THE REAL FALLOUT FROM TRUMP`S TARIFFS / PROJECT SYNDICATE

The Real Fallout From Trump’s Tariffs

Donald Trump might have hoped that his “Liberation Day” tariffs would punish China and boost the competitiveness of American industries, but they have instead had the opposite effect. Worse, the policy has had far-reaching unintended consequences that few policymakers and commentators have yet to reckon with.

Jun Du

BIRMINGHAM – If there were awards for unintended consequences in economic policy, the import tariffs introduced by the United States in 2025 would sweep every category. 

Tariffs designed to protect American producers ended up protecting their foreign competitors. 

Some US firms were winners, but many more were losers. 

The constituency invoked most often in political speeches – small businesses, the backbone of the economy – suffered the most.

Yet while the “winners and losers” framing invites us also to sort countries into different columns, the 2025 tariff episode defies this binary distinction. 

There were no strategic winners – only intended losers, unintended losers, bystanders, and unintended winners. 

To understand why requires following the evidence through the US tariff policy’s internal contradictions.

Spray and Pray

With respect to China, the tariffs’ biggest target, the policy worked in a narrow sense. 

The “reciprocal” tariffs President Donald Trump announced on “Liberation Day” (April 2) established a 10% baseline levy, plus steep country-specific rates. 

Soon, US-China bilateral tariffs escalated to prohibitive levels, briefly exceeding 120% on both sides before being negotiated back down. 

Chinese border prices fell as exporters compressed margins to maintain market share, and China’s share of US imports dropped sharply.

But China adapted faster than US policymakers anticipated. 

By late 2025, its overall trade surplus had exceeded $1 trillion, with export performance increasingly supported by non-US markets.

The intended loser adapted through reorientation, not capitulation. 

The tariffs merely altered the direction of trade flows. 

They did not weaken China’s external position.

Worse, the policy’s collateral damage has dwarfed its intended effects. 

Consider the costs inflicted on American consumers and importing firms. 

An analysis by Harvard University’s Gita Gopinath and Brent Neiman of the Chicago Booth School of Business shows that the tariffs’ pass-through to US import prices reached 94%, meaning Americans bore nearly the entire burden. 

The Trump administration’s claim that “foreigners pay” found no support in the data.

The irony is difficult to overstate. 

At a time when affordability concerns are top of mind for most voters, a policy that was supposed to make America more competitive merely made it more expensive. 

To take just two prominent examples among many, General Motors reported $1.1 billion in second-quarter tariff losses, and Caterpillar estimated its tariff-related losses to be $1.5-1.8 billion for the full year. 

Across the board, US manufacturers were pummeled by steel and aluminum tariffs that were supposed to help American industry.

Moreover, the resulting cascade through supply chains was systematic. 

Gopinath and Neiman calculate that “production tariffs” – the tariff cost embodied in manufacturing – rose by more than one percentage point for manufacturing overall. 

This cost rose far more in exposed sectors: nearly four points for heavy-duty trucks; more than three points for construction machinery; and close to three points for motor vehicles. 

Protectionism upstream became an unintended tax downstream.

The labor market tells a similar story, with the US economy adding just 584,000 jobs in 2025 – the worst year for hiring since the pandemic. 

According to the Institute for Supply Management’s purchasing-managers index, manufacturing had contracted for ten consecutive months by year-end. 

And small businesses fared the worst, because tariffs impose fixed costs – for goods classification, customs compliance, legal advice, tariff-exclusion applications – that they cannot afford, whereas larger firms can. 

In fact, firm size ultimately mattered more than sector, strategy, merit, or any other metric.

As if the initial tariffs were not bad enough, the policy also created a deep and abiding uncertainty. 

When tariffs are repeatedly modified, paused, escalated, and litigated, policy becomes a major risk that planners, investors, and employers can neither ignore nor overcome. 

On February 20, 2026, the US Supreme Court ruled 6-3 that tariffs imposed under the International Emergency Economic Powers Act exceeded presidential authority, putting more than $175 billion in collected revenue at risk of refund. 

Within hours, the administration imposed replacement tariffs under a different legal authority. 

Tariffs became not only a tax but the potential source of a constitutional crisis.

Globally, the winners-and-losers framing assumes that all the relevant players are active participants in the contest. 

But some of the heaviest losses fell on bystander economies. 

Lesotho offers a stark illustration. Initially hit with a 50% “reciprocal” tariff (later reduced to 15%), this small African country’s textile industry, reliant on preferential US market access and already operating on thin margins in the best of times, suffered canceled orders and job losses almost immediately. 

Exports to the US by South Africa’s automotive sector plummeted 85% year on year by May. 

Madagascar, Bangladesh, Cambodia, and Kenya faced similar shocks in textiles, and the same pattern affected Asian seafood processors. 

Globally, industries built on stable preferential access faced tariffs calculated without regard for development impact or actual trade barriers.

In each case, the effects were asymmetric: those least responsible for the geopolitical tensions that motivated the policy suffered the greatest loss of welfare. 

Bystanders around the world faced the same kind of shock, but not the same outcome. 

What distinguished Vietnam from Lesotho was not its innocence – both were peripheral to the US-China dispute – but rather its adaptive capacity. 

Vietnam simply had greater scale, diversification, and negotiating leverage than Lesotho.

