Albert Einstein remarked that a sign of insanity was doing the same thing repeatedly and expecting a different result. We must wonder what he might have made of the President Donald Trump’s import tariff policy.
U.S. Trade Representative Jamieson Greer has confirmed that the Trump administration is poised to unleash fresh import tariffs soon on dozens of countries, not to mention a 50 percent import tariff on many Canadian goods. It is poised to do so despite the failure of Trump’s earlier tariff policy, which raised tariffs to their highest level in the past 100 years, to narrow the trade deficit and increase manufacturing employment. It is also poised to do so despite the upward pressure tariffs exert on inflation and despite the damage that the chaotic implementation of tariff policy inflicts on investment and on the economy’s overall degree of competitiveness.
A key objective of Trump’s tariff policy was to eliminate the country’s large trade deficit and to increase manufacturing employment. Yet, 18 months into his second term, Trump’s tariff policy has failed to deliver on those objectives. For 2025, the trade deficit on goods and services remained virtually unchanged from the previous year’s level of $900 billion, while in the first half of this year the trade deficit has still been running at an annual rate of $700 billion.
Meanwhile, far from increasing, manufacturing employment has declined by around 80,000 jobs.
While the failure to make any real progress on eliminating the trade deficit might have come as a surprise to the Trump administration, it has not come as a surprise to most economists. Unlike Trump, who believes that import tariffs are the silver bullet that might get rid of the trade deficit, economists understand that the trade deficit is simply the result of a country spending more on consumption and investment than it produces. So long as a country spends more than it produces, it will run a trade deficit irrespective of how high its import tariff wall might be.
The reason that we continue to run a large trade deficit despite the increased tariffs is that we continue to run an irresponsible budget deficit policy that drains the country’s savings level and keeps our spending above our productive capacity. Indeed, according to the Congressional Budget Office, Trump’s budget policy will result in budget deficits of more than 6 percent of GDP as far as the eye can see.
If the Trump administration were serious about wanting to reduce the trade deficit, it would start by taking corrective public spending and revenue-enhancing measures to bring our budget deficit under control. Unfortunately, Trump’s proposal to increase military spending by $500 billion next year gives us every reason to think the budget deficit could widen next year.
In turn, that makes it highly improbable that we will stop running large trade deficits anytime soon.
In selling his import tariff policy strategy, Trump assured us that the tariffs would be paid for by foreign exporters. Yet, a recent New York Federal Reserve study estimated that around 90 percent of the tariffs are being paid for by U.S. households and companies.
Meanwhile, most mainstream economic analysts estimate that Trump’s tariffs have added between 0.5 and 0.8 percentage points to inflation over the past year. High tariffs would seem to be the last thing that we need when inflation is already running at 4 percent.
In addition to adding to inflation, the chaotic way in which Trump’s tariff policy has been implemented has created an environment of great investor uncertainty. That uncertainty highly complicates long-run decision-making. According to the Tax Foundation, Trump has made no fewer than 50 changes in his tariff policy over the past year. Little wonder then that outside of the artificial intelligence sector, investment has virtually stagnated over the past year. That, together with reduced domestic competition and loss in the comparative advantage benefits that we now derive from international trade, is bound to constitute a significant headwind to our long-run economic growth potential.
In February 2026, the Supreme Court offered Trump an off-ramp from his economically damaging import tariff policy when it invalidated his “liberation day” tariff hike on grounds that he exceeded his emergency power authority. Unfortunately, Trump has chosen not to take that off-ramp and has found other ways to impose new import tariffs.
This policy is likely to add to inflation and to worsen our economic growth prospects. If the past is any guide, it will do so without delivering on the purported objective of eliminating the trade deficit and increasing manufacturing employment.
Desmond Lachman is a senior fellow at the American Enterprise Institute. He wrote this for InsideSources.com.
