Donald Trump’s tariffs have the persistence of a hydra. The Supreme Court struck down their main legal foundation in February, anxious markets have forced repeated retreats, and frustrated voters—two-thirds of whom say tariffs have raised consumer prices—have prompted exemptions for certain foods. Each setback forced Mr Trump to adjust tariffs. Yet they always returned.
Event Context
Five days later Mr Trump invoked a dormant provision of 1930’s Smoot-Hawley Tariff Act to impose 50% levies on a selection of Canadian goods, ostensibly to punish America’s neighbour for discriminating against its cars, alcohol and dairy products. The duties will cover nearly $20bn of imports, including goods normally exempt under the United States-Mexico-Canada Agreement (USMCA), which Mr Trump negotiated in his first term. However the new tariffs will not take effect until August 19th—a delay that will increase the president’s leverage in stalled talks over USMCA’s renewal.
Yet there is scant evidence that tariffs are driving an industrial revival. Nearly all the recent growth has come from advanced manufacturing, largely from AI-related demand. The rest of the sector has stagnated and spending on factory construction has fallen by almost a third, from an annualised peak of nearly $250bn in 2024 to $175bn in May. Much of the new capacity reflects investments made before Mr Trump’s re-election. Manufacturing employment has dipped by about 75,000 since he returned to office.
Player Focus
If tariffs are revived, will they be effective? Levies are already raising revenue and letting Mr Trump squeeze allies and enemies alike. But the most politically consequential goal is his decade-long promise to boost manufacturing. The Institute for Supply Management’s survey of purchasing managers has indicated six months of expanding factory activity. Manufacturing output grew at an annualised rate of 4.6% in the second quarter, its fastest pace since 2021. Scott Bessent, the treasury secretary, has declared that America is “having a manufacturing renaissance”.
Match Outlook
The tariffs are now likely to be reincarnated in two stages. First, the Office of the United States Trade Representative (USTR) is expected imminently to impose Section 301 forced-labour duties on 60 countries accused of failing to keep out goods made with forced labour. Helpfully, this new interest in labour standards will let Mr Trump preserve 10% tariffs when the Section 122 surcharge lapses. Together, these changes will keep the effective tariff rate around 7%, where it stands today.
But they could soon rise further. Later this year, the USTR is expected to impose further country-specific duties under Section 301 investigations into “structural excess capacity” among 16 of America’s largest trading partners. The administration accuses these countries of “producing more goods than they can consume or productively invest domestically”, a definition that Ed Gresser of the Progressive Policy Institute, a think-tank, calls “eccentric”.
Thin though their pretexts may be, the duties are likely to prove durable. Section 301 gives the USTR broad discretion to retaliate against foreign practices it deems unreasonable or discriminatory. Courts “tend to ask whether USTR followed the required process”, says Ryan Majerus of King & Spalding, a law firm, “not whether Brazil genuinely has a deforestation problem.”
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Behind these tactical skirmishes lies a grander project: resurrecting the broad tariffs that Mr Trump announced on “Liberation Day” last year. Both a universal 10% tariff on all imports and country-specific levies were imposed under the International Emergency Economic Powers Act of 1977—Mr Trump claimed that America’s trade deficit amounted to a national emergency. After the Supreme Court disagreed in February, the administration imposed a temporary 10% surcharge under Section 122 of the Trade Act of 1974; that will reach its 150-day limit on July 24th. America’s average effective tariff rate fell from 10% before the court’s ruling to 7% today, according to the Penn Wharton Budget Model.
The costs of tariffs are also becoming more clear. Uncertainty is weighing on investment: half of business leaders surveyed by KPMG, an accounting firm, report low confidence in carrying out their investment plans. Tariffs have lifted consumer prices by about 0.8%, according to the Harvard Business School Pricing Lab, and may push them higher still. Research from the Federal Reserve Bank of New York finds that nearly half of firms paying tariffs still expect to pass more costs on to their customers. Mr Trump’s tariffs may survive the courts. Whether they will survive price-weary voters is less assured.
