new tariffs on upholstered furniture, kitchen cabinets and vanities for a year.
… and coming and coming. In August 2025, John Deere – one of the country’s largest manufacturers, founded in 1837 – reported that its net income in the most recent quarter was down 29 percent from the year before. Higher steel and aluminum tariffs had already cost the company $300 million, and they expected to be hit by another $300 million by the end of the year. Already, the company had been forced to lay off hundreds of employees in factories in Illinois and Iowa.
John Deere is a perfect example of how Donald Trump has hurt the very type of company he claims he wants operating in the United States. This is a die-hard American company that employs 30,000 workers in 60 facilities across the United States. Over 75 percent of its machines are assembled here and just 25 percent of the components used in its products come from overseas.
If John Deere is a perfect example of how Donald Trump has hurt true-blue American companies, Iowa is a perfect example of how he has hurt his own voters. President Trump’s policies on trade, energy and immigration have threatened entire industries – causing a 6.1 percent contraction in Iowa’s real gross domestic product in the first quarter of 2025 alone.
… and our farmers got straight up screwed – again. Costs across the board for farmers have skyrocketed, including the cost of tractors and fertilizers, and their labor market has been severally disrupted.
By the end of 2025, crippling tariffs, coupled with ICE raids, had exacerbated the agriculture labor crisis to a degree that many farms went under (315 farms filed for bankruptcy in 2025, up 46 percent from the year before). The U.S. agricultural workforce fell by an estimated 155,000 to over 200,000 workers between March and July 2025 alone.
The Trump/Vance administration even targeted the wind turbines that provide not only income for some Iowa farmers, but over half of the state’s electricity.
President Trump further enraged American ranchers – whose cattle herds are already at their smallest size since the 1950s – when, in October, he decided to act on high beef prices, which had skyrocketed 14 percent since he took office in January. His big plan? Quadruple the amount of beef we import from Argentina – a country that sells tons of soybeans to China. This was a follow-up to the $20 billion bailout for his buddy Argentinian President Javier Milei that President Trump had announced earlier that month.
This all prompted Kyle Hemmert from Kansas, a Trump voter who got his first cow in second grade and grew his herd to 275 over the years, to tell The New York Times, “It’s really just a kick in the nuts. Come on, President Trump, this is ‘America First’ policy? No.”
Things got so bad for farmers that, like he did the first time around, President Trump announced yet another round of economic support for them ($12 billion) in December 2025. At the time, the Trump/Vance administration indicated that farmers could need as much as $50 billion in support, which was probably an understatement.
While we're sure they appreciated the help, American farmers don’t want handouts, they want to compete. In farming, if you lose global market share in things like soybeans, pork, beef and poultry, you will have a heck of a time getting it back, if you even can at all – a lesson they already learned the hard way during Donald Trump’s first term.
In early February 2026, a bipartisan group of former Agriculture Department officials and leaders of farm groups warned in a letter to House and Senate agricultural committees – signed by 27 influential players in the farming sector – that Trump/Vance administration policies could lead to “a widespread collapse of American agriculture.”
Not only did it express deep concern for the “damage done to American farmers,” but it said it had become clear “that the current administration’s actions, along with congressional inaction, have increased costs for farm inputs, disrupted overseas and domestic markets, denied agriculture its reliable labor pool, and defunded critical ag research and staffing.” The letter urged Congress to relax tariffs for the agriculture sector, expand global markets, pass an updated farm bill, and reinstate funding for agriculture research and staffing.
And how’s this for the Butterfly Effect? In normal times, soybeans are the single largest American export to China in terms of value ($12.6 billion worth in 2024). China usually buys around 30 percent of our total soybean production and around 60 percent of our soybean exports.
But because China retaliated against U.S. steel tariffs by imposing tariffs on soybeans, American farmers had a total projected market loss of $34-$44 billion for 2025.
China hasn’t bought a single American soybean since May 2025, instead buying from Brazil and Argentina. And because food security remains a huge concern for Chinese leaders, they are increasingly subsidizing their domestic soybean production to entice Chinese farmers to grow their own. It seems to be working. China is expecting a record domestic soybean crop this year.
The result is that American soybean farmers were forced to store much of the soybeans they harvested in 2025 to avoid selling at a huge loss – which was extremely frustrating because the crop yielded near-record highs.
This obviously sucks for our farmers, but the unintended consequences of the Butterfly Effect reach beyond the fields. Thanks to the Trump/Vance administration, farmers won’t be able to afford John Deere equipment anytime soon. As a result, John Deere – already hurting – saw a 12 percent decrease in its equipment sales in 2025 and expects a 15-20 percent decline in the U.S. and Canada in 2026.
And do we even need to ask how our auto industry fared? From well before “Liberation Day,” American auto executives were freaking out… as they should have been… because they know what President Trump and his crack team obviously don’t: No car is entirely made “in America.” Cars are really made in “North America.” Canada supplied around 13 percent – and Mexico almost 42 percent – of American imports of auto parts in 2024. Think about it this way: One tiny car component can cross the U.S. border between six and eight times before it’s physically put in a car.
Therefore, when Donald throws massive taxes on Canada and Mexico, he’s essentially taxing the American auto industry at the same exact level. Six months into this mess, General Motors announced that new tariffs on imported cars and auto parts had already cost the company $1.1 billion and that its net income shrank 35 percent in the second quarter of 2025 – which sent its stock price into a nosedive.
THIS MAKES NO SENSE! Regardless of what our president has convinced himself of, the old arrangement with our neighbors – scratch that, OUR PARTNERS – benefited the United States tremendously.
In 2022, America exported $75.4 billion worth of parts and automobiles to Canada and Mexico. That number jumped to $86.2 billion in 2023, an increase of 14 percent. All in, the auto industry added over $809 billion to our overall economy in 2023. This supported almost ten million direct and indirect American jobs and was over 11 percent of our total manufacturing output.
Nevertheless, here’s our new reality: In June 2025, for the first in over 30 years. Canada imported more vehicles from Mexico than from the United States.
Yep, this went really, really well.