Much of the world seems to realize that Trump’s tariffs are economically irrational. Of course, in many cases, economics is irrelevant: Trump is using the tariffs to achieve geopolitical goals or to make amends for his personal grievances. Nowhere is this more evident than in the 50% tariff imposed on Brazil as punishment for prosecuting former President Jair Bolsonaro for inciting a Trump-inspired coup attempt in 2023, after his election defeat.
However, Trump has always believed that tariffs are key to improving the USF’s trade balance, so his “reciprocal” tariffs supposedly reflect the size of America’s deficit with each economy. Economists have generally disputed these claims, warning that tariffs will only reduce America’s overall trade, both exports and imports. And so far, their warnings have been justified.
The short-term data currently available is difficult to interpret, as imports rose sharply earlier this year in the run-up to the tariffs. But if Trump was right about the impact of tariffs, that “hump” should have already been offset by lower imports as traders reduce inventories. Instead, U.S. imports in the first half of 2025 have surpassed 2024 levels. In July, America’s monthly merchandise trade deficit totaled $103 billion – nearly the same level as a year earlier. And the cumulative U.S. trade deficit widened: in the first half of this year, it was about $160 billion larger than in the first half of 2024.
There are two obvious reasons why U.S. import demand has resisted Trump’s tariffs: the U.S. economy continues to perform strongly, and tariff rates on average have remained well below those Trump announced in April. In fact, Trump “suspended” these tariffs almost immediately, which turned out to be just the beginning of a discouraging string of tariff threats, cancelations, announcements, suspensions, and vague “deals.” For example, with Japan and the UK, providing for 10-15% U.S. tariffs along with conditions on investment and energy.
Fortunately, there is a simple way to determine how restrictive Trump’s trade policy actually is, despite the discrepancies between announcement and execution: divide tariff revenues by the volume of imports. The resulting ratio is the average effective tariff. And in the case of the U.S. today, that ratio is much lower than White House statements would suggest.
According to the U.S. International Trade Commission, the U.S. collected $28 billion in tariff revenues in July, equivalent to 10% of imports ($283 billion). That’s up eight percentage points from January’s level – an increase that, while unprecedented, is too small to have a strong immediate impact on trade flows. Since May, the U.S. has levied tariffs on its trading partners at an average of 9-10%, partly because about half of all U.S. imports are still imported duty-free. The fact that tariff increases have remained relatively subdued in practice explains why their impact on U.S. inflation has so far been negligible.
There is considerable variation in the tariff rates applied by different U.S. trading partners. While most imports from China are subject to duties of over 50% – with an average tariff rate of 40% – less than 10% of Canadian imports are not subject to tariffs at all. The EU is somewhere in the middle: 60% of its exports are subject to tariffs, usually in the 15% range (except for cars, on which Trump has imposed a 25% tariff), resulting in an average tariff of less than 10%. These figures refute reports that Trump has “softened up” on China and treated US allies more harshly.
The framework trade agreement that the EU recently negotiated with the Trump administration is further evidence of the continued relative advantages of US allies. While many have criticized the EU for its perceived capitulation to Trump, the agreement will put tariffs on European imports far below those faced by China and even slightly below those faced by America’s Asian allies such as Japan and South Korea. Only Canada and Mexico are in a significantly better position than the EU , as the US-Mexico-Canada de facto agreement remains largely intact (although none of these economies can compete with an export giant like the EU).
When it comes to tariffs, Trump’s barking has so far proven worse than his bite. While the current U.S. trade policy will have a moderate impact on the country’s trade flows, it will not change the global trading system – as long as the rest of the world avoids Trump’s example and remains committed to open trade.
Daniel Gros,
Director of the Institute for European Policy at Bocconi University.
© Project Syndicate, 2025.
www.project-syndicate.org
