The Hidden Toll of Tariffs

US tariff policy, despite its stated goal of boosting domestic reshoring, has yielded minimal net impact on real manufacturing output while significantly increasing domestic costs. Although the effective tariff rate recently dipped to 8.5%, it is projected to stabilize around 10% as the administration transitions to more durable legal authorities under Sections 301 and 232. Mayank Phadke, an economist on Morgan Stanley’s global team, highlights that while industries like steel show a nominal rise in domestic production, this growth primarily reflects higher prices rather than increased physical output. US steel prices have notably diverged from global benchmarks, illustrating how tariffs act as a drag on productive capacity. Across broader industry data, the evidence for meaningful reshoring remains limited, suggesting that the primary result of these trade barriers is an increased cost burden on the US economy rather than a substantial expansion of domestic manufacturing.