It is early 2026, and if you walk through a local car dealership or browse for a new laptop, you’re feeling it. The price tags look a bit "off." Not just inflation-off, but something more specific. For years, we’ve been hearing about trade wars and protective barriers, but now that the dust has somewhat settled on the massive policy shifts of 2025, the big question is staring us in the face: Are the tariffs working?
Honestly, the answer depends entirely on who you ask and what "working" actually means to them. If you’re the U.S. Treasury, you’re looking at a massive influx of cash. If you’re a family trying to budget for a new washing machine, you probably have a different word for it.
The reality is messy. It’s not a simple "yes" or "no." It’s a complex web of shifting supply chains, legal battles over executive power, and a direct hit to the American wallet that’s just now starting to fully manifest.
The Revenue Boom and the Hidden Tax
Let’s talk numbers first, because that’s the most visible part of this whole equation. The U.S. government has seen a staggering increase in customs duty revenues. According to recent data from The Budget Lab at Yale, the U.S. raised roughly $146 billion in net customs duty revenues through just the first eight months of 2025. By the end of this year, the Tax Policy Center (TPC) estimates the government will pull in about $247 billion from tariffs alone.
That sounds like a win for the federal budget, right?
Well, here’s the catch. That money isn't coming from some mysterious foreign vault. It’s a tax paid by U.S. importers—the companies that bring goods into the country. When Ford or John Deere pays $700 million or $600 million in tariff costs, as they’ve reported in recent SEC filings, that money has to come from somewhere.
For a while, companies were "eating" those costs. They had old inventory sitting in warehouses that they bought before the rates spiked. They hoped the trade tensions would blow over. They didn't. Now, that cheap inventory is gone. In 2026, those costs are being passed directly to you. TPC estimates that the average U.S. household will see a burden of about $1,500 this year due to these trade policies. For the lowest-income families, this effectively raises their federal tax rate by nearly 2 percentage points.
Are the Tariffs Working to Bring Manufacturing Back?
This was the big promise. The idea was that if we make it too expensive to buy from China or Mexico, companies will just build stuff here.
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We are seeing some of that, but it’s a slow, grinding process. Take Stellantis, for example. They recently announced a $13 billion expansion in the U.S. That’s a massive win for domestic production. However, it’s not happening everywhere. Many manufacturers are caught in a "wait and see" mode because of the sheer uncertainty.
The Federal Reserve’s Beige Book—a report on current economic conditions—has been filled with complaints from manufacturers. They aren't just worried about the cost of finished goods; they’re worried about the cost of parts. If you’re a U.S. factory that needs specialized steel or electronic components from abroad to build your product, the tariffs make your finished goods more expensive and less competitive on the global market.
Basically, we’ve created a "ratchet effect." While some sectors like transportation equipment are seeing some domestic investment, others are struggling with higher input costs that make it harder to hire new workers. It's a tug-of-war between creating new factory jobs and losing service or retail jobs as consumer spending slows down.
The Great Trade Shift: From China to... Everywhere Else
If the goal was to reduce the trade deficit with China specifically, then yes, the tariffs are "working" in a very narrow sense. The deficit with China has dropped from nearly 47% of the total U.S. goods deficit in 2017 to around 24% by late 2024.
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But look closer. We didn't stop importing; we just changed the return address.
- Imports of electronics from China dropped 20% in a single year.
- Imports of those same electronics from Taiwan jumped 40%.
- Imports from Vietnam surged by nearly 90%.
Economists have found a correlation of over -0.84 between Chinese and Vietnamese imports. In plain English? We’re just buying the same stuff from different places, often using Chinese-made parts that are assembled elsewhere to dodge the tax. The overall U.S. trade deficit actually increased by about 7.7% throughout 2025. We aren't necessarily "buying American" yet; we’re just "buying non-Chinese."
The 2026 Legal Cliff: The Supreme Court Weighs In
Right now, the entire tariff structure is built on a shaky legal foundation. Most of these 2025-2026 hikes were implemented using the International Emergency Economic Powers Act (IEEPA). It’s an "emergency" tool that allows the President to bypass Congress for national security reasons.
The U.S. Supreme Court is currently deciding whether that power was overextended. If they rule that the tariffs were illegal, the government might have to return billions of dollars in collected duties. J.P. Morgan analysts estimate that IEEPA measures account for roughly 61% of the recent tariff increases.
Imagine the chaos if companies suddenly get a $180 billion refund check, but the trade relationships they broke to get there remain shattered. It’s a volatility nightmare for business planners.
What This Means for Your Wallet
The "victory" of tariffs is often measured in headlines, but the reality is measured in your receipts. Morningstar recently noted that while core goods prices only rose a bit in 2025, import prices were up nearly 10%.
That gap is narrowing. 2026 is the year the "tariff tax" becomes a permanent fixture of the American cost of living. We’re seeing a shift from 2.6% inflation back toward 2.7% or higher, specifically driven by these trade costs.
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How to Navigate This New Economy
You don't need a PhD in economics to protect yourself, but you do need to be strategic. The era of "cheap stuff" is effectively on pause.
- Front-load major purchases: If you know you need a new vehicle or high-end appliances, the scheduled "escalation" of tariffs (like the potential 25% hike on European goods slated for June 2026) means prices will likely only go up from here.
- Watch the "Country of Origin" labels: Products from countries with free trade agreements (like the USMCA partners, Canada and Mexico, despite recent tensions) generally face fewer price spikes than those hit with 60% baseline rates.
- Monitor the Greenland Ultimatum: It sounds like a movie plot, but the recent 10% "national security" tariff on eight European nations—linked to the Greenland purchase dispute—is a real variable. If that escalates to 25% in June, anything from a Volvo to a bottle of French wine is going to get significantly more expensive.
- Hedge your investments: Companies with entirely domestic supply chains are currently "safer" than multinational giants that rely on importing components. Check the SEC filings of companies you invest in for "tariff risk" disclosures—they are required to tell you how much these taxes are hurting their bottom line.
The tariffs are "working" if your goal is federal revenue and decoupling from China. They are "failing" if your goal is low inflation and a lower overall trade deficit. In 2026, we’ve stopped talking about "if" tariffs will happen and started dealing with the reality that they are here to stay, for better or worse.
Next Steps for You
- Audit your household's "import exposure" by checking where your most frequent purchases (electronics, clothing, car parts) are manufactured to anticipate upcoming price hikes.
- Review your investment portfolio for companies heavily reliant on Section 301 or IEEPA-impacted imports, as their Q1 2026 earnings may reflect the "inventory exhaustion" price squeeze.
- Stay tuned to the Supreme Court's ruling on IEEPA authority, which could trigger immediate, massive market volatility and potential price rebates later this year.