“We will take in trillions and trillions of dollars and create jobs like we have never seen before,” U.S. President Donald Trump told Congress in his state of the union address in March 2025, one of many forecasts of a new golden age fuelled by tariffs.
“Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people,” Trump posted on Twitter back in 2018, during his first term in office.
The jobs haven’t materialized, and this month U.S. government debt blew past the $40-trillion US mark, causing uneasy rumblings in the bond market and added pressure keeping yields and interest rates high.
But it’s an ill wind, as the saying goes, and while tariffs have brought stress and hardship for some, they have brought a windfall for others.
One of the main effects of tariffs within the U.S., economists say, has been to cause a massive transfer of wealth from the poor and middle class to the wealthy and well-connected corporations.
Tariffs, geopolitical tensions and trade disruptions are just some of the many reasons why U.S. prices rose in April at their fastest rate since May 2023. Power & Politics hears more from Justin Wolfers, a professor of economics and public policy at the Gerald R. Ford School of Public Policy at the University of Michigan.
And in that sense, the tariffs fit in with the overall (unstated) economic thrust of the Trump administration and the Republican Party, which has used tax policy to achieve the same ends.
“This is consistent with other current trends. Red states in the U.S. are facing co-ordinated efforts to reduce income taxation and to increase sales taxes, which would have similar effects,” said Veljko Fotak, an associate professor of finance at the University of Buffalo’s School of Management in New York.
The effect is so strong that some economists have suggested the real target of tariffs is not “foreign cheaters” at all but rather the principle of progressive taxation in America.
Tariffs for the little guy, rebates for the big boys
“Tariffs effectively tax consumption, and lower-income households consume a bigger proportion of their paycheque,” Fotak explained. “Taxing consumption sounds fair, until you realize that Warren Buffett and Elon Musk ‘consume’ a minuscule proportion of their income and an even lower proportion of their wealth.”
There’s a second, slightly more subtle mechanism at play, Fotak said.
“Wealthy households tend to spend a bigger proportion of their paycheque on services and things like travel, which are less affected by tariffs than expenditures on manufactured goods. The things you buy at Walmart are impacted by tariffs. Your spa appointment or your kid’s violin lessons, much less so.”
Some U.S. manufacturing companies think U.S. President Donald Trump’s tariffs are, well, great. CBC’s Mike Crawley explains why, even as polls show the average American is growing more skeptical of Trump’s sweeping tariff policies.
But the wealth-concentrating effect of tariffs has been made even stronger by the arbitrary and political nature of the U.S. tariff exemption and tariff rebate regimes.
This month, the U.S. Treasury passed the $100-billion mark in refunds paid out to businesses for money lost to Trump’s “Liberation Day” tariffs, ruled unlawful by the U.S. Supreme Court. Another $30 billion remains to be paid under the ruling.
Walmart was the biggest winner on the refund front, getting back almost $3 billion. Retailer Target received just under $1 billion, dramatically improving its bottom line for the second quarter.
Democratic Gov. JB Pritzker of Illinois sent Trump a symbolic invoice demanding about $9 billion in refunds, based on an estimated tariff cost of $1,700 per family in that state. But those refunds — unlike those to major corporations such as Apple and Amazon — are unlikely to ever be paid.
With both refunds and exemptions, it’s the big, politically connected corporations that tend to come out ahead, said economist Kimberly Clausing, who holds the Eric M. Zolt Chair in Tax Law and Policy at the UCLA School of Law.
“These tariffs were implemented in a really chaotic and mercurial way, and sometimes in an unlawful way. And then they got reversed and people needed to get the refunds,” Clausing said.
“And when you look at a regime that’s so variable and so uncertain, the companies that have the legal and lobbying expertise to navigate that and have the connections to get the exemptions are doing a lot better than the small guys.”
Greasing the wheels of the system
The evidence of political favouritism around tariffs has been there since Trump’s first term.
A paper co-authored by Fotak in the Journal of Financial and Quantitative Analysis measured the value of political connections in obtaining relief from Section 301 tariffs on Chinese imports imposed in 2018.
The researchers compared how more than 7,000 exemption applications fared with publicly available data on lobbying and political donations. Only one in seven applications was granted, but companies that donated to Republicans had significantly higher-than-average odds of getting one.
