Phil Gramm and Donald Boudreaux analyze the impact of one of President Donald Trump’s key economic ideas.
A year ago Thursday, President Trump raised the average effective tariff rate to 22.5%, and proclaimed April 2 “Liberation Day,” which would “forever be remembered as the day American industry was reborn.” Financial markets convulsed. Within a week, the president began suspending and modifying his tariffs. By the time the Supreme Court ruled that tariffs issued under the International Emergency Economic Powers Act were unlawful, the average effective rate had fallen to 11.6%, still higher than at any point between World War II and Liberation Day. Convinced that his tariffs were “quickly building the greatest economy in the history of the world,” Mr. Trump responded by invoking Section 122 of the Trade Act of 1974 to impose a 10% across-the-board tariff, that he promises to raise to 15%. A year into this experiment, how is Mr. Trump’s tariff policy working out?
Although the average U.S. tariff rate in 2025 approached the level of the infamous Smoot-Hawley tariff of 19.8% for all imports, our trading partners haven’t retaliated against the U.S. so much as pivoted toward other trading partners, initiating the greatest peacetime trade diversion of the modern era. To compensate for lost U.S. markets, they have mutually lowered barriers and increased trade with each other. As economist David Hebert of the American Institute for Economic Research observed in these pages, “the world isn’t deglobalizing. It’s reglobalizing around partners who commit to rules rather than those who wield tariffs like a club.”
While the economic damage to America and the world would have been far greater had a full-blown trade war erupted, our economy will nevertheless suffer from this diversion of trade from the U.S. Most obviously, U.S. households, denied access to the lowest-priced goods on global markets, will have less purchasing power.
