US President Donald Trump has been saying that tariffs are the most beautiful word to him.
They are supposed to generate “billions” of revenues for the government and generate “trillions” in new investments for America.
A lot of things have changed since April, when the first big tariff announcements came.
Tariffs are a huge economic tool, and they affect all aspects of an economy in dramatic ways.
GDP, inflation, employment, consumer behaviour, federal revenue, wealth, and stock prices.
So, is Donald Trump’s plan working? Are tariffs making the country richer? Is this truly the beginning of a prosperous age for America, or is the opposite happening? The answer is in the latest data.
How aggressive are the current tariffs?
According to Yale’s Budget Lab, Trump’s tariffs pushed the average effective US tariff rate up to 7.0%.
That’s the highest tariff level America has seen in over half a century.
Source: The Budget Lab
The current regime includes a 25% levy on all imported autos, steel, and aluminum. Despite partial exemptions for certain countries like the UK, the impact is heavy.
Older tariffs remain in place, and the result is tariff stacking. In some cases, companies are paying effective rates of 70% or more.
Trump argues that these tariffs are generating historic revenue for the government and reviving American industry.
While federal revenue from tariffs is indeed expected to reach $686 billion over the next decade, the broader economic impact tells a different story.
According to Yale’s Budget Lab, real GDP growth has already been trimmed by 0.18 percentage points for 2025.
The long-run GDP hit is projected at 0.06% annually, which is equivalent to $20 billion.
American households are projected to lose $950 in annual purchasing power, and job losses are expected to reach 127,000 this year.
Is inflation going to spike?
For now, inflation has stayed quiet. But economists say it’s only a matter of time.
In the first half of the year, businesses front-loaded imports before the tariffs kicked in. Inventory stockpiling helped suppress prices in Q2.
Many companies also held off on price hikes due to shifting policies and uncertainty around final tariff rates. But this temporary buffer is ending.
JPMorgan estimates the new tariffs will add $400 billion per year to import costs.
When companies begin passing that along to consumers, CPI could rise to 3.0% or even 3.5% by the end of Q3.
Others may absorb the cost, but that would mean falling profits, frozen hiring, and eventual layoffs.
Eventually, prices are bound to rise. The issue is that this spike is approaching just as the Fed faces pressure to cut rates.
Is the “$12 trillion investment boom” real?
President Trump has repeatedly claimed that his economic agenda has unleashed more than $12 trillion in business investment.
The problem is that the real number is likely less than 1% of that.
The White House’s official list of announced investments totals about $5.3 trillion. But a Goldman Sachs analysis found that only $134 billion of that is new.
Once researchers accounted for projects that were already planned, not US-specific, or unlikely to materialize, the number dropped to as low as $30 billion.
Some of the projects listed include payroll expenses, tax obligations, or capital projects announced before Trump’s return to office.
Companies have a clear incentive to inflate investment announcements as they gain political goodwill and avoid scrutiny.
But very little of this money represents new capital actually moving into the economy because of tariffs.
What’s the real impact on the economy?
The numbers become more alarming when you look at specific sectors.
Manufacturing, which Trump often points to as the primary beneficiary of his protectionist policies, is not seeing a revival.
The output is slightly negative overall. While durable goods are flat, advanced manufacturing is down 0.3%.
Source: The Budget Lab
That includes precision parts, semiconductors, and high-value equipment. Agriculture has shrunk by 1.2%, construction by 1.5%.
Auto prices have jumped 8.4% in the short term, or about $2,400 more per new vehicle.
Pharmaceuticals are seeing some reshoring of manufacturing, but only for branded drugs.
Generic drug supply chains remain centered in India and China. Any reshoring will take five to ten years and could reverse depending on future price regulation.
Even the service sector, which is typically more insulated, is seeing spillover effects in trade and logistics.
Consumer confidence is beginning to erode. Businesses are deferring investment decisions.
The policy uncertainty is starting to freeze economic motion across the board.
Meanwhile, Trump touts the tariffs’ revenue generation as a major win. Over the next decade, the government is projected to collect $686 billion in additional tariff revenue.
But spread across ten years, that $686 billion is just 0.3% of GDP per year.
And even that figure is offset by an estimated $101 billion in lost tax revenue due to slower economic growth caused by the tariffs themselves.
Outlook: A global chain reaction
The effects of Trump’s tariffs won’t stay inside American borders. They never do.
The US will bear the brunt in the short term, with the clearest supply shock in decades.
Input costs are rising. Profit margins are tightening. Businesses are already slowing investment and freezing hiring plans.
And as layoffs begin, there’s not much cushion left in the labor market.
But the ripple effects abroad may be just as consequential. Europe is already feeling second-hand pressure.
As China’s demand for European goods weakens, and Chinese firms reroute exports to Europe and elsewhere, Eurozone exporters face a double hit: less demand, more competition.
The result is slower growth, goods disinflation, and mounting pressure on the ECB to cut rates even further.
Germany’s planned fiscal loosening might soften the blow. There is hope building up in some European economies but perhaps too early to be concrete.
The main target, China, is arguably more agile in its response. Beijing is only fighting a trade war with the US.
But the US is sparring with nearly everyone.
That leaves China with room to reroute trade, stimulate demand at home, and soften the impact through policy.
As Chinese goods spill over into other markets, they will export deflation across Asia, the Eurozone, and Latin America.
For emerging markets, already hit by weak global demand and falling commodity prices, this could mean another lost year.
Even central banks aren’t sure what they’re looking at. The data is noisy. Price pressures are expected to accelerate from mid-2025, just as industrial production softens.
The Federal Reserve now faces a near-impossible task: stimulate growth without stoking inflation.
Lower rates might help the job market, but they risk undermining the dollar and inviting even more volatility.
This is the dilemma the Fed’s facing ahead of its rate decision on the 18th of June.
The bottom line is that Trump’s tariffs haven’t delivered the economic renaissance he promised.
Beneath his confident speeches and impressive-sounding numbers, the reality looks bleaker.
The post Are Trump’s tariffs really making America Great Again? appeared first on Invezz
