Stop Blaming Tariffs

America’s rising costs have deeper causes than trade policy or immigration enforcement.

As midterm elections approach, critics of President Donald Trump’s agenda argue that his trade and immigration policies are raising prices across the economy and making it harder for Americans to afford everything from groceries to housing. This notion was on full display during Treasury Secretary Scott Bessent’s recent testimony before the House Financial Services Committee. For example, Ranking Member Maxine Waters (D-CA) argued during the hearing:

One clear reason that the housing crisis has grown worse is that you and the rest of the Trump administration levied tariffs on housing production goods like lumber and steel, as well as appliances… In addition, the unlawful campaign the Trump administration has waged with ICE and border patrol, terrorizing American communities, has also harmed home construction across America.

This argument is convenient, but it’s not true. In fact, during the three quarters of 2025 with Trump’s tariffs in place, housing prices saw their lowest jump since the first quarter of 2013. The false narrative is also revealing in how it glosses over the broader dynamics driving housing costs and affordability challenges more generally.

America’s affordability problems did not begin in the last 12 months and are unlikely to end in the next 12. Certainly, they would not end if Trump abandoned tariffs and immigration enforcement tomorrow—as evidenced by inflation being much higher during the Biden administration.

The cost pressures confronting households today are the cumulative result of structural economic challenges that have unfolded over decades, driven in no small part by America’s “post-border” politics: stagnant productivity in key sectors, declining industrial output, rising inequality, skyrocketing debt, escalating services costs, and asset price inflation. The idea that policymakers can deliver affordability by doubling down on cheap imports and cheap labor brings to mind the classic definition of insanity: doing the same thing and expecting a different result.

Prioritizing Americans through tougher trade and immigration policies addresses affordability at its roots. Stronger tariffs and immigration enforcement will raise wages and improve economic outcomes for those left furthest behind while reducing the vulnerabilities that amplified the shocks of the Great Recession and the COVID-19 pandemic. Portraying tariffs as the primary driver of higher prices obscures these deeper structural risks and diverts attention from the reforms needed to restore a more balanced economy.

The Politics of “Affordability”

Affordability is quickly becoming the dominant framework for discussing the economy. While it captures a genuine and widespread anxiety about rising costs and financial insecurity, it also raises a broader set of questions: what is causing the affordability issues; who is most affected; what can be done to address them; and is there a trade-off between short-term patching and long-term solutions?

While it may not be as politically convenient, the truth is that the affordability challenges facing America’s middle and working classes require structural reforms to our economy. Policies that attempt to fix affordability issues overnight often exacerbate them shortly thereafter. Recall that it was policymakers’ reliance on “quick fixes” and massive stimulus payments during the pandemic that drove the very inflation many are still reeling from today.

Sustainable improvements to living standards happen through productivity growth, increased domestic output, and responsible fiscal policy. When workers produce more with each hour of their labor, wages rise faster than prices. When domestic output increases, American workers earn more income to afford more goods. When the government limits spending to what it receives in tax revenue, inflation remains low, interest rates remain stable, and capital becomes affordable to a wider swath of Americans, including those seeking mortgages and small business loans.

Policies like tariffs and immigration enforcement advance all three goals by strengthening supply chains, expanding productive capacity, and tightening labor markets through curtailment of both unfair foreign trade practices and illegal labor. While their benefits take time to arrive, and while short-term cost increases are possible in the interim, the dire inflation and recession predictions of a year ago have proven overwrought. The typical term for acceptance of short-term costs that will deliver sustainable long-term gains is “investment”—a concept that our newscycle-driven politics, unfortunately, too often discounts.

In the first year of the second Trump administration, consumer prices increased by 2.4%—less than half of the 5% average increase during the four years of the Biden administration, and lower than the 10-year, 20-year, and 50-year U.S. averages. While many would like to see more broad-based price declines, actual deflation has only occurred in the last hundred years during the Great Depression and (briefly) the Great Recession.

