Tariffs, Trade, and Reality - Why Punitive Trade Policy Is Weighing on U.S. Consumers and Undermining Economic Efficiency

By Stanley Epstein - 

Introduction

The U.S. economy in 2025–2026 presents a mixed picture.

Growth continues, but at a slower pace. Inflation has eased from prior peaks yet remains visible in essential goods. Confidence remains fragile. At the center of the debate lies trade policy — specifically the aggressive use of tariffs as a tool of economic “punishment.”

The evidence suggests a sobering conclusion: broad tariffs have not delivered their stated macroeconomic goals and have instead imposed measurable costs on U.S. consumers and firms.

The Current Economic Backdrop

U.S. GDP expanded by approximately 2.2 percent in 2025, below historical long-run averages and slower than earlier post-pandemic growth phases. Official data from the Bureau of Economic Analysis confirms this moderation in output growth. See https://www.bea.gov .

Job creation has softened relative to prior years, with uneven sectoral performance. Consumer confidence readings published by The Conference Board remain subdued, reflecting persistent concerns about prices and economic direction.


Inflation pressures remain visible in housing, groceries, and insurance. While headline rates have cooled, lived experience often diverges from the official narrative.

Meanwhile, the U.S. goods trade deficit widened to roughly $1.24 trillion. Trade statistics from the U.S. Census Bureau show that deficits with major partners remain substantial.

If tariffs were intended to reduce the trade imbalance, the aggregate data suggest limited success.

Judicial Constraints on Trade Policy

Trade policy is not solely an economic matter; it is also a constitutional one.

In 2026, the Supreme Court of the United States ruled that several broad global tariffs exceeded the statutory authority granted to the executive branch. The decision forced partial rollbacks and opened the door to potential refunds.

The ruling underscores a structural reality: even forceful trade policy must operate within legislative boundaries. Executive overreach carries legal as well as economic risk.

Comparative Advantage Versus Combative Nationalism

The intellectual foundation of international trade rests on comparative advantage. First articulated by David Ricardo in the early nineteenth century, the theory holds that nations benefit by specializing in goods they produce relatively efficiently and trading for the rest.

The logic is straightforward. Specialization increases total output. Trade expands consumption possibilities. Overall welfare rises.

This principle remains widely accepted across the economics profession. Research and policy papers from the International Monetary Fund continue to emphasize that open, rules-based trade supports productivity and long-term growth.

Broad, punitive tariffs run counter to this framework. They deliberately distort specialization patterns, raise input costs, and reduce allocative efficiency.

The Second-Term Tariff Escalation

During President Donald Trump’s second term, effective U.S. tariff rates rose sharply from historically low single digits to double-digit averages on many categories of goods. Metals, vehicles, and a range of manufactured products faced particularly elevated rates.

These measures were not limited to narrow anti-dumping cases. Many were broad-spectrum or explicitly framed as leverage or punishment in trade disputes.

The political narrative suggested that foreign exporters would absorb the cost. The economic evidence indicates otherwise.

Who Pays?

Empirical research from the Federal Reserve System examining earlier tariff waves found that the overwhelming share of tariff costs was borne domestically, largely passed through to U.S. importers and consumers (see, for example, Federal Reserve Bank working papers at https://www.federalreserve.gov).

Subsequent analysis indicates that in 2025, roughly 90 percent of the burden fell on U.S. firms and households rather than foreign suppliers.

This outcome is consistent with trade theory. When a tariff is imposed, the importer writes the check to the customs authorities. Unless foreign exporters sharply cut prices, domestic buyers absorb most of the increase.

Tariffs function economically as a tax on imports. Taxes raise prices.

Inflation, Costs, and Competitiveness

Broad tariff hikes increase costs for consumer goods and intermediate inputs.

Analysts at major financial institutions, including UBS, have warned that economy-wide tariff expansion risks reinforcing inflationary pressures while dampening growth. Higher input costs squeeze margins, reduce investment flexibility, and weaken competitiveness.

Producers reliant on global supply chains face difficult choices. They can pass costs on to customers, absorb margin compression, automate, or shift production abroad. None of these options guarantees net job gains.

Recent layoff announcements at firms such as Whirlpool Corporation, despite tariff protection in certain segments, illustrate the complexity. Protection does not immunize firms from global demand shifts, automation, or cost pressures.

Trade Retaliation and Structural Limits

Trade relationships are reciprocal.

Tariffs invite retaliation, whether formal or informal. Trading partners may impose countermeasures or redirect supply chains away from the United States. Integrated North American production networks involving Canada and Mexico face disruption, increasing friction within sectors that depend on seamless cross-border flows.

Moreover, trade deficits are macroeconomic outcomes influenced by savings rates, fiscal policy, exchange rates, and consumption patterns. They do not automatically shrink when tariffs rise.

A nation can tax imports and still run a large deficit if domestic demand exceeds domestic savings.

A Balanced Assessment

There are limited contexts in which tariffs may serve a strategic function. Targeted measures protecting genuinely critical supply chains, particularly in defense or sensitive technologies, can be defensible under a national security rationale.

Tariffs can also serve as negotiating leverage in narrowly defined disputes.

But broad, punitive tariffs applied across wide categories of goods tend to reduce efficiency, increase consumer prices, and inject uncertainty into business planning.

Mainstream economic analysis overwhelmingly concludes that such measures are a blunt instrument for achieving sustained macroeconomic competitiveness.

Conclusion

The U.S. economy remains resilient but constrained.

Growth has moderated. Trade deficits remain elevated. Consumer sentiment is cautious. Against this backdrop, expansive tariffs framed as economic punishment have not delivered clear structural gains.

Instead, they have functioned largely as a domestic tax on consumption and production.

Comparative advantage remains a powerful organizing principle. Economies grow stronger not by isolating themselves, but by specializing intelligently, investing in productivity, and engaging in rules-based trade.

Tariffs are not inherently illegitimate. But when used as broad political weapons rather than precise economic tools, they risk undermining the very prosperity they claim to defend.

MY MUSINGS

I find myself increasingly sceptical of the language of “punishment” in trade policy.

Trade is not a zero-sum contest. It is a network of interdependence. When we speak of punishing trading partners, we should ask who ultimately pays the invoice.

The empirical evidence suggests it is often domestic consumers.

I also question whether we conflate trade deficits with economic weakness too casually. A deficit can reflect strong domestic demand and capital inflows. Should we treat it automatically as a failure?

There is another tension worth confronting. Political narratives favor visible action. Tariffs are visible. Structural reforms in education, innovation policy, infrastructure, and productivity are slower and less dramatic. Yet the latter likely matters more.

Are we choosing the policy instrument that signals strength, or the one that genuinely builds it?

The Supreme Court’s intervention reminds us that trade power is not unlimited. Constitutional guardrails exist for a reason. Economic strategy must align with legal authority.

Looking forward, absent a pivot toward cooperative, rules-based trade and targeted industrial policy, the risks are clear. Continued price pressures. Slower productivity gains. Heightened global fragmentation.

None of this is inevitable. But neither is it imaginary.

I would welcome thoughtful perspectives. Are broad tariffs a necessary corrective in an unfair global system? Or are they a costly distraction from deeper competitiveness challenges?

The answer will shape not just trade flows but living standards.