A Year of Tariff-Induced Stagnation

Ronald Reagan quipped that the Carter Administration’s view of economic policy could be summed up as: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Over the last year, the Trump Administration has used tariffs to do all three: tax, regulate, and yes, subsidize, resulting in a significant economic slowdown.  

Sadly, Reagan’s timeless wisdom remains relevant as the American economy has suffered under this trifecta of bad tariff policy: large tax increases borne by American families and businesses; tariffs designed as barriers that have starved American manufacturers of needed raw and input materials; and tariffs meant as subsidies to prop up failing businesses and their shareholders at the expense of the rest of the American public.  

Advocates of the Liberation Day tariffs were honest about at least one thing: they would be a large tax increase. Just don’t look too closely at who actually paid the tax.  

Many have inaccurately tried to frame tariffs as taxes on foreign producers. In truth, a tariff is a tax on selling to Americans. The American government can’t go into Canada or Japan and tax a foreign company for activity that happens there. A tariff is a tax on American consumers and businesses who buy products from abroad. 

All a foreign producer must do to avoid the tax is simply sell to anyone other than an American. This gives foreign producers leverage to push almost all the tariff burden onto American buyers. This is plain to see in the data. 

Americans paid 10 percent more in total between tariffs and the purchase price of imports (an extra $330 billion) in 2025 than in 2024, while only buying 2.5 percent more products – implying a steep 7.3 percent effective increase in the price of imports (over three times the rate of inflation). The extra tariff collection in 2025, at $181.5 billion (over $1,300 per American household), accounted for 55 percent of the increase in what Americans paid for imports.  

While we cannot know for sure what underlying import prices would have been without the tariffs, the clear indication here is that essentially all the tariff burden was ultimately paid by Americans. 

At a time when conservatives are, rightfully, championing the passage of roughly $4.5 trillion in 10-year tax cuts (mostly extensions of expiring 2017 provisions) from the One Big Beautiful Bill, these tariff increases, if made permanent, could swallow perhaps 40% of those tax cuts – in the ballpark of $2 trillion. This represents a historically large tax increase imposed on the U.S. economy and the American public. 

Beyond acting as taxes, tariffs can indirectly restrict and regulate trade and commercial flows. Instead of passing a law or going through the regulatory process to restrict trade, the Trump administration turned to prohibitive tariffs to redirect American business towards the interests of protectionist politicians.  

In short, their view is that certain companies deserve your business more than others, and they are willing to use prohibitive tariffs to effectively force you to subsidize them. While the distinction can be murky, they view tariffs as a way to regulate against whom they don’t support and to force subsidization of those they favor.  

Protectionists often frame trade as if everything crossing the border is a finished product competing with an American producer. However, this couldn’t be further from the truth. On average, about half of the goods imported into the U.S. in a given year are brought in by other American businesses – aluminum used to make airplanes, or gears and pistons assembled into American-made cars, or medical devices used by hospitals to treat cancer and save lives. 

Attempting to cut off our businesses from the best inputs around the globe leaves American businesses uncompetitive, unable to grow, and unable to provide better jobs and higher wages to American workers. 

Since foreign producers can avoid our tariffs by selling anywhere but America, such tariffs, designed as regulations, box the U.S. out of global trade and box the rest of the world in with China. Indeed, we’ve seen nations scrambling to reroute supply chains and begin to set up new arrangements and investments to facilitate exactly that. 

Take the auto industry, for example. The Trump administration imposed some of the highest tariff rates on cars, engines, parts, etc., many of which are imported right to American factories to be turned into American-made cars. What has the result been? A 10 percent drop from 2024 to 2025 in the level of American auto manufacturing output. This has been matched by a 10 percent drop in imports of autos and auto parts - and the loss of 26,000 U.S. auto manufacturing jobs – while the importation of fully foreign built cars has increased. 

At a 30,000-foot level, shockingly, all the job growth in 2025 happened roughly three months before Liberation Day tariffs were imposed. Job growth in 2025 was negative, with 53,000 net jobs destroyed in the last three quarters of 2025, whereas 217,000 jobs had been created just in the first quarter of 2025 before Liberation Day. And no, the decline in the federal workforce and changes in immigration policy do not explain this labor market stagnation – the unemployment rate has increased by 0.2 percentage points, and the labor force participation rate declined by 0.6 percentage points since Liberation Day. 

Moreover, investment in new manufacturing facilities has fallen by eight percent from 2024 to 2025. Tariff barriers shift investment away from goods production, which relies more on global supply chains, and towards service sectors that are more insulated from tariff-induced disruptions.  

For example, in 2025, with just 164,000 jobs created on net, roughly 750,000 new private sector health- and education-related jobs were created, highlighting the staggering job losses in other sectors. Though the shift towards services employment has been happening for decades, tariffs that disrupt our delicate manufacturing supply chains exacerbated this trend last year. 

Sifting through all this destruction and economic stagnation, it’s also clear that tariffs failed to achieve the other component its supporters claimed – that they would subsidize reindustrialization and reduce the trade deficit. 

Not only have the tariffs clearly harmed the overall economy and manufacturing as a whole, but the trade deficit in goods actually increased by two percent from $1.215 trillion in 2024 to $1.24 trillion in 2025. 

While overall inflation is largely controlled by the Federal Reserve's decisions, tariffs clearly affected the prices of different sectors of the economy under the hood.  

The prices of consumer goods, in aggregate, trended slightly down from the end of the COVID price-spike right up until Liberation Day, but have risen two percent since then. Steel cans and tinware product prices have risen 12 percent, while iron and steel prices spiked almost 20 percent in 2025. 

Like other forms of subsidies that benefit the few at the expense of the many, tariffs don’t stimulate or generate growth – they act as a means of wealth redistribution. To tariff aluminum is to take money from airplane manufacturers, who must pay more for materials and therefore have less to spend on workers’ wages, and redistribute it to the shareholders of aluminum factories, who get to sell their products at a higher price. To tariff canned goods is to redistribute money from a family trying to put food on the table to those who profit from making tin cans. 

Tariffs tax Americans, restrict our choices, and close us from global supply chains and innovation, but they also pit some Americans against others – those protected by a tariff against those whose well-being and livelihoods depend on the tariffed product in question.  

As we’ve led the world in innovation, Americans have become the best at producing, for example, advanced airplanes. Tariffs that redistribute resources away from cutting-edge and growing industries to ones that are becoming obsolete do the opposite of what successful, wealth-creating investors seek to do: instead of investing in businesses that are likely to succeed, tariffs put money into businesses that are already failing. That isn’t how you’d invest your own money, and it’s not a good long-term strategy for the country or for American workers. 

It is impossible to fully capture the myriad ways in which the 2025 tariffs created distortions and burdens, sapped economic growth, and ultimately reduced Americans’ quality of life. The fact that the economic data is so jarring despite tax cuts, deregulation, and more energy resource extraction should serve as a powerful reminder of just how destructive tariffs can be. 

In attempting to use tariffs as a weapon to impose the will of a few on the whole of the American public – using tariffs to tax, regulate, and subsidize in an arbitrary and granular fashion - the  Trump White House has sadly proved in yet another way that government intervention doesn’t create growth and that government favoritism doesn’t improve quality of life. Broad-based tariffs won’t “liberate” anyone; they’re simply another way for the government to impose self-inflicted economic wounds. 

Richard Stern is Vice President of the Plymouth Institute for Free Enterprise at Advancing American Freedom.