A year of turmoil for the US economy because of Mr. Trump’s import taxes

After taking office earlier this year, US President Donald Trump increased import taxes on goods entering the country – something he pledged when running for the White House.

The reciprocal tax policy was announced by Mr. Trump in early April, applying to all trading partners. The US President’s optimism at that time contrasted sharply with gloomy warnings from experts. “The stock market will explode and so will America,” he declared on April 3.

Meanwhile, economists and business leaders continuously raise warnings about the consequences of reciprocal taxes. “Most CEOs I talk to say we’re probably in a recession,” BlackRock CEO Larry Fink said. JPMorgan Chase even predicts a global recession will occur.

Mixed messages confuse businesses and consumers. Reality shows that both Mr. Trump and experts predicted incorrectly. The US economy has not collapsed, but it has not recovered strongly either.

Although much data has been released late, available figures show that the world’s largest economy is still standing strong. The probability of a recession next year falls below 25%.

On the contrary, Mr. Trump’s commitment to revenue from import taxes has partly come true, most other statements have not achieved results. The US has almost not recorded a wave of large-scale production repatriation. Cheap labor outside this country is still giving foreign manufacturers an advantage. Meanwhile, instability in domestic tax policy causes many businesses to delay large investments or bring production back to the US.

Job

After 8 months of imposing tariffs, Mr. Trump’s policies have hardly promoted employment. On the contrary, a series of layoff announcements and weak employment reports show that workers face many difficulties.

The US created 119,000 new jobs in September, much higher than economists forecast. However, job growth slowed. The unemployment rate in September reached 4.4% – the highest in 4 years.

Economic experts do not rule out the possibility that this tax could cause businesses to increase recruitment in the long term. However, this scenario is quite complicated.

Currently, many manufacturers still have to import raw materials from abroad. After taxes increased, the price of these raw materials increased. The manufacturing industry has cut about 54,000 jobs since Mr. Trump took office, although it is difficult to separate which layoffs are due to import taxes.

Arnold Kamler – Director of bicycle import and manufacturing company Kent International said high tariffs on components made in China forced him to close his factory in South Carolina, causing 64 workers to lose their jobs.

The company continues to import complete vehicles from China and some countries in Asia, but taxes amounting to millions of dollars this year make assembly in the US no longer feasible. “Things are very difficult. The reciprocal tax in April made us feel done,” Kamler said.

Price

The US President affirmed that import taxes are paid by other countries, while experts warn that inflation will skyrocket. Overall, both of these forecasts are incorrect.

Import taxes did quickly impact Americans’ wallets, when major retailers from Macy’s to Best Buy simultaneously raised prices to cover costs. Walmart also warned of rising costs every week because of import taxes.

However, the worst scenario did not happen. The consumer price index (CPI) increased again from May, after several months of cooling. Inflation is currently fluctuating around 3% – higher than the US Federal Reserve’s (Fed) target of 2%, but still lower than many economists’ forecasts.

The reason is that import taxes only affect a group of consumer goods, while falling housing and gasoline prices help curb inflation. Another factor is that Mr. Trump continuously changes tax policy, helping the current tax rate to be lower than the threshold he announced in early April.

Therefore, many businesses have not adjusted their prices. They said they wanted to wait and see what the final tax policy would be. The US Supreme Court is reviewing the legality of Mr. Trump’s taxes, giving businesses even more reason to delay.

Revenue from import taxes

According to data from the US Department of Treasury, the federal budget collected an average of 25 billion USD per month from customs duties in the April-September period, when Mr. Trump increased import taxes. Last year, this figure was only 6.6 billion USD per month.

Mr. Trump once declared that this tax would bring in “billions, even trillions of dollars” and “can replace income tax”. In fact, this revenue source is still very far from the target.

Total customs duties collected in fiscal 2025 – including Mr. Trump’s new tariffs and current levels – reached about $195 billion, more than double the previous year. Meanwhile, in 2024, personal income tax will reach 2,400 billion USD, contributing 50% of total federal budget revenue.

Future revenue sources also depend on the upcoming ruling of the US Supreme Court. If the court rejects Mr. Trump’s taxes, monthly revenue will drop by more than half. More than $100 billion the Trump administration has collected may also have to be returned.

Economic growth

Import taxes have not caused the US economy to plummet as previously warned. US GDP decreased by 0.3% in the first quarter, mainly because businesses increased imports of goods before the new tax took effect. In the second quarter, this economy recorded the strongest growth in nearly two years with 3.8%. Growth in the third quarter is forecast at about 3.5%.

Earlier this year, few economists predicted the extent to which a wave of investment in artificial intelligence (AI) could help the US economy overcome the negative impact of import taxes. Barclays Bank estimates that AI-related spending contributed half of GDP growth in the first six months of the year.

The rising momentum of the stock market also boosts consumption – an important driving force of the economy. Mr. Trump also withdrew or delayed many tariffs he had threatened to impose. In April, he raised the total import tax with China to 145%, but is now only 20%.

US businesses actually pay lower tax rates than forecast for many products, because they switch to products with lower tax rates or source supplies from other countries. By 2026, analysts expect investment in AI and domestic tax reductions to continue to support growth for the world’s largest economy.

Manufacture

When imposing import tariffs, the US President affirmed that this would revive the domestic manufacturing industry, although economists warned that this factor was still not enough.

Reality seems to show that Mr. Trump’s strategy goes against the very goal of promoting production. Activity at US factories dropped for 9 consecutive months. The Purchasing Managers’ Index (PMI) announced by the Institute of Supply Management (ISM) only reached 48.2 points in November. PMI below 50 shows production contraction. Many manufacturers say the constantly changing tax environment makes it impossible for them to plan long-term or make major investment decisions.

Meanwhile, the White House continuously announced that businesses such as Apple, Toyota, Nvidia and TSMC will pour billions of dollars into expanding production in the US. However, some capital plans have been prepared before, even without taxes. Not to mention, large projects will take many years to implement.

Analysts say that to bring factories back to the US, tariffs need to be high enough for domestic products to increase competition. However, this barrier also harms industries in the short term, because many raw materials and production inputs are still completely dependent on foreign countries.

Trade balance

President Trump considers the trade deficit a national emergency, even though the US has had a continuous trade imbalance since 1975. He declared that import taxes would turn the deficit into a surplus, or at least help balance the trade balance.

Import taxes have caused major turmoil this year. volatility with US trade this year. The deficit widened to a record high in March as businesses massively collected goods to avoid tax, then narrowed suddenly in April when the 10% tax rate took effect.

According to data from the US Department of Commerce, in September the goods deficit decreased to 79 billion USD – the lowest in 5 years, but still higher than the same period last year.

Contrary to Mr. Trump’s view, many economists do not think that trade deficits are a bad thing, they are even beneficial.

When Americans spend more than their savings, the deficit will help foreign investors have USD to reinvest in assets in this country. Stable capital mobility is the foundation for the strength of the world’s largest economy. In contrast, deficits typically narrow during recessions, when spending and import demand decline.

Experts say that US trade is unlikely to stabilize soon. If President Trump continues to surprise the market with unpredictable tax policies, the country’s trade balance will continue to fluctuate strongly.