Tariffs Have Hurt, Not Helped, the U.S. Economy

The U.S. economy, after a tumultuous year of tariffs and trade wars, appears to have performed better than feared earlier in the year, with annual GDP growth through the third quarter of about 2 percent, including a surprisingly healthy bump in the last reported quarter. 

But that, contrary to what U.S. President Donald Trump says, is not because of tariffs but in spite of them. And 2026 looks set to be an even rockier year on the trade front, with further negative implications for U.S. economic performance.

Third-quarter economic growth was the fastest in two years, but it couldn’t hide a number of worrying signs about the negative impacts that Trump’s tariffs have had on broad swaths of the economy. What all those tariffs—some levied on the whole world, others on particular countries, and still others on an ever-growing list of specific sectors—have in common is higher prices for producers and consumers as well as a discouraging effect on new investment by businesses, which can never be sure if the tariffs will remain in place, or at what level. (That is especially true with the most sweeping of Trump’s tariffs, which are being challenged at the Supreme Court.)

In the simplest terms, Trump’s tariffs acted as an anchor, not an engine, to a U.S. economy that—prior to his inauguration—was the best-performing among all major economies. Oxford Economics estimates that tariffs “weighed on the level of real GDP by 1.1 percent in 2025 and will drag on real GDP by 1.4 percent in 2026.”

Beyond the rosy headline growth numbers, there are a number of worrisome indicators that suggest Trump’s trade policy is creating headwinds for some of the very sectors that he had sought to make stronger. To a greater or lesser extent, each one of those indicators shows the impact of making imported goods more expensive for U.S. businesses and consumers.

The U.S. oil patch, for example, is planning to rein in capital investment due to cheap oil and pricier supplies, such as steel for pipes, tubes, and casings, which are more heavily taxed in this Trump administration than the first. That is expected to translate into the first decline in U.S. oil production in four years.

Or take construction, usually a reliable bedrock for growth when times are good, but a sector under pressure from those sectoral tariffs on items such as steel, copper, and lumber. For the first time since the early months of the COVID-19 pandemic, construction spending is going down.

Consumer confidence is also souring, despite the seemingly positive headline numbers. The Consumer Confidence Survey fell for the fifth straight month in December, with respondents citing trade and tariffs among the reasons for their gloom.

It’s not entirely hard to see why: Inflation hasn’t really budged for a year and a half, and it’s still stubbornly close to 3 percent annually. One driver for that? Producer prices rose 2.7 percent over the year through September, led by higher prices for food and energy, both of which have been indirectly affected by trade wars (and are the reason for some of Trump’s tariff exemptions, such as on beef and coffee). 

But the real grim news comes from manufacturing, the very sector that Trump set out to restore to greatness with a protectionist wall. Manufacturing jobs have started declining again in the first year of Trump’s second term, after a small but consistent recovery during the Biden administration. Likewise, real private fixed investment in manufacturing facilities, which had been on a four-year upswing, steadily declined all year.

Most tellingly, economic activity in the manufacturing sector contracted in December for the 10th straight month, with companies in most sectors blaming tariffs for higher input prices and lower demand from customers.

Even over a longer time scale, the tariffs have failed to deliver precisely what Trump set out to do: bring back large-scale investment into U.S. manufacturing. While higher tariffs can, and have, spurred some foreign investment in certain sectors, the notable exception is in manufacturing, according to a pair of economists at the European Central Bank. 

“While tariffs may attract some investment aimed at bypassing trade barriers, the ‘protectionist gamble’ is unlikely to deliver sustained gains in manufacturing investment,” wrote Isabella Moder and Tajda Spital. “Instead, large-scale tariff increases risk raising supply-chain costs, discouraging efficiency-seeking investment, and ultimately undermining the very manufacturing competitiveness they seek to protect.”

The problem is, as painful as tariffs were in 2025, they are likely to be an even bigger headache this year—though exactly how much may depend in part on how the Supreme Court rules in the case regarding tariffs imposed under the International Emergency Economic Powers Act (IEEPA), a decision that could come any time in the first half of this year.

There were a number of reasons for the relatively muted negative impact of tariffs on U.S. growth in 2025: Many of the tariffs were only in place for a few months; companies were able to front-load inventories and draw on them for much of the year without worrying about higher-priced imports; and companies were willing in the short term to eat much of the higher cost of imports rather than passing all of the higher prices to consumers. 

None of those mitigating factors will be in place this year, and in fact, the situation may get even murkier if the administration has to do the IEEPA tariffs all over again and deal with refunds and the like. There are still a slew of fresh national security-related tariff investigations awaiting completion, which could add new duties on sectors such as solar power, aircraft engines, robots, and more. And the United States, Canada, and Mexico face a contentious review of their already-renegotiated USMCA trilateral trade agreement in 2026, which presents a risk of breakdown in low-tariff trade in North America.

“There was a tremendous amount of complexity in 2025, and there is going to be even more complexity in 2026,” said Ryan Petersen, the CEO of Flexport, a supply chain manager.