11/13 – International Trade News & Economic Analysis

Seven months after President Trump imposed the most extensive tariff regime in nearly a century, the U.S. economy has proven unexpectedly resilient. Predictions of runaway inflation and recession have not materialized, even as consumers and businesses continue to adjust to a new era of protectionism. The impact of the tariffs has been far more complex than initial forecasts suggested. They’ve been less inflationary than feared, less lucrative for the Treasury than promised, and far from the instant manufacturing revival the administration envisioned.

From Fear to Adjustment

When the White House announced sweeping tariffs in April, economists warned that higher import costs would surge through the economy, pushing inflation up and stalling growth. Corporations scrambled to stockpile goods, and consumers rushed to purchase big-ticket items ahead of expected price hikes.

Half a year later, inflation remains above the Federal Reserve’s 2% target but far below projections tied to the tariff shock. In September, annual inflation was 3%, slightly elevated but easing from summer levels. The U.S. economy continues to expand, defying predictions that trade barriers would choke off consumer demand and investment.

Financial analysts now argue that the tariffs, while historically significant in scope, have produced only muted macroeconomic effects. Many firms and supply chains have already adapted through production shifts, logistical adjustments, and margin compression rather than aggressive price hikes.

Despite the administration’s early projections of massive fiscal windfalls, tariff revenues have come in far below expectations. Treasury Secretary Scott Bessent predicted as much as $1 trillion in annual income from tariff collections, but data from Pantheon Macroeconomics and the Treasury indicate a likely total closer to $400 billion if current trends hold.

In October alone, the Treasury is expected to collect roughly $34 billion in customs and excise taxes, underscoring how lower-than-expected effective rates and extensive exemptions have cut into revenue. The average effective tariff rate now stands at about 12.5%, well below the 17% headline figure often cited in administration communications.

These figures reveal the flexibility of the global supply chain. Many importers have circumvented full exposure to U.S. tariffs by sourcing from alternative countries such as Vietnam, Mexico, and Turkey—markets that face significantly lower duties on many product categories. Others have utilized existing loopholes, duty-free zones, and customs warehousing to defer or avoid payments.

Corporate Strategy

Companies across sectors have deployed a mix of creative strategies to offset costs. Manufacturers and retailers alike have shifted production away from China, diversified their sourcing networks, and exploited bonded warehouses or “free-trade zones” to delay import duties.

Some businesses anticipated tariffs by stockpiling inventories ahead of implementation, smoothing short-term supply and limiting consumer price shocks. Others have simply chosen to bear the cost themselves. According to Bank of America, American consumers are currently paying only about half to two-thirds of tariff-related costs, with companies covering the rest from historically high profit margins.

Retailers, still enjoying post-pandemic profitability, can absorb roughly 30% of tariff expenses without dipping below their average profit levels from the 2010s, estimates Pantheon Macroeconomics.

The auto industry offers a clear example of this dynamic. Car imports from major manufacturing nations have faced tariffs of around 15% or more, yet consumer prices for vehicles have barely budged. JPMorgan data show that average vehicle prices rose just over 1% between March and September, adjusted for seasonality. Automakers are eating roughly 80% of the tariff costs themselves, wary that higher sticker prices would drive buyers away amid already high post-pandemic car prices.

In the fashion and retail sector, companies face similar pressures. Aritzia, the Canadian clothing brand, is contending with double-digit reciprocal tariffs on imports from Vietnam and Cambodia and the end of the de-minimis exemption that once shielded small online orders from duties. Yet the company still projects strong profitability, trimming its expected margins from about 19% to a still-healthy 16%. Executives say the brand’s pricing strategy is guided by long-term positioning rather than short-term tariff shifts.

Foreign suppliers, meanwhile, have largely resisted lowering their pre-tariff prices. Labor Department data show little evidence that overseas manufacturers have discounted goods to compensate for the new import duties, meaning U.S. companies must either absorb the costs or selectively pass them along to consumers.

One of the biggest surprises has been the endurance of consumer spending. With consumption representing nearly 70% of U.S. GDP, economists feared that tariffs could dampen confidence and trigger a spending pullback. Indeed, in April consumer sentiment dropped to its lowest point since 2022. Historically, such declines foreshadow reduced spending.

Instead, upheld by a strong job market, low unemployment, and record stock prices, American consumers have continued to spend. Retail sales and services consumption remain solid, suggesting that the immediate economic pain from tariffs has been less severe than analysts feared.

Economists caution against premature optimism however. While short-term damage has been limited, long-term costs may yet emerge. Businesses facing persistent uncertainty about global supply chains and tariff regimes have slowed hiring and postponed investment decisions. Some analysts suggest that trade friction may be quietly contributing to the recent softening in job creation and wage growth.

Furthermore, as inventories normalize and cost pressures build, companies are expected to pass a greater share of tariffs to consumers. Economists anticipate that this gradual cost transfer could extend the inflationary effect of tariffs well into next year.

A Complex Economic Experiment

Trump’s tariff campaign was launched with two clear goals: protecting American manufacturing and generating vast new federal revenues. So far, neither promise has been fulfilled. The tariffs have yielded moderate price pressures, limited fiscal gains, and significant adjustments within global supply networks rather than a revival of domestic production.

At the same time, the tariffs have exposed the resilience and adaptability of the modern U.S. economy. Corporations have leveraged profits and logistics innovation to buffer consumers from much of the pain. Households have continued to spend despite higher prices for imported goods, aided by rising wages and strong asset markets.

But beneath this surface stability lies an unresolved debate about the future of U.S. trade policy. The muted inflation response may embolden protectionists who view tariffs as a manageable tool for industrial leverage, yet it also highlights how globalization’s flexibility undermines efforts to re-shore production through import taxes alone.

In essence, the tariffs have become a real-time experiment in how deeply global supply chains are woven into the U.S. economy—and how costly and complex it is to unwind them. The lesson, economists say, is that while tariffs can be absorbed in the short term, they rarely deliver the long-term transformations policymakers seek. The burden, whether spread across corporations, consumers, or trading partners, still falls somewhere within the same global economic system that tariffs were meant to reshape.