Trump’s tariffs might actually be working as he intended

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It was, by any measure, a lot of red ink. When Volkswagen announced its third-quarter profits at the end of October, the German auto giant said it anticipated heavy losses for this year. The reason? It is taking a 5 billion-euro hit from tariffs imposed in the American market.

Likewise, the German sportswear manufacturer Adidas warned of a 120 million-euro hit to its earnings, in part because the levies its sneakers now face in the United States, while Toyota warned of a $9 billion hit from tariffs.

For anyone following the corporate earnings season over the last month, a clear theme has emerged from the giants of European and Asian industry: President Trump’s tariff regime is starting to significantly reduce their profits.

But hold on. Weren’t we told that tariffs would simply be passed straight on to American consumers in the form of higher prices? That they were a tax on ordinary working people?

Instead, it is already becoming clear that at least some of the costs are being paid by foreign conglomerates and even by foreign governments.

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Yes, the tariffs are a tax. But they are a tax that’s being paid primarily by foreign companies and foreign governments, not by the American consumers we were all supposed to be weeping for. And that changes everything.

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So what’s actually happening? Where is the money going? The answer reveals three fascinating dynamics that the economic orthodoxy, as it so often does, failed to anticipate.

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According to the Harvard’s Pricing Lab, prices of imported goods rose by 5.4% from March to September as tariffs were imposed, compared with 3% for domestic goods, so some of the tariffs were passed on but far from the full cost. In other words, the market has adjusted, just not in the way the textbooks predicted.

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Finally, and perhaps most encouraging for those who believe in American dynamism, is the entrepreneurial response. Tariffs create opportunities and American business owners have already shown signs that they will prove remarkably adept at seizing them.

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