Deflation tends to result in higher unemployment and lower wages, making it an inapt policy goal. It is much better to curb inflation and drive real wages higher. Thankfully, the economy saw gains on that front last year as well. Real weekly wage gains—which are adjusted for inflation—were up 1.9% through January for all employees, and up 2.2% for production and nonsupervisory workers. This means working Americans, including the middle class, made tangible economic progress over the last year—progress that significantly outpaced the average since 2000.

Inflation Before and After COVID

A clear picture of affordability challenges emerges only by examining the economy over the long term and across sectors.

Before the pandemic, the United States experienced historically low inflation, which averaged only 1.8% annually between 2010 and 2019. Trends varied significantly across categories. Prices for consumer goods stayed low in those years as cheap imports and labor flooded into our country. But in exchange for those cheap goods, America traded massive debt, quality jobs, and industrial vitality.

The first wave came in the early 2000s, when America opened its markets to China and shed millions of manufacturing jobs and factories closed, and as foreign “investment” fueled a housing bubble that eventually burst, leaving countless American households and businesses destitute.

The second wave came during the pandemic, when globalized supply chains—many anchored in China—suddenly became unreliable. As hollowed-out American production failed to meet increased demand from debt-fueled stimulus checks, inflation surged and Americans again suffered.

But even while many consumer goods remained cheap during the era of globalization, service costs continued to soar. Long before COVID or Trump’s tariffs and immigration crackdown, the fastest-growing prices in the American economy have been concentrated in services sectors with rising demand and limited productivity growth. Buttressed by government spending and layered with bureaucracy, health care and education costs have risen faster than all other sectors. Between January 2000 and June 2024, hospital services were up over 250%, college tuition rose 188%, childcare 139%, and medical care 136%—all outpacing average wage gains by wide margins.

Housing costs, including rents, have also risen steadily for years, but especially after COVID, reflecting long-term supply shortages and rising demand. Some, like Rep. Waters, argue that tariffs on construction materials have significantly raised construction costs, but so far, lumber prices have declined since tariffs were implemented, dropping below pre-election prices in May. As in many other goods categories, lumber prices reached record highs throughout most of the Biden administration.

Beyond immediate input prices, the National Association of Home Builders estimates that in 2023, only “7% of all goods used in new residential housing construction originated in a foreign nation.” According to the study, if the U.S. implemented a 20% global tariff (double today’s rate) and a 60% rate on China (again, substantially above the present rate), the total cost of building materials would increase a mere 2.2%.

Materials account for just over half of total construction costs, meaning that even doubling tariffs with all the costs passed through would raise housing construction costs on the order of 1%. And that’s without accounting for other major housing price variables like land value, mortgage interest rates, closing costs, and tax policy, which have advantaged older generations of buyers and investors over younger Americans in recent years.

As with health care and education, a deeper issue also lies in the productivity performance of the construction industry itself. Unlike in other sectors where automation and technological innovation have dramatically improved efficiency, construction productivity has declined 30% since the late 1960s—around the same time America opened itself to much larger numbers of immigrants, who make up a large share of construction trades. Industries with abundant low-cost labor often have weaker incentives to invest in innovative labor-saving technologies. By contrast, when labor becomes scarce or expensive, firms are more likely to adopt productivity-enhancing innovations that lower costs and raise wages.

On the demand side, a sudden surge of millions of illegal immigrants into a country with already limited housing stock for young families and those lower on the income distribution is also a recipe for significant housing price increases. In the long run, sustained productivity growth for those legally in the country—not the continued expansion of low-wage labor supply—is the more reliable path to housing that the typical worker can afford.

