This is Part 4 of a 7-part series examining the structural flaws in U.S. monetary policy and what Japan's $550 billion investment pledge reveals about the global dollar system.

Previous: Part 3 — How Rate Hikes Squeeze the Middle Class Twice

The Trump administration's turn to tariffs is understandable. The goods trade deficit reached $918 billion in 2024 — $295 billion with China, $68.5 billion with Japan — according to the Bureau of Economic Analysis. The sense that America is exporting more wealth than it is keeping is not imaginary.

But tariffs do not solve the problem. They redirect it onto the people who can least afford it.

Who Actually Pays the Tariff

Tariffs are nominally paid by importers. In practice, the cost is passed to consumers. Research from the Federal Reserve Bank of New York found that 90% of the tariff burden falls on American consumers. The Kiel Institute puts that figure at 96%.

Tax Foundation estimates that Trump-era tariffs cost the average American household $1,000 to $1,500 per year. This is on top of the interest rate burden documented in Part 3 — a second squeeze layered onto households already under pressure.

The government's tariff revenue in fiscal year 2025 reached $19.5 billion, up 150% from the prior year (Committee for a Responsible Federal Budget). That sounds significant until you compare it to the consumer side: 130 million households paying an average of $1,250 each adds up to roughly $160 billion in consumer burden. The government collected $19.5 billion; consumers absorbed eight times that amount. The gap does not go to anyone — it disappears into higher prices and reduced purchasing power.

The Right Direction, the Wrong Tool

Trump's underlying objectives — bringing wealth back to America, preserving domestic industry, restoring the manufacturing employment base — point in the right direction.

But tariffs address trade flows, not capital flows. They tax the movement of goods across borders. What they cannot touch is the $260 billion in interest payments leaving the country every year. No tariff reduces that figure by a single dollar. The core leak continues regardless.

Tariffs also neutralize one of the few benefits of dollar strength. When the dollar is strong, imports get cheaper. But a 25% tariff on top of 10% currency appreciation leaves the consumer paying more than before either policy existed. The Trump tariff schedule — often 25% to 100% or more — overwhelms any purchasing power benefit from a strong dollar.

Tariffs Are a Tax, Not a Subsidy

The critical missing piece is the distribution mechanism. Tariff revenue flows into general government accounts. There is no automatic pathway from tariff collection to the manufacturing workers or struggling households who were the intended beneficiaries. Whether that revenue reaches people who need it depends entirely on separate legislative decisions — which may or may not happen.

The diagnosis is correct: wealth is flowing out of America and the domestic industrial base is eroding. The prescription — tariffs — addresses neither the interest payment leak nor the household financial pressure documented in Parts 2 and 3.

What would the right prescription look like?

Previous: Part 3 — How Rate Hikes Squeeze the Middle Class Twice Next: Part 5 — The Fiscal Solution: Why the Textbook Answer Is Wrong for a Reserve Currency

Sources: BEA: U.S. International Trade 2024 | NY Fed: Who Pays Trump Tariffs | Tax Foundation: Tariff Tracker | CRFB: Tariff Revenue FY2025 | 日本語版

Disclaimer | This article is for informational purposes only and does not constitute investment advice.