“What we saw was that firms producing very similar items faced different outcomes, depending on their levels and targets of political expenditures,” Fotak told CBC News. “A foldable raft manufacturer from California was denied an exemption, but its close competitor from South Carolina received one.”
The researchers also found firms that spent more on lobbying government officials were more likely to receive exemptions, Fotak said.
“Firms that contributed to Republican politicians were rewarded with exemptions. Firms that contributed to Democrat politicians were punished with a withholding of exemptions,” he said.
Fotak said the government in Trump’s second term has shielded the data that would permit a similar analysis.
“Lower levels of transparency are very discouraging,” he said. “Anecdotal evidence, including a frenzy of activity from lobbying law firms, seems to suggest that if anything, the process is even more openly political now than in the past.
“Trump dined with [Apple CEO] Tim Cook and shortly afterwards Apple got exemptions. [Late senator] Lindsey Graham was happily talking about how he obtained exemptions for firms from South Carolina, his home state. Tennessee Republicans argued that grill covers were ‘important for national security’ after receiving donations from a grill cover manufacturer.”
Needless to say, mom-and-pop businesses that import goods, and individuals who are the final consumers, are mostly not in the running for rebates or exemptions at all.
Trickle-up, not trickle-down
Many corporations getting refunds have assured customers that they will pass them on as price reductions. “We have and will continue to invest in price,” Target’s chief financial officer, Jim Lee, said.
Tariffs have certainly raised prices, said Clausing, the UCLA economist.
“You can see it in scanner data [which is similar to point-of-sale transaction records]. You can see it in the overall level of inflation, which economists suggest is between a half a point and a point higher because of the tariffs.”
But economists are skeptical that rebates will trickle down to consumers, who continue to pay the lion’s share of the cost of tariffs.
“There’ve been about a dozen really high-quality studies of who’s paying for the tariffs, and all but one of them say that U.S. buyers are bearing somewhere between 80 and 100 per cent of the burden,” Clausing said.
(Non-U.S. exporters and American importers are more likely to be hurt by secondary effects of tariffs, such as lost sales or lost customers.)
The American worker was told that the return for paying a little more at the store would be a renaissance of American manufacturing and job creation.
“Tariffs,” Trump said in his 2025 state of the union address, “are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly.”
U.S. President Donald Trump repeated numerous false claims during his state of the union address. CBC’s fact-check team reviewed his claims about inflation and tariffs.
“We haven’t seen this sort of resurgence in the types of jobs that we might have expected, given the advertisements for these tariffs,” Clausing said. “Every single month of the Trump administration in 2025 and 2026, there have been negative year-over-year changes in either blue-collar or manufacturing employment.”
Despite a slight uptick this year, there are 75,000 fewer manufacturing jobs in the U.S. now than when Trump began his second term, and investment in new manufacturing capacity continues to fall.
Tariffs not big enough to plug the gaps
The upward wealth distribution effect of Trump’s tariffs is clearest when seen in conjunction with the rest of his tax policy.
Trump presented tariffs as a way to pay for income tax cuts. But while the tax cuts went overwhelmingly to the rich, the tariffs were paid mostly by the middle class.
Just as important, the revenues from tariffs are wholly inadequate to cover the cost of tax cuts for the wealthy.
“Tariffs at their peak, we’re maybe generating about eight per cent of federal revenue,” Clausing said. “Those tariff revenues which were projected to maybe compensate for half of the lost tax revenue (from Trump’s ‘One Big Beautiful Bill’) are now probably going to be even less than half of the lost tax revenues.”
America’s spiralling debt means higher debt-servicing charges — and therefore fewer services and benefits returned to the American people for every dollar of income tax paid. As the bond market grows wary about that ballooning debt, Clausing said, interest rates climb, “meaning that you’re paying more for your mortgage, more for your small business loan.”
At last year’s state of the union, still riding high from his election win, Trump acknowledged that tariffs would inconvenience some. “There will be a little disturbance, but we’re OK with that. It won’t be much.”
Economists say the reality has been very different.
“Instead we ended up with a lot of disruption, higher costs for consumers and far worse international relations, which are important for solving all sorts of global problems,” Clausing said. “So I’m hopeful that the next administration will see that there are just a whole host of ways to raise revenue that are much better than tariffs.”
