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All eyes are set on U.S. President Donald Trump’s escalating war against Iran, but on the home front, things are not going well. Nearly one year after he launched a barrage of steep tariffs on what he called “Liberation Day,” economists have crunched the numbers for 2025—and they are not looking good for the White House. By Trump’s own yardstick—his three goals of making foreigners pay for doing business with the United States, narrowing the U.S. trade deficit, and punishing China—tariffs have clearly failed.

Start with the question of who pays whom. While Trump’s claim that foreigners pay the tariff is obviously false—a tariff is a government tax levied on U.S. importers of foreign goods—the more relevant question is who ends up absorbing the economic cost. Do importers pass their tariff costs on to U.S. households by raising prices? Do importers keep prices steady and let the tariff eat into their profits? Do foreign exporters lower their prices to stay competitive? Or is it a combination, perhaps of all three?

All eyes are set on U.S. President Donald Trump’s escalating war against Iran, but on the home front, things are not going well. Nearly one year after he launched a barrage of steep tariffs on what he called “Liberation Day,” economists have crunched the numbers for 2025—and they are not looking good for the White House. By Trump’s own yardstick—his three goals of making foreigners pay for doing business with the United States, narrowing the U.S. trade deficit, and punishing China—tariffs have clearly failed.

Start with the question of who pays whom. While Trump’s claim that foreigners pay the tariff is obviously false—a tariff is a government tax levied on U.S. importers of foreign goods—the more relevant question is who ends up absorbing the economic cost. Do importers pass their tariff costs on to U.S. households by raising prices? Do importers keep prices steady and let the tariff eat into their profits? Do foreign exporters lower their prices to stay competitive? Or is it a combination, perhaps of all three?

One year in, and the data is unequivocal. A January paper from the Kiel Institute, which analyzed more than 25 million shipments to the United States worth nearly $4 trillion, calculates that U.S. firms and consumers absorbed 96 percent of the tariff costs. A few weeks later, both the New York Federal Reserve and the National Bureau of Economic Research similarly concluded that, on average, foreign exporters shoulder just a few cents of every tariff dollar. European, Asian, and other policymakers can breathe a sigh of relief: Despite the worldwide panic following Trump’s announcements, global exporters are not in trouble. Accordingly, the pressure for other countries to rush and cut deals with the United States may be off.

The incontrovertible conclusion that foreign firms absorb very little of the tariffs also means that the roughly $175 billion in extra U.S. government revenues generated by tariffs in 2025 was a tax on Americans. Either U.S. firms squeezed their margins or American households paid higher prices. Before the latest Supreme Court ruling, the Yale Budget Lab projected that the tariffs cost average household $1,577 annually.

At a time when affordability is a key concern for many Americans and the midterm elections are looming, tariffs are fast becoming a liability for Trump. A recent Harris poll found that roughly 7 in 10 Americans believe that they have led to higher prices. Even Republican voters don’t believe Trump; 64 percent of them say that tariffs are fueling inflation.

Trump’s second objective with tariffs was to reduce the U.S. trade deficit, notably by pushing foreign firms to relocate production to the United States. A few hours before the 2025 trade data came out, he claimed on Truth Social that “THE UNITED STATES TRADE DEFICIT HAS BEEN REDUCED BY 78% BECAUSE OF THE TARIFFS … IT WILL GO INTO POSITIVE TERRITORY DURING THIS YEAR, FOR THE FIRST TIME IN MANY DECADES.” The numbers, however, show him to be fabulating.

Take the trade numbers first. The U.S. goods trade deficit increased by 2.1 percent last year, hitting an all-time record of $1.23 trillion. Far from shrinking, U.S. imports grew by 4.6 percent, or $149 billion. Even when one includes services, where U.S. companies are highly competitive, the total trade deficit flatlined last year, narrowing by an insignificant 0.2 percent. The data also disproves the industrial resistance narrative: Far from expanding, the U.S. manufacturing sector shed 108,000 jobs in 2025. Even an advocacy group such as the Reshoring Initiative estimates that job creation linked to onshoring or foreign direct investment fell to around 240,000 in 2025, the lowest rate since COVID-stricken 2020.

Two factors help explain why hopes for a U.S. manufacturing renaissance remain far-fetched. First, a singular effect of tariff whiplash has been to freeze corporate investment decisions: Nearly 88 percent of U.S. manufacturing firms report that tariffs are a moderate or significant concern. Uncertainty around the direction of White House economic policy compounds these issues. Few companies like to commit to multibillion, long-term investments when the rules change from one day to the next.

Second, tariffs on intermediate goods raise input costs for U.S.-based producers, hurting profitability; this is a key reason why the U.S. Federal Reserve found that the steel tariffs imposed by the first Trump administration in 2018 destroyed more jobs than they created. The combination of both factors is toxic: Uncertainty deters new investment, while higher input costs erode the competitiveness of existing plants.

Curbing China’s global economic advances was the third pillar of Trump’s tariff policy. As he said in April 2025, “We’ve been ripped off by every country in the world, but China I would say is the leading … candidate for the ‘chief-ripper-offer.’” The White House can argue that the United States’ goods trade deficit with China dropped by nearly one-third last year to $202 billion, a 20-year low. Yet the drop was offset by a rise in the U.S. goods trade deficit with India, Malaysia, Mexico, Taiwan, and Vietnam.

This is a classic illustration of trade diversion and transshipment—Chinese firms using intermediaries in these and other countries to ship to the United States. With these intermediaries taking their cut, U.S. consumers are now paying more to access the same Chinese goods. This may only be the start of the transshipment story, as China is pursuing some 20 additional free trade agreements. Beijing would probably have done so anyway, but it is hard to imagine that Trump’s tariff policies aren’t fueling the trend.

Other tariff fallout also has the effect of strengthening China, not weakening it. By squeezing U.S. allies particularly hard with tariffs, Washington is essentially doing Beijing’s diplomatic legwork for free. In January, Canada relaxed import restrictions for Chinese electric vehicles in return for Beijing agreeing to cut some tariffs in return. There are also rumors that China pressed Germany to support the idea of a European Union-China trade deal when Chancellor Friedrich Merz visited Beijing in late February—an unthinkable prospect just a few months ago. In 2025, China overtook the United States as Germany’s top trading partner. This does not exactly look like a tariff-weakened China.

One year on, the data points to a consistent picture on the U.S. trade front: Americans foot the tariff bill, the goods trade deficit is rising, and China is thriving. Looking forward, Washington’s threats of tariffs may no longer be credible—allies and foes have shown that they can at least adapt to them and at best turn them into an opportunity to diversify away from the United States.

This leaves the White House in an uncomfortable spot. Having burned through its tariff ammunition for limited results, the administration could now reach for other tools—such as dollar weaponization—that come with higher collateral damage for the United States. This could be the real trade story for 2026.

This post is part of FP’s ongoing coverage of the Trump administration. Follow along here.