Search the site
America’s middle class pays for economically illiterate populism
President Trump believes he won his trade war because he raised US tariffs without triggering foreign retaliation. Much of the US media bought into this with headlines like: “Forget TACO. Trump Is Winning His Trade War” (Wall Street Journal) and “Trump Is Winning His Trade War. What Will That Mean for the Economy?” (New York Times).
But really: America wins from tariffs? Did the journalists collectively misplace their economics textbooks?
To grasp how strange this notion of victory is, compare it to this:
A chain-smoking tough guy walks into a health-food restaurant, lights up a cigarette, and smugly declares victory because none of the other diners retaliated by lighting up themselves.
If you don’t allow the tough guy to define victory, you’ll see this for what it really is: self-harm.
The President claims victory because others haven't matched his protectionism. But make no mistake: these tariffs hurt the American middle class and damage US economic competitiveness. Of course, some deals have foreigners promising to invest billions in the US, and that sounds like a victory. But the technical term for these promises is ‘loosey-goosey’. That’s a legal term (not) indicating that they are about as solid as Donald Trump’s campaign promises.
More on the self-harm below, but the first question is: why does the President think tariffs are so wonderful?
To understand why he thinks tariffs are a victory, you have to understand how deeply he believes America has been victimised by trade. For President Trump, trade isn’t about economics. It’s about pride, resentment, and the emotional satisfaction of getting even.
In announcing his "Liberation Day" tariffs, he declared that America had been "raped, pillaged, and plundered" by foreign "scavengers". I’m not making this up. You should read the transcript, or the more sober version in his official trade agenda.
Fuelled by rage not reason, Trump has rallied his base around a shared sense of injury and injustice, and he shaped it into a grievance-driven trade policy.
For the US President, political victory isn’t about substantive improvements in living standards or job security. It’s about symbolic retaliation. It’s about proving America won’t be pushed around anymore (even though most of the world believes that it is the United States who has been doing the pushing).
Political victory comes in the form of US media headlines showing how strong POTUS is and how much his tariffs are hurting foreigners. But politics and economics are not the same thing.
America’s middle class is angry, and they have every right to be, as I argue in my May 2025 eBook, The Great Trade Hack. For decades, the secure jobs and rising living standards that defined the American Dream have slipped slowly from their grasp. Factories closed, jobs went offshore, and stable careers turned into gig work. Housing became unaffordable, healthcare costs soared, and higher education left families drowning in debt. No wonder many Americans felt betrayed by the elites who had promised that globalization was good for everyone. 1
Donald Trump understood this anger instinctively, and it seems he personally felt ripped off by foreigners when he was a young man. On the campaign trail and in office, he didn’t offer detailed economic plans. He offered payback.
President Trump told Americans a simple, powerful story: their hardships weren’t their fault; they were victims of an unfair global economy rigged by "globalist elites" and foreign powers. He promised to strike back, restore lost pride, and protect their livelihoods.
His ongoing trade war is Trump fulfilling this promise in his own impulsive, idiosyncratic fashion. Since reassuming office, we’ve witnessed extreme and erratic announcements, rapid climbdowns recast as negotiating ploys, imposition of high tariffs, and relentless rhetorical attacks. This isn’t trade policy. It's political theatre. But it's theatre with a purpose: to show the middle class that someone in power finally hears their frustrations and is fighting back.
Yet here lies a deep contradiction. Tariffs may feel like justice served, but as economic medicine, they don’t, indeed can’t, heal the middle class’s very real wounds. Just the opposite.
Here’s why. Tariffs can only protect jobs in sectors that produce goods. The mechanics of it are easy. Inside America, tariffs hobble foreign competitors who make things like cars, steel, appliances, furniture, clothes, and electronics.
The reduced competition in the US market allows US-based producers to charge higher prices and sell more than they otherwise would have. Let’s break down that mechanism into two parts: 1) the price raising effect, and 2) the job-protecting effect.
The higher prices and sales boost the stock price of the protected US companies and can also protect job in those companies.
But what slice of the middle class have jobs in companies that are being protected? The undeniable reality is that fewer than one in ten middle-class Americans actually work in these sectors.
