How Trump’s War on Imports Turned Into a War on His Own Voters

When a “good” economy feels broken

By the usual macro measures, the United States in late twenty twenty five does not look like a country in crisis. Output is still expanding. The official jobless rate hovers in the four per cent range. Corporate earnings remain solid. Equity indices are close to record highs on the back of artificial intelligence and defence spending.

That view only holds if you live inside stock charts and aggregate statistics. When pollsters ask people how the economy feels, the answers are blunt. Across major surveys roughly three quarters of voters now describe current conditions as poor or only fair. Trump’s rating on economic management has slipped into the high thirties, lower than Biden’s worst numbers during the twenty twenty one and twenty twenty two inflation spike. Independents and lower income voters are the most hostile.

They are not comparing Trump with an abstract historical baseline. They are comparing their present reality with the promises he made to win back power. He told them he would end inflation, crush the cost of living crisis and bring prices down. They look at rent, groceries, fuel and medical bills and see none of that happening.

Inflation slowed. The price level did not come back down.

Technical inflation has fallen. The annual rate is down from the seven or eight per cent peaks of the Covid aftermath to somewhere near three. Central bankers congratulate themselves on a soft landing. Commentators say the worst is over.

Households do not live inside the rate of change. They live inside the level of prices. Since late twenty nineteen the overall cost of living has risen by roughly a quarter. Food at home is closer to thirty per cent higher. Rents and house prices have outpaced wages. Energy, insurance and healthcare have all locked in much higher baselines.

A weekly shop still feels alien compared to the pre pandemic bill. A family buying coffee, beef and basic staples knows inflation slowed. It also knows the new normal is permanently expensive.

The labour market picture is similarly split. The headline unemployment rate is low, but job growth is slowing and real wage gains for ordinary workers have cooled just as those higher prices have set in. The growth that remains is being held up by narrow supports: capital spending on artificial intelligence infrastructure and spending by asset owning households whose portfolios have benefited from the market boom.

This is an archetypal K shaped recovery. The upper arm consists of investors and high earners whose wealth has risen with markets and property. The lower arm consists of renters, low asset workers and the indebted who spend almost everything on essentials. From the first vantage point the Trump economy looks resilient. From the second it looks rigged.

Liberation Day and the quiet tax at the border

Into this already fragile balance Trump dropped his signature economic shock: Liberation Day. On two April twenty twenty five he declared a national emergency over the trade deficit, proclaimed a new Liberation Day and signed an order that slapped a ten per cent general tariff on almost all imports, plus higher reciprocal duties on dozens of countries. These measures sat on top of existing steel, aluminium, auto and China specific tariffs.

The sales pitch was simple. America would regain sovereignty, rebuild factories and grow rich on tariffs. Foreign governments would pay. Domestic consumers would be shielded. The new revenues would fund tax cuts, infrastructure and even direct cheques.

The reality is a reminder that arithmetic does not care about slogans. Once Liberation Day is added to earlier measures, the average effective tariff rate jumps from the low single digits to heights not seen since the mid twentieth century. Serious estimates suggest that in twenty twenty five alone the tariff package will raise federal revenue by well over one hundred billion dollars, making this the largest discrete tax increase since the early nineteen nineties.

The key word is tax. A tariff is a sales tax collected at the border. It is paid by importers and largely passed on to shoppers and downstream firms. The first Trump trade war produced a thick stack of empirical work that all reached the same conclusion. The burden fell mainly on American consumers, not on foreign exporters. Early studies of Liberation Day find the same pattern.

Trump has therefore done something no recent president dared to do. He has imposed a large, deliberately quiet consumption tax in the middle of an affordability crunch and told people abroad are paying it.

Tariff driven inflation and the interest rate trap

The administration argues that tariffs will prove good for prices in the long run by pushing production back onshore. In a stylised model you can draw such a path on a whiteboard. In the real world of supply chains and retaliation, you still have to live through the transition.

In that world the short and medium term effect is clear. Border taxes raise the price of imported goods. Domestic producers shielded from competition raise their own prices. Firms that rely on imported inputs see their costs rise and pass them on where they can. Trading partners answer with their own barriers, closing off markets and creating friction.

Central bank and private models now converge on the same conclusion. Without Liberation Day and its follow on measures, core inflation would already be much closer to the Federal Reserve target. With tariffs in place, the rate is stuck higher than it would otherwise be. Analysts talk about a policy induced inflation floor.

That floor pins interest rates up. In a counterfactual world with no tariff shock, the Fed would likely be well into a cutting cycle. Instead, it must hold rates higher for longer to counter a price level it did not create. Mortgage costs stay painful. Corporate borrowing remains expensive. Investment outside the narrow artificial intelligence and defence band hesitates.

Tariffs are therefore doing three jobs at once. They act as a stealth tax on consumption. They keep inflation above where it should be. They force monetary policy to stay tighter than necessary. For a president who promised cheaper everything and boasts about understanding debt, that is a remarkable own goal.

