If there is one area where President Donald Trump has deviated significantly from Republican Party economic policy orthodoxy, it must be import tariff policy.

Rather than promoting free trade, Trump has pursued the most aggressive trade policy in the last 100 years. Indeed, he has taken a protectionist, largely unilateral approach to trade policy, using broad, frequently changing tariffs as leverage to pressure trading partners and encourage domestic manufacturing.

The average effective U.S. tariff rate was 7.6 percent in 2025, more than three times the 2.4% average in 2024, according to USAFacts. It averaged 7.3% during the first eight months of 2026 and was 6.9% in August. Meanwhile, several major countries face tariffs as high as 12.5%, while steel and aluminum imports face tariffs between 25% and 50%.

Almost two years into his second term, it would be charitable to say that Trump’s tariff policy has not delivered on his promises. The trade deficit remains very wide, manufacturing’s share of nonfarm payroll employment remains historically low, and investment outside the artificial intelligence sector has stagnated. Meanwhile, contrary to Trump’s claims that foreigners would pay for the import tariffs, tariffs appear to have played a role in keeping inflation from falling. The erratic way in which tariffs have been applied has also damaged our reputation as a reliable economic partner.

The Trump administration seems to deny that higher import tariffs have contributed to annual inflation, as measured by the consumer price index, which rose to 3.7% in September 2026.

The essential point is that a tariff is basically a tax paid by the importers. Importers might initially absorb some of that tax in terms of lower profit margins. However, in time they tend to pass most of the tax on to consumers. In addition, domestic producers who compete with imports can raise their own prices, and firms that rely on imported parts or materials face higher costs. This is especially true for industries that use aluminum and steel imports.

Ron Mau and Tucker Smith with the Dallas Fed estimated that tariff collections added nearly a full percentage point (0.8%) to the 12-month core PCE inflation rate.

And in the mistaken belief that foreigners were ripping us off with their trade policies, one of Trump’s key economic policy aims was to eliminate the trade deficit. Two years on, little progress has been made on that score. At $932 billion in 2025, the trade deficit on goods and services was about 5.3% larger than the $885.5 billion deficit in 2024, Joe Biden’s last year in office. Meanwhile, the deficit totaled $662.3 billion in the first nine months of 2026, equivalent to $883 billion annually. We still have a large trade deficit despite our high tariff wall.

This slow progress in reducing the trade deficit has been accompanied by heightened investor uncertainty due to Trump’s frequent changes to import tariff policy. Manufacturing employment rose by 101,000 jobs from December 2025 to October 2026, reaching about 12.7 million, but the sector still accounted for just 8% of total nonfarm payroll employment.

One point the Trump administration has difficulty grasping is that the trade deficit results from spending more on consumption and investment than we produce. It has made little progress in reducing the trade deficit because it has kept spending high through its irresponsible budget policy of unfunded tax cuts. That policy is reflected in a budget deficit that stood at 6.2% of GDP in fiscal 2026.

If the Trump administration were serious about reducing the trade deficit, it would cut spending and take revenue measures to eliminate our budget deficit.

In the midterm elections, voters sent Washington a clear message. They want something to be done about the country’s affordability crisis. A good place to start would be to roll back Trump’s import tariff increases that are dealing an economic blow, especially to those in our society who can least afford it. At the same time, we should act soon to rein in the budget deficit if we are to be serious about reducing our trade deficit.

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ABOUT THE WRITER

Desmond Lachman is a senior fellow at the American Enterprise Institute. He wrote this for InsideSources.com.

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