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)

IEEPA Refunds Initiated

$166B

CBP, April 2026

Section 122 "Bridge" Tariff

Also struck down

CIT, May 7 2026 — expires Jul 24 2026

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

April 20, 2026

CBP begins refunding $166B in IEEPA tariffs

U.S. Customs and Border Protection opened a claims portal for businesses to recover tariffs paid under the now-invalidated IEEPA regime. More than 3,000 businesses — including FedEx, Costco, Skechers, Revlon, Toyota, and Nintendo of America — had sued for refunds. Small importers described the process as a lifeline after tariff exposure forced layoffs and, in some cases, six-figure losses.

$166B in refunds initiated

March 2026

Section 301 investigations launched against 60 countries

The Office of the U.S. Trade Representative opened Section 301 investigations into 60 trading partners over alleged forced labor and overproduction practices — the required legal predicate for a longer-term tariff regime to replace the expiring Section 122 measures.

May 7, 2026

Trade court strikes down Section 122 tariffs too

The U.S. Court of International Trade ruled 2–1 that the 10% Section 122 "global tariff" also exceeded presidential authority, holding that the trade-deficit rationale cited in Proclamation 11012 did not meet the statute's specific "balance-of-payments deficits" threshold. Relief was granted only to the three named plaintiffs (Washington state, Burlap & Barrel, and Basic Fun) rather than nationwide — so most importers kept paying the tariff while the government appealed. The Federal Circuit granted a temporary stay on May 12, and the tariffs remain scheduled to expire on their statutory 150-day limit, July 24, 2026, regardless of the appeal's outcome.

Second major tariff mechanism struck down

July 1, 2026

Administration declines 16-year USMCA extension

The administration declined to extend the USMCA — the North American trade pact Trump himself negotiated and signed in his first term — for a further 16 years, instead launching a new annual review process for the agreement. Critics noted the move injects fresh uncertainty into North American trade just as Section 122 tariffs approach their July 24 expiry and Section 301 tariffs are being prepared to take their place.

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.

Gibson Dunn / Skadden / Ward & Smith — Section 122 Litigation Client Alerts

Law-firm analyses of The State of Oregon v. United States & Burlap and Barrel, Inc. v. United States (Ct. Int'l Trade, May 7, 2026), which struck down the Section 122 "bridge" tariff, and the subsequent Federal Circuit stay.

TIME — Trump Administration Begins Refunding Tariffs

Time, April 20, 2026. Coverage of the CBP refund portal launch for the $166B in IEEPA tariffs collected before the Supreme Court ruling.