A year after the US raised tariffs to their highest level in decades, the economy is sending conflicting signals with slower investment and manufacturing job losses clashing with claims of accelerating growth and resilient output.
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US economy shows 4 signs of divergence one year after tariffs
One year after President Trump’s “Liberation Day” ushered in the most aggressive US tariff policy since World War II, economic data presents a deeply divided picture of the consequences. While proponents point to accelerating GDP growth and slowing inflation as proof the tariffs are working, other indicators show slower investment, underperforming equity markets, and a significant rerouting of global trade away from the US, where the average effective tariff rate now stands at 11.6 percent.
"It has been very dramatic and it has been very decisive," Davin Chor, a professor at Dartmouth University's Tuck School of Business, said regarding the collapse in direct US-China trade. "I don't think you should expect things to go back to business as usual."
The trade diversion has coincided with a notable underperformance in US equities. While the S&P 500 rose 16 percent in 2025, it lagged major indexes in Germany (+23 percent), Japan (+26 percent), and Canada (+29 percent), according to a Wall Street Journal analysis. The shift comes as US imports from China fell roughly 30 percent last year, with trade partners mutually lowering barriers and increasing commerce with each other.
The conflicting data fuels a fierce debate over the policy's success. At stake is whether the tariffs will achieve the stated goal of reviving American industry or primarily act as a tax on consumers and producers that slows long-term growth. The next phase of the policy will depend heavily on boosting domestic investment and navigating a global economy that is actively rewiring itself around American protectionism.
Growth and Inflation Defy Forecasts
One of the most surprising outcomes one year on from the tariff hikes has been the divergence on headline economic figures. Doomsday predictions of a surge in inflation and a likely recession have not materialized. An analysis in the Financial Times notes that real GDP growth accelerated to an annualized 2.9 percent over the last three quarters of 2025, up from 2.5 percent in 2024. The same analysis highlights that inflation slowed to 2.4 percent over the past year, compared to 2.8 percent in the prior year.
However, other economists argue the tariffs have created a clear drag. The US inflation rate was pushed up by about half a percentage point to roughly 3 percent, according to estimates from Oxford Economics. An analysis by Phil Gramm and Donald Boudreaux in the Wall Street Journal points to a broader slowdown, with real GDP growing by only 2.1 percent for the full year of 2025, a marked deceleration from the 2.8 percent growth seen in 2024.
Manufacturing Data Paints a Mixed Picture
The tariffs’ effect on the US manufacturing sector, a primary focus of the policy, is another area of sharp disagreement. Proponents of the strategy argue that the sector is showing green shoots of recovery. Industrial output posted a 1.6 percent gain after falling 0.3 percent in 2024, and surveys from the Institute for Supply Management found increasing optimism among manufacturers.
Opponents, however, point to a different set of numbers. The pace of losing manufacturing jobs accelerated to 1.2 percent in 2025, faster than the 0.7 percent decline in 2024. Furthermore, both domestic and foreign investment slowed. Real gross private domestic investment grew by only 2 percent last year after growing by 3 percent in 2024, while inbound foreign direct investment saw its growth fall to 1.2 percent, down from 2.7 percent in 2024.
Global Trade Routes See Major Rerouting
There is little disagreement on one major outcome: a historic reordering of global trade. Faced with an average tariff rate of roughly 10 percent, up from 2.5 percent at the start of last year, many firms and countries have pivoted away from the US market. The value of US imports from China plunged by about 30 percent in 2025, with US exports to China seeing a similar 25 percent drop, according to a BBC report.
This has not led to de-globalization, but rather a "re-globalization," as economist David Hebert observed. Trading partners are mutually lowering barriers with each other to compensate for lost access to US markets. While the US has secured some trade agreements, the unilateral nature of the tariffs has also alienated allies. Canada, for example, recently slashed its tariffs on many Chinese-made electric vehicles, a move that directly challenges American car firms that have long dominated the Canadian market.
This article is for informational purposes only and does not constitute investment advice.
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