LIVE DATA May 13, 2026
Projects · Economic Policy

The Tariff War

"Liberation Day" — April 2, 2025. The largest U.S. tax increase as a share of GDP since 1993. Struck down by the Supreme Court. Still ongoing.

Key Facts at a Glance
Liberation Day
Apr 2, 2025
Rose Garden announcement
IEEPA Tariffs Collected (2025)
~$130B
Tax Foundation
Avg Household Cost (2026)
$1,500
Tax Foundation
Long-run GDP Impact
–0.3%
Tax Foundation estimate
Imports Exempted
~46%
Time / PIIE analysis
Supreme Court Ruling
Unconstitutional
Feb 20, 2026 (IEEPA tariffs)
Background: What Trump Planned

During his 2024 campaign, Trump proposed one of the most aggressive trade policies in modern American history. He called tariffs "the most beautiful word in the dictionary" and outlined a sweeping programme including:

  • A 10–20% universal tariff on all imports from all countries
  • A 60% tariff on all Chinese imports
  • A 25% tariff on Canada and Mexico
  • Higher tariffs on electric vehicles from China

The stated rationale was national security (protecting American industry and supply chains) and trade balance (reducing the U.S. goods deficit). Trump invoked the International Emergency Economic Powers Act (IEEPA) of 1977 — a law designed for genuine national emergencies — as the legal vehicle, declaring a trade emergency. This choice was controversial from the outset: critics argued IEEPA was not intended for renegotiating trade agreements with allied nations.

Timeline
February 2025
First tariffs: Canada, Mexico, China
Barely one month into his second term, Trump breached the USMCA trade agreement he himself negotiated in 2018, imposing 25% tariffs on Canada and Mexico. He simultaneously moved to impose new tariffs on China. Exemptions were quickly granted for fertilizers and energy after concerns about farmer impact.
April 2, 2025 — "Liberation Day"
Sweeping global tariffs announced
In the White House Rose Garden, Trump announced broad country-by-country "reciprocal" tariffs on virtually all U.S. trading partners, plus a 10% baseline levy. The announcement was accompanied by a poster showing each country's tariff rate. Markets fell sharply. Trump called it "Liberation Day."
Largest U.S. tax increase as % of GDP since 1993
April–July 2025
Exemptions and backtracking
Trump quickly claimed the tariff threats were merely a negotiating tactic. A 90-day pause on the highest "reciprocal" rates was announced. Nearly 46% of U.S. imports were eventually exempted through various carve-outs. The actual tariff regime proved less severe than initially announced, though still historically large.
September 2025
Retaliation reaches $223B of U.S. exports
Trading partners' retaliatory tariffs affected $223 billion of U.S. exports. China's retaliatory tariffs caused agricultural exports to China to collapse — from $12 billion in H1 2024 to $5.5 billion in H1 2025, primarily driven by the near-elimination of Chinese soybean purchases from the U.S.
Agricultural exports to China halved
November 5, 2025
Supreme Court oral arguments
The Supreme Court heard arguments from small businesses who sued the Trump administration, arguing IEEPA was designed for genuine national emergencies, not trade negotiations. Legal commentators noted that both liberal and conservative justices appeared skeptical of the tariffs' legality.
February 20, 2026
Supreme Court: IEEPA tariffs unconstitutional
The Supreme Court ruled that the country-specific "reciprocal" tariffs imposed under IEEPA were unconstitutional. The Court did not address whether companies were entitled to refunds of previously collected tariffs, leaving that question to lower courts and creating ongoing uncertainty.
Core tariff mechanism struck down
February 20, 2026 (hours later)
Trump pivots to Section 122
Within hours of the Supreme Court ruling, Trump announced new "global tariff" rates of 10% under Section 122 of the Trade Act of 1974 — which allows tariffs of up to 15% for up to 150 days to address trade imbalances — and signalled that Section 301 of the Trade Act may be used for longer-term measures. Section 232 tariffs on steel, aluminum, and semiconductors remained in effect throughout, as they were not covered by the IEEPA ruling.
New legal workaround imposed same day
Claims vs. Outcomes

