The Tariff Tally That Doesn’t Add Up: Unpacking American Compass’s Flawed Claims   Recently updated !

The conservative think tank American Compass recently published “The Tariff Tally,” an evaluation of President Trump’s global tariff policy one year after its implementation (dubbed “Liberation Day”). The report argues that tariffs are successfully revitalizing American manufacturing.

However, a detailed analysis reveals that American Compass’s framework is economically inconsistent. Their report often relies on “cherry-picked” data—attributing positive trends to tariffs while dismissing negative data as “too early to judge” or the result of outside factors.

1. The Price Concept Confusion

American Compass argues that tariffs only modestly increased prices, suggesting the “inflationary spiral” predicted by critics never happened. However, they confuse headline inflation with relative prices.

• Import Costs: Research from the Federal Reserve and the ECB shows that 86% to 95% of tariff costs are passed through to U.S. importers, not foreign exporters.

• Relative Prices: For tariffs to work as intended, they must make foreign goods permanently more expensive than domestic ones. If they don’t change relative prices, there is no incentive for companies to “reshore” production.

• The Reality: Evidence suggests tariffs added about 0.76 percentage points to headline inflation. Without them, consumer prices would be lower today.

2. Manufacturing: Boom or AI Illusion?

The report cites rising durable goods orders as proof of a manufacturing resurgence. However, the growth is concentrated in sectors that were largely exempt from tariffs.

The “boom” American Compass describes is actually driven by the AI revolution, which increased demand for chips and data centers—sectors that were specifically insulated from the new tariffs to avoid stifling tech growth. Meanwhile, many protected sectors, like furniture and wood, saw output decline.

3. The Investment Paradox

American Compass claims tariffs encourage firms to build factories in the U.S. to avoid taxes. Economically, tariffs actually reduce the total return on capital through two channels:

1. Cost of Capital: Tariffs on steel, aluminum, and machinery make it more expensive to build anything in America.

2. Tax Policy Overlap: The report ignores the 2025 Tax Law, which introduced permanent “bonus depreciation.” This tax break for investment is a much more likely driver of any new spending than the tariffs, which actually act as a penalty on equipment imports.

4. Productivity and GDP Growth

The report highlights a 1.6% rise in manufacturing productivity but fails to explain why productivity fell sharply in Q4 2025.

• Inconsistency: Productivity is driven by investment. If American Compass admits that new capacity hasn’t come online yet, they cannot credit tariffs for productivity gains.

• GDP Realities: Real GDP grew by 2.1% in 2025, which is actually lower than the 2.8% growth seen in 2024.

5. The Trade Deficit and the “Savings-Investment” Identity

The final claim is that tariffs reduce the trade deficit. However, the trade deficit is a function of national savings and investment, not just trade policy.

• Bilateral vs. Aggregate: While the bilateral deficit with China fell, the overall U.S. goods deficit actually rose by 2.1% to $1.24 trillion.

• Trade Diversion: Americans didn’t stop buying imports; they simply shifted from buying Chinese goods to buying goods from Southeast Asia and Mexico.

• The Identity: If the U.S. successfully attracts foreign investment (as American Compass hopes), the trade deficit must increase by law to balance the capital account. You cannot have a surge in foreign investment and a falling trade deficit simultaneously.

Conclusion: An Inconsistent Chain of Events

American Compass’s “Tariff Tally” breaks at every link in its theoretical chain:

• It claims tariffs didn’t raise prices, yet its framework requires higher relative prices to work.

• It claims tariffs boosted manufacturing, yet growth is highest in non-tariffed sectors.

• It claims tariffs reduce the trade deficit, yet it celebrates foreign investment deals that would naturally increase that deficit.

Ultimately, the data suggests that while tariffs can shift where we buy things, they do so at the cost of higher prices and lower overall economic efficiency.