As the chart shows the overwhelming majority of middle-class jobs are in service industries. Middle-class Americans today are teachers, retail managers, software engineers, accountants, restaurant staff, and healthcare workers.
Nearly 90% of the middle-class work in services and you cannot put tariffs on services. Services that do cross borders go through the internet not US custom posts and so they cannot be tariffed. Service sector jobs cannot be protected by tariffs.
For service workers, tariffs provide zero direct protection.
That brings us to the price-raising part which raises the cost of living for all Americans.
We don’t have to speculate about whether tariffs raise consumer prices. It’s already happening. Except on China, and a few things like cars and steel, US tariffs have been at 10% for 2025 up to today. Research from Harvard Business School tracks retail price increases on thousands of everyday goods after tariffs were first imposed. Reuters has also closely followed price movements, using data scraped directly from Amazon listings. Both sources confirm a straightforward conclusion: American families are paying more today because of tariffs.
But here’s the bigger worry. The initial tariff levels of around 10% were only the start. Now Trump’s tariffs appear permanent at a much higher rate. On 1 August 2025, they are scheduled to rise to 15-25% for the main suppliers of imported goods. Until now, many retailers and manufacturers hesitated to fully pass tariff costs onto consumers, hoping tariffs would be temporary. With permanence confirmed, and all their competitors hit by similarly high tariffs, companies have little choice but to raise consumer prices even more aggressively.
Adding to this problem is the rapidly falling US dollar, down about 10% since the start of 2025. The connection between tariffs and the plummeting dollar is unclear, but its impact on prices is crystal clear. A weaker dollar means imports cost more, compounding the impact of higher tariffs. Put simply, American families are about to face a double-hit of price increases: tariffs and a weak dollar.
This is not really about headline inflation. The inflation American families actually feel in their daily lives could be much higher than the official inflation statistics indicate. Why? Because headline inflation includes a heavy weighting of services like housing, medical care, and transportation. Consumers pay for those, so their prices are important, but they are not things consumers are confronted with every week on web sites and in shopping aisles.
Tariffs, however, directly hit consumer goods, items families purchase frequently and notice immediately. When families see food prices, clothing prices, and the cost of household goods climbing, they perceive inflation as far worse than official statistics suggest.
So adding up the pluses and minuses, where are we on the impact of tariffs on the middle class? For the nine out of ten middle-class Americans who work in services, tariffs simply mean higher prices at the supermarket, higher costs for clothing, and more expensive appliances. The very people Trump promised to protect will find themselves paying higher prices at the checkout line. They’ll watch their household budgets shrink, and their everyday life get just a bit harder.
Ultimately, tariffs can’t fix middle-class malaise because they miss the root causes entirely: wage stagnation, unaffordable healthcare, housing costs, and education expenses. Tariffs offer politicians an easy way out without addressing these politically challenging issues directly.
Ironically, as a presidential candidate, POTUS promised repeatedly to lower costs for ordinary Americans. If prices continue to climb, the very voters cheering tariffs today may soon come to view them less as a solution and more as part of the problem.
President Trump’s tariffs have provided compelling political theatre. They vividly show his voters that someone in the White House is finally striking back against the globalist elite who, they have been told, are responsible for the very real financial challenges they’ve been living with for years. Tariffs, today, may feel like sweet revenge. But there is no denying economic reality. Emotions are wonderful, but economic reality is more persistent.
Trump can define victory however he likes, but as Abraham Lincoln famously pointed out:
"If you call a tail a leg, how many legs does a dog have? Four, because calling a tail a leg doesn’t make it one."
Likewise, calling tariffs a “victory” doesn’t change the reality that they hurt America’s middle class. Tariffs raise prices, squeeze household budgets, and ultimately make life harder for the very people the President vowed to protect.
Trump may have won the headlines, but American families are about to foot the bill for this act of political theatre. As with Brexit, those who voted for Donald Trump will soon discover that it’s not the elites who end up paying for economically illiterate populism. It is, as usual, the middle class.
The only real question is: what happens when that reality finally lands?
And that’s it for another Factful Friday!