Trump's Claims

  • Tariffs will reduce the trade deficit
  • Foreign countries pay the tariffs
  • Tariffs will bring manufacturing back to the U.S.
  • Will generate trillions in revenue
  • Will protect American farmers

Documented Outcomes

  • Trade deficit grew by $25.5B (goods deficit) in 2025 vs 2024
  • 80–85% of tariff costs absorbed by U.S. companies or passed to U.S. consumers (AlixPartners)
  • Some near-shoring occurred; most supply chain shifts were to other low-tariff countries, not U.S.
  • ~$130B collected in 2025 (well below multi-trillion projections)
  • Chinese soybean purchases of U.S. goods collapsed; retaliatory tariffs hit bourbon, whiskey, agriculture

The Negotiating Tactic Defense

When the economic impact of the tariffs became apparent, Trump and White House officials claimed the tariff threats were always intended as a negotiating tactic to bring countries to the table and reduce trade barriers. The breadth of exemptions (approximately 46% of imports) lends some credence to this framing, but critics note that the "emergency" declared to justify IEEPA tariffs is difficult to reconcile with a voluntary negotiating posture. (Time, January 2026)

Economic Impact by Sector
Agriculture
Farmers Hit Hard by Retaliation
Agricultural exports to China fell from $12B to $5.5B in the first half of 2025, primarily due to the collapse in Chinese soybean purchases. Canadian retaliatory tariffs on U.S. alcohol hit Kentucky and Tennessee bourbon and whiskey industries. Even non-exporting farmers paid more for fertilizer, feed, and machinery, raising food prices nationwide. (Cornell/Ohio State study, Fortune, April 2026)
Retail & Consumer Goods
Costs Passed to Consumers
About 80–85% of tariff costs were absorbed domestically — either by U.S. companies cutting margins or by consumers paying more. Consumer packaged goods companies (diapers, canned beverages) had limited ability to diversify supply chains, as key commodities like pulp and aluminum have no easy domestic alternatives. (AlixPartners; CNBC)
Pharmaceuticals
Manufacturing Pledges — But Later
Tariff threats drove some pharmaceutical companies to announce U.S. manufacturing investments. AbbVie pledged $10B+ over a decade; J&J committed $55B+ for four new plants. Critics note these are long-term pledges with no guarantee of delivery, and don't address near-term drug price pressures. (CNBC)
All 50 States
No State Unaffected
A peer-reviewed study from Cornell and Ohio State, published April 2026, found that tariffs led to "immediate shocks" for net-importing states and retaliatory impacts for agricultural exporters. Even states that neither import nor export heavily paid through food inflation, as farmers passed higher input costs to consumers. "The United States doesn't have one agricultural trade exposure — it has 50 different ones." (Fortune, April 2026)
Sources & References

Tax Foundation — Tracking the Trump Tariffs

Continuously updated analysis by the Tax Foundation. Primary source for GDP impact estimates (–0.2–0.3%), household cost ($1,500 average), and tariff revenue ($130B in 2025).

PIIE — Trump's Trade War Timeline 2.0

Peterson Institute for International Economics, updated continuously. Definitive chronological record of U.S. trade actions and foreign retaliatory measures.

CNBC — One Year On: Tariff Impact

CNBC, April 3, 2026. Analysis of sector-by-sector tariff impact one year after Liberation Day. Includes AlixPartners supply chain expert commentary on cost absorption.

Fortune — All 50 States Study

Fortune, April 14, 2026. Reports on the Cornell/Ohio State peer-reviewed study showing universal state-level tariff impacts, published by the Agriculture and Applied Economics Association.

Time — Economic Security and Tariff Wars

Time, January 16, 2026. Analysis of the strategic rationale behind Trump's tariffs, the exemption breadth, and the negotiating tactic defense.

Harvard Law School / Compensia — Incentive Plan Analysis

Harvard Law Corporate Governance, March 2026. Analysis of the Supreme Court's February 20, 2026 ruling on IEEPA tariffs and the Section 122 pivot.

AgAmerica — Agricultural Export Data

Agricultural lender AgAmerica documented the collapse of U.S. agricultural exports to China: $12B to $5.5B in H1 2025.