The Tariff Illusion: Why the Numbers Are Not What They Seem
Seven months into what has become America's broadest trade war in nearly a century, the results of President Trump's tariff regime remain stubbornly ambiguous. Richard Coffin of The Plain Bagel digs into the data behind the headlines and finds a story far more complicated than either cheerleaders or doomsayers would have observers believe. The effective tariff rate has climbed to roughly 17 percent, the highest since 1935, yet the predicted economic catastrophe has not materialized in the ways most forecasters expected. That gap between prediction and reality deserves scrutiny rather than celebration.
The Inflation Puzzle Has an Expiration Date
The most striking data point in the tariff debate is the one the White House highlights most aggressively: inflation has not surged. CPI sits at 2.9 percent, above the Federal Reserve's target but well below the crisis-level figures economists warned about. Producer prices actually fell month-over-month in August. Trump himself has seized on these numbers to argue that foreign countries, not American consumers, are footing the bill.
Trump has highlighted that inflation is virtually non-existent except for windmills, I guess, stating that it's foreign countries who are paying the higher price of these tariffs, not Americans. Now, both of those statements are technically incorrect given that tariffs are paid for at the importer level and we are still obviously having inflation.
The reality, according to Goldman Sachs analysis cited by Coffin, is that American businesses have absorbed roughly 64 percent of tariff costs, foreign exporters have covered about 14 percent, and consumers have borne only about one-fifth. That corporate absorption is not generosity. It is a calculated bet by companies facing the weakest consumer confidence since the pandemic, companies terrified that raising prices will drive customers away entirely.
This arrangement has a clear shelf life. Goldman Sachs projects that by autumn, consumers will be covering 67 percent of tariff costs as businesses exhaust their ability to eat the difference. The inventory stockpiling that followed tariff announcements, which temporarily allowed companies to sell goods purchased before the levies took effect, is also running down. The broad consensus among forecasters points to an eventual 2 percentage point inflation increase, meaning 4 to 5 percent inflation once the buffer erodes.
Those arguing that tariffs are inherently deflationary, because taxation pulls money from the economy, have a theoretical point but miss the practical picture. The deflationary pressure is being actively counteracted by the "Big Beautiful Bill," which cuts taxes, increases government spending, and is projected to add $1 trillion to the deficit over the next decade even after tariff revenue is accounted for. Fiscal policy is running in the opposite direction of trade policy.
The Manufacturing Jobs That Have Not Arrived
The core promise of the tariff campaign was the restoration of American manufacturing. On this front, the evidence to date is discouraging. Manufacturing jobs have fallen for four consecutive months. Unemployment has ticked to its highest point in four years. The two major manufacturing indices tell contradictory stories, but one of them, the ISM index, shows six straight months of contraction with an estimated 69 percent of manufacturing GDP shrinking.
While we did in fact see the trade deficit for the United States fall 25% year-over-year in July, that also followed a period of record high imports. So it is somewhat to be expected. And domestic manufacturing hasn't really shown meaningful signs of reigniting.
The administration's counterargument rests on the long time horizons required to build domestic manufacturing capacity and the flood of investment announcements from both domestic and foreign sources. Apple, Nvidia, Project Stargate, and others have pledged hundreds of billions in domestic investment. Foreign governments, including Japan, the UAE, the EU, and South Korea, have announced commitments in the trillions.
Coffin's analysis of these pledges is sobering. Japan is the closest to a binding agreement, having signed a memorandum of understanding. The Gulf State commitments remain verbal and may exceed those economies' practical capacity. The EU's $600 billion figure is merely an estimate of expected private investment, not an enforceable commitment. South Korea is already disputing the terms of its $350 billion package. Perhaps most damaging to the narrative, a Reuters review found that many investments claimed by the Trump administration were either secured under Biden or represented routine corporate spending.
US factory construction is actually down 7% from last year. Ironically, thanks in part to companies finishing up their projects under Biden era incentive programs like chips or the inflation reduction act.
That last detail is particularly telling. The CHIPS Act and Inflation Reduction Act, legislative achievements of the prior administration that Trump's allies frequently criticized, generated the factory construction boom that is now winding down. The tariff-driven replacement wave has not yet begun.
GDP Growth Is Not the Same as Tariff Success
Second-quarter GDP growth of 3.3 percent year-over-year is the number most frequently cited as proof that the tariff strategy is working. Coffin argues persuasively that this confuses correlation with causation. The AI infrastructure gold rush, with UBS estimating $375 billion in tech company spending for 2025 and $500 billion for 2026, is an enormous tailwind that has nothing to do with trade policy. The tax cuts in the Big Beautiful Bill provide additional stimulus. These forces are powerful enough to mask the drag from tariffs, at least temporarily.
The economy has seemingly been performing in spite of tariffs, not really because of them. Again, most empirical research points to a net negative impact on economic activity and a rise in unemployment when tariffs are imposed.
This distinction matters enormously for policy evaluation. An economy that grows 3.3 percent with tariffs in place might have grown 4.3 percent without them, if the consensus forecast of a 1 percentage point GDP hit proves accurate. Growth is not vindication when the counterfactual is faster growth.
The Counterpoint: Strategic Leverage Has Value
The strongest argument for the tariff regime, and one Coffin acknowledges, is that tariffs serve as negotiating leverage rather than as permanent policy. If the chaos and economic pain ultimately produce meaningfully better trade agreements, with lower barriers on both sides, the short-term costs could prove justified. The United States does possess extraordinary leverage as the world's largest consumer market, and other countries have strong incentives to make concessions to maintain access.
This argument, however, requires two conditions that remain unproven. First, the administration must actually convert tariff pressure into binding, enforceable trade deals that result in lower barriers, not just headline-grabbing investment pledges of uncertain reliability. Second, the economic damage during the negotiation period must remain manageable enough that the eventual gains outweigh the accumulated costs. With consumer confidence at pandemic lows, manufacturing in contraction, and the inflation buffer eroding, neither condition is guaranteed.
There is also the historical record to contend with. Trump's first-term steel tariffs created jobs in the steel industry but destroyed more jobs in downstream manufacturing through higher input costs. The pattern of concentrated benefits and diffuse costs is a well-documented feature of protectionist trade policy, and nothing in the current approach suggests this dynamic has been overcome.
Bottom Line
The tariff regime has not yet produced the economic disaster many predicted, but the mechanisms preventing that disaster, corporate profit absorption, inventory drawdowns, and massive AI-driven investment, are temporary. Manufacturing jobs are declining, not growing. The investment pledges that form the centerpiece of the administration's success narrative range from aspirational to unenforceable. Most empirical evidence continues to indicate that tariffs impose net costs on the imposing country. The question is not whether tariffs are "working" in some abstract sense but whether the American economy's genuine strengths, its technology sector, its consumer market, its capital markets, can continue to outrun the drag that tariffs impose on them. That race gets harder with every month the buffer shrinks.