-The author is head of economics at the Greater London Authority and a policy fellow at Cambridge University.
ISTANBUL
It has been approximately six months since US President Donald Trump first imposed tariffs on imports from most countries. Many economists (myself included) warned that such tariffs would have adverse effects not only on global trade and growth but also on the US economy. While it is too early to draw definitive conclusions, there are several indications that tariffs are starting to hurt the American economy, with the damage potentially intensifying.
Consumer price inflation
One expected consequence of the tariffs is higher consumer price inflation. When tariffs are levied on imports, it is US-based importers that end up paying them. It is worth noting that until now, US businesses have delayed passing tariff costs onto consumers because they "front-loaded" their stockpile of imports before the tariffs took effect. However, there are signs that this is starting to change.
At their current rates, the tariffs undercut many US businesses' profit margins. Hence, most businesses will eventually pass the cost onto US consumers through higher prices. For example, the JP Morgan Institute projected that President Trump’s tariffs could add an extra $82.3 billion in new costs to all medium-sized US firms [1], while Goldman Sachs forecast that US companies will pass on approximately 70% of the direct cost from tariffs to consumers [2].
Recent data suggest this is happening. The US Bureau of Labor Statistics revealed that the Consumer Price Index increased by 2.9% for the 12 months ending August 2025, after rising 2.7% over the same period in June and July. Meanwhile, core inflation – a measure of inflation that excludes volatile price items such as food and energy – rose to 3.1%. This is despite the fact that gasoline prices fell 6.6% over the last 12 months and fuel oil prices were down 0.5% [3].
This implies that businesses are raising prices as their profit margins shrink. These price hikes are affecting many items, including household appliances, recreation goods, and footwear.
Economic growth
Consumer spending comprises nearly 70% of US GDP. With all else equal, higher prices lead to lower consumer spending, and recent macroeconomic data suggests this is also happening. According to ADP Research’s National Employment Report, private employers slashed 32,000 jobs in September, with job creation losing momentum in most sectors. [4]. This is likely to reduce total consumer spending. Moreover, the International Monetary Fund reduced its growth projection for the US in 2025 to 1.8% (from 2.7%), primarily because of the tariffs [5].
While recent Bureau of Economic Analysis figures revealed annualized 3.0% GDP growth during the second quarter of 2025, this is due to a tariff-induced drop in imports and masks weaknesses in hiring, business, and residential investment [6].
Industrial competitiveness
Recall that one of Trump’s key objectives is reviving US manufacturing, and tariffs are one tool he is employing to achieve this. The effects of tariffs on sectoral composition and industrial activity typically materialize years after their introduction. Nevertheless, one could infer potential results from previous episodes and contemporary data.
It is crucial to remember that tariffs are not only levied on final products, but also on intermediate ones used by US manufacturers to make their products. According to the US Federal Reserve, almost a third of intermediate goods used by US manufacturers are imported from abroad [7]. Data from this April shows a noticeable drop in imports of intermediate goods after months of “front-loading” in preparation for the tariffs. Net domestic business investment dropped by approximately 22% between the first and second quarters of 2025 [8], while the manufacturing sector recorded seven consecutive months of contraction, according to the ISM US Manufacturing PMI [9]. These data suggest that the tariffs will not help revive US manufacturing.
Similar efforts by Trump during his first term did not fulfill this objective. Data from the Bureau of Labor Statistics shows that in February 2017, there were 309,000 employees hired in manufacturing roles, compared to also 309,000 in March 2020. Other episodes paint a similar picture. The Smoot-Hawley tariffs of the 1930s prolonged the Great Depression, led to widescale job losses, and failed to protect domestic industries. In addition, the US imposed tariffs on steel imports during the early 2000s to protect its steel industry. However, the tariffs raised the price of imported steel and provoked considerable job losses in the automotive and construction industries. A combination of higher input costs and retaliatory tariffs by other countries means that tariffs are unlikely to protect US manufacturers or enhance long-term industrial competitiveness.
Therefore, recent data and historical episodes imply that tariffs are more likely to harm than benefit the US economy and its consumers: they will precipitate inflationary pressures, lower consumer spending, and reduce business investment and economic growth, while not supporting the industrial competitiveness and manufacturing revival Trump desires. In fact, they could engender the opposite result at an inopportune time for US businesses and consumers.
[1] https://www.jpmorganchase.com/institute/all-topics/business-growth-and-entrepreneurship/tariff-impacts-on-the-middle-market
[2] https://www.goldmansachs.com/insights/articles/us-earnings-will-start-to-show-the-impact-of-trumps-tariffs
[3] https://www.bls.gov/opub/ted/2025/consumer-prices-up-2-9-percent-from-august-2024-to-august-2025.htm
[4] https://adpemploymentreport.com/
[5] https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025
[6] https://www.reuters.com/world/us/rebound-us-economic-growth-second-quarter-masks-underlying-slowing-trend-2025-07-30/#:~:text=Economists%20expected%20a%20lackluster%20second,U.S.%20Treasury%20yields%20rose.&text=A%20column%20chart%20titled%20%22US,metric%20over%20the%20last%20year.
[7] https://www.federalreserve.gov/econres/notes/feds-notes/a-sourcing-risk-index-for-u-s-manufacturing-industries-accessible-20230908.htm
[8] Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/W790RC1Q027SBEA
[9] https://www.reuters.com/world/us/us-private-payrolls-decline-september-2025-10-01/
*Opinions expressed in this article are the author's own and do not necessarily reflect Anadolu's editorial policy.
