Will tariffs 2.0 Be different from tariffs 1.0

​Tariffs continue to be an on-going issue in the country receiving much attention. Recently there was a Supreme Court decision released finding some of the tariffs imposed by the President had to be removed.  The decision was based on the Court’s interpretation of the statute the President used to impose the tariffs.

​But the Administration has already pivoted and imposed replacement tariffs.  So, the tariff war continues.

​There are multiple purposes of today’s column.  The first is to review the meaning of  tariffs and why are they have been applied.  Second, since the tariffs have been in use for a year, have they accomplished their goals?  And third, what is the outlook for tariffs’ impacts on the future economy?

​Tariffs are a tax on imported products to the US.  The tariffs do not have to be consistent for all imports.  Tariff levels can be different for individual countries and individual products.  Tariffs can also be imposed for various time periods.

​What entity pays the tariff?  It is not the foreign company or country exporting a product to the US.  Instead, it is the US company importing the product that pays the tariff to US Customs.  Businesses may try to recover the tariff costs by increasing prices to customers.  And while some businesses may attempt to convince the foreign exporter to lower their prices to compensate for the tariff, that tactic rarely works.  Indeed, a recent study by the Federal Reserve found 90% of tariffs are effectively paid by US companies and consumers.

​What is the purpose of tariffs?  The major goal of tariff supporters is to reduce imports and replace them with domestic production, thereby increasing US jobs. It is also argued that such a switch from foreign to domestic production will provide more certainty of having those products available to US users.

​Another goal of tariff backers is to create more investment by foreign businesses in the US.  But how will tariffs do this?  The reality is the US is still the largest economy in the world, even surpassing China.  This means foreign companies want to sell their products in the US.  Tariffs make selling in the US market more expensive.  But a way around tariffs is to build factories in the US.  Then the products made and sold in the US won’t be subject to the tariff tax.  As a bonus, the new US factories will hire domestic workers.

​Lastly, tariff supporters claim tariffs will motivate other countries to come to new trade deals with the US which will lower foreign tariffs and help US companies sell in those countries.

​Using economic data now available for 2025, let’s see if tariffs achieved these goals during that year. US imports actually increased over 5% in 2025 compared to 2024, which is contrary to what tariff supporters would expect.  However, early in 2025 there was a surge in import buying.  Some economists explain this as panic-buying by US companies fearing tariffs would be increased even higher.  However, by the end of 2025 monthly import numbers were running lower than for the same months in 2024.  

A complementary survey showed some decline among US consumers to “buy American,” citing still higher prices for US manufactured products.

With respect to US manufacturing employment, comparing the end of 2025 to the end of 2024, manufacturing jobs dropped by 108,000 workers.  Although this was a modest decline of less than 1%, the trend was still opposite of what tariff supporters expected. Manufacturing output also changed little from 2024 to 2025.

What has happened to foreign investment in the US between 2024 and 2025?  While we don’t have the fourth quarter numbers for 2025 yet, comparing the investment numbers for the first, second, and third quarter numbers shows a 6% decline from 2024 to 2025.

Lastly regarding trade deals, a number of new trade agreements have been completed between the US and other countries.  Yet, some uncertainty about their durability remains.  For example, recently the US and the European Union have both moved to beak their deal over complaints about new tariffs.

Hence, the numbers don’t yet support the expectations of tariff supporters. Of course, it may be too early to render a judgement due to the fact that investment decisions like building factories are a big commitment, one that likely requires the decision-makers to take their time.

Looking ahead, my expectation is tariffs will continue to be a major factor in the economy during 2026.  Right now, tariffs are creating uncertainty among business decision-makers because it is not exactly known what the Administration will do after the Supreme Court decision.  Especially confusing is the fact that some of the new tariffs being considered are temporary.  Also, there may be more tariff cases taken to the Supreme Court.  All of this uncertainty means tariffs may be one of the factors behind the slow pace of hiring.

With affordability being a top issue in the country, some speculate the Administration may take a narrower approach with tariffs in 2026.  Tariffs have increased the prices of several important consumer items, including some foods, electronics, toys, clothing, and inputs for home building.  There is some thought the Administration may omit these products from tariffs, or at least have a lower tariff imposed on them.

I see three conclusions from this discussion.  First, tariffs will likely remain.  Second, the record for tariffs accomplishing their goals is mixed.  And third, we may see some significant changes in how tariffs are applied in 2026.  Do you agree?  You decide.

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Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.