Rebuilding America’s manufacturing base could also improve housing affordability by accelerating innovation in building techniques. Manufacturing accounts for a disproportionate share of research and development, productivity growth, and exports, and often produces technological spillovers that benefit other sectors, including construction. As recently discussed on the American Compass podcast, industrialized housing that uses prefabrication and modular construction in factories has gained steam in manufacturing-heavy countries like Japan and Germany with tightening labor markets. A reindustrialized United States with stricter immigration enforcement could see similar advances.

Taken together, these sectoral patterns highlight that the most persistent affordability pressures in sectors like housing, health care, and education are largely domestic structural problems, not the result of stronger trade and immigration policies that protect American workers and wages.

The Limits of Tariff Cost Estimates

Many claims about tariff costs rely on economic models rather than observed price data. These models typically assume that tariffs are fully passed through to American consumers in the form of higher prices. But as the Wall Street Journal recently explained, foreign governments frequently offset tariff costs by increasing industrial subsidies to remain competitive in the U.S. market.

Importers and retailers also absorb part of the cost to maintain market share, lowering their recent record profit margins rather than passing higher costs on to consumers. Currency adjustments, changes in the quality of goods imported, and other supply chain diversions further erode the reliability of modelled tariff passthrough calculations. Beyond that, most studies also ignore the positive economic benefits of tariffs for U.S. industries and workers facing competition from foreign countries with unfair trade practices and weak labor standards.

With those caveats, the best estimates are still that the new tariffs have raised consumer prices by roughly 0.7 percentage points—a measurable effect, but small relative to the pandemic-era inflation surge and ordinary year-to-year fluctuations.

If tariffs help close the U.S. trade deficit, more American demand will shift to domestic producers and workers, limiting the net loss of American income to producers abroad. This will put upward pressure on wages, revenue, and savings while putting downward pressure on U.S. spending and debt. As long as wage increases outpace inflation, as they did last year, Americans should not face increased hardship.

Early forecasts about the economic effects of tariffs were predictably dire. As new tariffs were introduced in the first half of 2025, several financial institutions warned that the United States was likely heading toward recession, with some models placing the probability at 60%. Instead, growth was strong in the second and third quarter and remained positive in the fourth, despite being weighed down by the longest government shutdown in U.S. history. The labor market has also remained resilient with layoffs remaining low and unemployment flat.

More importantly, the policy’s long-term objective is not short-term price suppression but increased industrial capacity. Tariffs are designed to encourage domestic investment, increase industrial output, and reduce dependence on foreign supply chains. It is still early, but positive signs have started to emerge. Industrial output expanded last year, including both of the Federal Reserve Board’s measures of manufacturing output. Annualized non-farm labor productivity also grew faster than 2% in the last three quarters of 2025, with a BLS report from this week showing promising breakthroughs in manufacturing productivity after years of stagnation.

Beyond that, Trump’s new tariffs generated over $170 billion in federal revenue in 2025, effectively shifting more of the tax burden toward foreign producers and outsourcers. While those revenues will likely be refunded after the Supreme Court’s decision, new tariff authorities will generate similar revenues going forward.

A Broader Economic Strategy

Tariffs and immigration enforcement are best understood as components of a broader economic strategy to rebuild domestic production capacity, accelerate productivity growth, strengthen supply chain resilience, and increase middle class wages. Industrial output, as well as manufacturing orders and shipments, have already shown gains in the first year, suggesting returns on investments in U.S. production are likely to pay off.

Many of the affordability challenges wrought by globalization and its effects were put into motion over decades; righting the ship will not happen overnight. But the long-term objective is clear: building an economy that produces more at home, innovates more rapidly, and distributes the gains from growth more broadly.

America’s affordability challenges are real. But they will not be solved by simplistic narratives that blame tariffs for every price increase. The forces shaping housing prices, inflation, and wage stagnation are complex and long predate current trade and immigration policy debates.

The real task for policymakers is not to win the next news cycle but to make the case to voters for a better path forward. That is the only way to rebuild an economic system capable of raising living standards over the next generation. That path will require focusing on productivity, output, and economic resilience, not convenient political scapegoats.