What the Tariff Haters Got Wrong
One year after Liberation Day, it’s clear that the critics and panicans were largely wrong. This wasn’t the return of Smoot Hawley or the trade wars that contributed to the Great Depression. Trump’s tariffs did not isolate America. Instead, they integrated other countries more deeply with the U.S. economy, bringing us closer together rather than pushing us apart.
The early panic held that tariff escalation would leave the United States stranded behind what Reuters, quoting analysts, called an “economic moat around the U.S.” and perhaps even “quite isolated.” What actually happened was that trade diverted away from China and toward other suppliers eager to replace it.
A McKinsey Global Institute report released last month shows that global trade in 2025 did not collapse. The U.S. did not retreat from the world, and the world did not retreat from the United States. What changed was the map. McKinsey estimates that tariff shifts pushed more than $165 billion of trade away from the U.S.-China corridor, with direct bilateral trade falling about 30 percent. The United States replaced about two-thirds of the goods it had previously sourced from China by buying from other exporters.
The Scramble for Market Share
The critics did not see this coming. Instead of the U.S. becoming estranged from the world, we became more deeply enmeshed with the world outside China. India gained share in smartphones. ASEAN economies picked up laptops and other electronics. Taiwan, South Korea, and parts of Southeast Asia supplied booming American demand for semiconductors, servers, and networking gear tied to the AI buildout. McKinsey says ASEAN “thrived.”
The trade deficit tells the same story. Critics warned that tariffs would blow out the deficit by raising costs without reducing imports. The goods deficit had generally been widening for years before 2025, with the main interruption coming in 2023, when imports fell as the post-pandemic buying spree cooled and inventories were worked down. In 2025, however, the widening nearly stopped. The goods deficit rose only about two percent from 2024, a dramatic slowdown from the much larger increases in 2021, 2022, and 2024. Even that modest increase was distorted by frontloading, as firms rushed in gold, pharmaceuticals, and copper ahead of expected tariff deadlines. Strip out that defensive buying, and McKinsey says underlying imports grew less than half a percent, well below the pace of the economy.
What’s more, after ballooning 17 percent in 2024, the total deficit—counting goods and services—actually narrowed 0.2 percent as our trading partners increased their purchases of both goods and services. The European Commission’s Spring 2025 forecast explicitly predicted that tariffs would artificially inflate the dollar and crowd out U.S. exports by making American goods less competitive abroad. Their model had U.S. export volumes falling two to six percent as a result. That was backward: BEA data shows U.S. exports grew 6.2 percent instead.
The data in the McKinsey report also explains why the sweeping retaliation never really materialized. Reuters quoted an analyst warning that Trump was “alienating so many U.S. trade partners” that China could find common cause with them. The prediction missed something basic about incentives. If U.S. tariffs redirect demand rather than destroy it, many countries have a reason to capture the displaced trade, not choke it off. By year-end, the average effective U.S. tariff rate had fallen from about 22 percent in early April to roughly 15 percent after trade agreements and policy adjustments. Countries wanted deals, not walls.
The report also undercuts the claim that the full cost of tariffs would fall on Americans. McKinsey says Chinese exporters of consumer goods, from electric cars to toys, cut prices by an average of eight percent to find buyers in new markets. China absorbed part of the tariff burden. The incidence was not one-way.
The U.S. Is Still Setting the Global Agenda
This should not have been so hard to predict. The U.S. has been setting the terms of world trade since the end of the Second World War. We helped build Bretton Woods and GATT. We reshaped the system again when we closed the gold window, and the world adjusted to dollar centrality and floating exchange rates. We did it again with the WTO era and China’s entry into the global trading system. Now we are doing it once more, using the power of the American market to push trade away from China dependency and toward a new alignment. And once again, the rest of the world is adjusting.
China, meanwhile, refused to do what Western economists have long insisted it must. Martin Wolf wrote in April that “the case for China to shift towards consumption-led growth is overwhelming.” McKinsey shows no such shift. China’s trade surplus hit a record high. It moved further into the role of a “factory to the factories,” shipping more components, machinery, and capital goods to third countries. Exports of intermediate and capital goods rose by around $22o billion, more than offsetting a $130 billion drop in exports to the United States. Call it what it is: mercantilism adapting under pressure.
That will likely backfire. While the rest of the world might have absorbed the excess China production last year, it is unlikely to continue to do so. If anything, China’s insistence on maintaining its export growth model is likely to drive more countries to seek ways to protect their production from Chinese predation.
The real lesson is not merely that global trade survived Trump’s tariffs. The tariffs changed who traded with whom in a way that reduced direct American dependence on China, deepened commercial ties with other countries, diversified our supply chains, and did not widen the trade deficit. Critics predicted isolation, and instead we got cooperation from trading partners. They predicted a united backlash, and what happened was a scramble for U.S. market share. They predicted China would shrug off the pressure, but what happened was lower export prices.
And that was just in the first year.
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