The Lucky Ones

The story gets even stranger when we come to unintended winners: those who fared relatively better not because the policy worked, but because it was rife with contradictions. 

Far from breaking the global trading system, Trump’s Liberation Day press conference triggered a process of rewiring, as trade patterns shifted to bypass new costs and obstacles. 

By the end of the year, global trade had hit a record $35 trillion, up 7% from the previous year, according to UN Trade and Development. 

But this growth wasn’t driven by traditional heavyweights. 

Instead, East Asia recorded 9% export growth; Africa’s imports rose 10%; and South-South trade expanded 8%. 

The system adapted, and the best adapters won.

Consider non-Chinese foreign exporters to the US. 

Standard theory predicts that tariffs should lower border prices as foreign exporters absorb part of the burden to maintain market share. 

Chinese exporters did exactly this; but border prices from the European Union, Japan, Mexico, and Canada rose. 

By crushing the lowest-cost supplier, the policy weakened the price discipline that Chinese competition had imposed on everyone else. 

Non-Chinese exporters found they could raise prices, so they did.

Simply put: US tariffs on China became a form of protection for non-Chinese exporters. 

In the mixed-up world of discriminatory tariffs, you can win simply by losing less. 

Vietnam illustrates this paradox most vividly. 

Initially threatened with a 46% tariff, it negotiated the rate down to 20%, with a 40% rate on “transshipped” goods, a clause widely understood as targeting Chinese content that might be routed through Vietnamese factories. 

Despite this, Vietnam posted 8% GDP growth in 2025, the fastest in the ASEAN+3 region, as well as record-breaking foreign investment inflows.

Still, the win is precarious, because the same architecture that diverts trade also intensifies the policing of exports’ origins. 

The winners in the trade-diversion game tend to be pulled into the geopolitical web of tariff compliance, not just market competition.

Some large American firms represent another category of unintended winner. 

The same tariffs that bankrupted small competitors became a manageable burden for firms that could absorb compliance costs, secure tariff exemptions, and restructure supply chains across jurisdictions. 

This was not industrial strategy. 

It was survival of the largest. 

Likewise, the United Kingdom’s relatively favorable treatment – including lower reciprocal rates and partial relief on autos and steel through bilateral negotiation – reflects diplomatic positioning rather than its trade structure. 

And what diplomacy grants, diplomacy can revoke.

Unintended, but Foreseeable

Four mechanisms reliably produce unintended outcomes from tariff policies. 

First, discriminatory rates extend protectionism to third parties, because competitiveness is always relative. 

Hobbling one competitor simply hands pricing power to the second-lowest-cost supplier.

Second, supply-chain reorganization tends to be sticky. 

As I showed in a previous commentary, the US share of Chinese soybean imports collapsed in the summer of 2025. While the two countries’ October truce promised a partial recovery, with China committed to purchasing 25 million metric tons annually for three years, Brazil had exported a record 79 million metric tons during the suspension, thus locking in infrastructure investments that won’t be undone. 

Moreover, China has hedged further by cultivating new suppliers entirely. 

Recent agreements with Ethiopia, Angola, and Russia reflect deliberate diversification. 

Negotiated purchases from the US may resume, but structural diversification cannot be so easily reversed.

Third, input tariffs always trigger cascades. 

Protect steel and you are effectively taxing the automakers, appliance factories, and construction firms that buy it. 

Protect aluminum and you are taxing aircraft manufacturers and beverage companies. 

The tariff on the input becomes a tariff on the output. 

The more comprehensive the regime, the more extensive the cascade. 

That is why a policy meant to revive American manufacturing did exactly the opposite.

Fourth, firm heterogeneity makes a truly uniform policy impossible. 

A tariff is rarely a single intervention; it becomes thousands of interventions filtered through firm size, product mix, supply-chain configuration, and administrative capacity. 

What looks like one policy fractures into radically different experiences.

The Wrong Question

To think in terms of winners and losers is to imply a zero-sum reallocation – what one side loses, another gains. 

This is too simplistic. 

To be sure, the 2025 tariffs were clearly negative-sum for the US. 

Last year, the Yale Budget Lab estimated that US households stood to lose $2,400 each from the April tariffs, with aggregate welfare destruction exceeding the $200-280 billion in tariff revenue collected up to November 2025. 

But globally, the game was redistributive rather than purely destructive. 

The record-breaking $35 trillion in trade last year reflects a broad redirection away from US-centric supply chains and toward new corridors.

It also points to a deeper shift. 

The 2025 tariffs operated less like a traditional trade policy and more like a leverage-based bargaining method. 

They reallocated rents and reshaped investment decisions, while imposing parallel costs in the form of uncertainty and institutional erosion. 

Comparative advantage is increasingly mediated by geopolitical alignment, compliance capacity, and diplomatic positioning, not only by productivity.

That means there are no strategic winners. 

There is an intended loser who adapted. 

There are unintended losers who bore the burden designed for someone else. 

There are bystanders who were crushed by a dispute not of their making. 

And there are unintended (relative) winners who gained not from the policy’s success but from its internal contradictions.

The question is not who won. 

It is who lost less, and whether they understood why. 

Such is the strange calculus of this moment.

Jun Du is Professor of Economics at Aston University, specializing in international trade, productivity, and global value chains.