The objectives of the tariff policy include raising tax revenues, delivering lower prices for American consumers, and boosting American industry while creating manufacturing jobs. The president has also vowed to get better trade deals for the US to reduce its trade deficit and to face down China’s growing influence on the world stage.
But recently the US Federal Reserve voted to keep interest rates unchanged at 4.25% to 4.5%, despite pressure from Trump to lower them. In his monthly press briefing, Federal Reserve chair, Jerome Powell, said they were still in the early stages of understanding how the tariff policy would affect inflation, jobs and economic growth.
On tariffs, Powell did say that revenues had increased substantially to US$30 billion (£22.9 billion) a month. However, only a small portion of the tariffs are being absorbed by overseas exporters, with most of the cost being borne by US import companies. In comments that will concern the Trump administration, the Fed said the cost of the tariffs was beginning to show up in consumer prices.
The Fed expects inflation to increase to 3% by the end of the year, above its 2% target. US unemployment remains low, with Powell saying the economy is at or very close to full employment.
While Powell’s decision to hold interest rates probably irritated Trump, economic theory suggests that lowering them with the US economic cycle at full employment would be likely to increase inflation and the cost of living for US consumers. A survey by Bloomberg economists suggests that US GDP growth forecasts are lower since April 2025, specifically because of its tariff policy.
In terms of boosting US employment, the US administration can point to significant wins in the pharmaceutical sector. In July, British-Swedish drugmaker AstraZenica announced plans to spend US$50 billion expanding its US research and manufacturing facilities by 2030. The announcement follows a similar pledge from Swiss pharmaceuticals firm Roche in April to invest US$50 billion in the US over the next five years.
Tougher times for US manufacturing
The impact of tariffs on traditional US manufacturing industries is less positive. The Ford Motor Company has warned that its profits will see a sharp drop. This is largely down to a net tariff impact that the firm says will cost it US$2 billion this financial year. This is despite the company making nearly all of its vehicles in the US.
Firms such as Ford are seeing an increase in tariff-related costs for imports. This dents their profits as well as dividends to shareholders.
In recent months the US has announced major new trade agreements, including with the UK, Japan, South Korea and the EU. Talks on a trade deal with China continue. But rather than trade deals, these announcements should be thought of as frameworks for trade deals. No legally binding documents have been signed to date.
It will take many months before a clear picture emerges of how these bilateral deals will affect the US trade deficit overall. Meanwhile, in Washington, a federal appeals court will hear a case from two companies that are suing Trump over the use of his International Emergency Economic Powers Act (IEEPA) of 1977.
VOS Selections Inc, a wine and spirits importer, and Plastic Services and Products, a pipe and fittings company, are arguing that the president has “no authority to issue across-the-board worldwide tariffs without congressional approval”.
With so much in play, it is difficult to judge whether Trump’s tariff policy can be viewed as a success. Higher tariff revenues from imports as well as significant investments from the pharmaceutical industry can be seen as clear wins.
But increasing consumer costs through rising inflation, as well as tariff costs hurting US manufacturers, are clear negatives. While several framework trade deals have been announced, the real devil will of course be in the detail.
Perhaps the greatest impact of the tariff policy has been the uncertainty of this new approach to trade and diplomacy. The Trump administration views trade as a zero-sum game. If one side is winning, the other side must be losing.
This view of international trade harks back to mercantilism, an economic system that predates capitalism. Adam Smith and David Riccardo, the founders of capitalist theory, advocated for free trade. They argued that if countries focused on what they were good at making, then both sides could benefit – a so called positive-sum game.
This approach has dominated global trade since the post-war period. Since then, the US has become the largest and wealthiest economy in the world. By creating and the institutions of global trade (the IMF, World Bank and World Trade Organization), the US has advanced its interests – and American-based multinationals dominate, especially in areas such as technology.
But China and others now threaten this US domination, and Trump is tearing up the economic rulebook. But economic theory clearly positions tariffs as the wrong policy path for the US to assert and further its economic interests in the medium to long term. That’s why Trump’s course of action remains such a gamble.
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Conor O'Kane, Senior Lecturer in Economics, Bournemouth University
This article is republished from The Conversation under a Creative Commons license. Read the original article.