Trump’s war with the bottom of the K

For affluent households with assets the Liberation Day shock is easy to rationalise. A homeowner with little debt and a large portfolio can absorb modest price rises for imported goods. Market gains and property values paper over the tax at the border.

For renters on thin margins there is nothing to absorb it with. The monthly budget is dominated by rent, groceries, fuel and medical costs. Every extra dollar baked into the price of imported food or household essentials displaces something else. Turbulence in the bond market does not figure in their mental model. The supermarket bill and the landlord’s demand do.

This is why Liberation Day is toxic to the lower arm of the K. It is a policy that rewards those who already own assets and penalises those who live month to month. It deepens the sense that the game is rigged and that the loudest promises about national strength always seem to end with ordinary people paying more for the same things.

When anger over prices reaches the ballot box

Politics has started to catch up with this structure. The off year elections of November twenty twenty five were the first serious test of how voters would respond to Trump owning the economy again and to the new tariff regime.

The results were not subtle. Democrats took the governorships of Virginia and New Jersey by clear double digit margins, reversing Republican progress from only a year earlier. In several suburban and working class counties that had swung towards Trump in twenty twenty four, the movement snapped back the other way in a single cycle. New York City elected a democratic socialist mayor after a campaign that centred rent, fares and food prices, and that branded tariffs as a tax on working families.

Exit polls across these contests told a consistent story. Voters who named the economy and cost of living as their top concern broke decisively for Democratic candidates. National surveys now find majorities assigning primary responsibility for current conditions to Trump rather than to his predecessor. The ownership of the crisis has shifted.

For Republicans, the comforting narrative that everything could be blamed on Biden and on an amorphous establishment no longer works. The man in charge is the man who promised relief. He is the one voters now hold to account.

Retreat at the edges, no change at the core

Under this pressure the White House has begun to retreat tactically without admitting strategic error. Some food tariffs have been trimmed back at the margin, particularly on politically sensitive goods such as coffee and bananas. A handful of trade deals have carved out exemptions for favoured allies. Officials hint that more adjustments may follow.

At the same time Trump has floated a tariff funded dividend cheque of around two thousand dollars per person for most households, marketed as a patriotic share in the spoils of the trade war. Budget analysts have already pointed out that the sums do not add up. The same tariff revenue has been promised for tax reductions and deficit control. Even if the rebates materialised, they would amount to taxing people quietly every week at the checkout and handing some of it back in a single noisy payment once a year.

Layered over all this is an escalating confrontation with the Federal Reserve. Trump has publicly attacked the chair, accused the central bank of sabotaging his programme and pushed his Treasury Secretary to find ways of forcing faster rate cuts. Markets and foreign central banks are watching a United States president lean toward the strongman model of monetary politics at the very moment his own tariff policy is complicating the inflation fight.

None of these moves change the basic structure of the Trump economy. Liberation Day tariffs remain in place. Prices remain high. The K shaped split remains. The trust cost rises.

The deflation promise that was never on the table

Beneath the technical debate sits the simplest fact of all. Trump did not merely say he would bring inflation down. He told Americans he would make life affordable again and restore something like the cost of living they remembered before Covid.

That is a deflation promise in all but name. It implies a commitment to push the price level back down, not simply to slow its rise. Yet the entire machinery of the modern American economy, from mortgages and corporate bonds to pension funds and stock valuations, is built around the assumption of low, positive inflation. Debts are set in nominal terms. Asset values rest on rising nominal incomes. Investment decisions assume stable, gently increasing prices.

If a government really tried to force prices down on a sustained basis it would invite a wave of defaults, bankruptcies and unemployment. Central banks have spent decades designing frameworks to prevent exactly that outcome. Trump was never going to deliver literal deflation. No rational administration could. Instead he tried to borrow the political mood music of cheaper living while running an agenda that pushes in the opposite direction.

That is the trap he now occupies. If prices merely rise more slowly, many of his supporters feel cheated, because the number on the supermarket receipt is still dramatically higher than it was five years ago. If rates stay high to contain tariff driven inflation, the cost of servicing debt eats deeper into their budgets. If he embraced the kind of brutal disinflation that really would drive prices down, the economic collateral would be intolerable.

The result is a stalemate in which Liberation Day and the wider tariff regime keep prices elevated, the Fed keeps policy tighter than it wants to, and voters who were promised liberation feel cornered instead. Pollsters are already recording their verdict. Off year elections are starting to convert that verdict into seats and offices.

For economists, the Trump experiment has become a live case study in the limits of tariff populism inside a heavily indebted, unequal society. For the people at the bottom of the K shaped recovery, it has become something simpler. It is the reason their budget still does not stretch, even in a supposedly good economy, and the reason the man who promised to bring prices down now finds himself blamed for keeping them high.

References

Selected public sources and research used in building this analysis. These are starting points for further reading rather than an exhaustive list.