Americans are growing unhappy with Donald Trump’s second term. Approval has trended downward since he returned to office, and recent polls show a renewed decline. Voters increasingly blame Trump for economic pain: Fox News reporting finds 76% view the economy negatively and more people say Trump’s policies have hurt them than say the same about Biden. Approval of Trump’s handling of the economy hit a new low while disapproval of his job performance reached record highs among core supporters.
This discontent looks driven by economic policy rather than macroeconomic aggregates. Employment, growth, and inflation figures do not look uniformly disastrous, but consumer sentiment has dropped back to the lows seen during the 2022 post-pandemic inflation spike. Sentiment and approval fell sharply during the recent government shutdown and after Trump’s “Liberation Day” tariff announcements, suggesting people are reacting to policy choices as much as to tangible economic results.
A big part of the story is tariffs. Since May, a steady stream of reports has linked slowing manufacturing, longer supplier delivery times, and weaker new orders to tariffs. The ISM survey and Reuters coverage show manufacturers citing tariffs as a major constraint: supply chains are being gummed up, deliveries are slower, and input costs have risen. Moody’s and other analysts have described manufacturing activity as recession-like in parts, and the Institute for Supply Management has logged repeated, tariff-related pessimism in its industry interviews.
The sectors most affected are those that rely on intermediate inputs: manufacturing leads the losses, and construction and transportation/warehousing jobs have also slumped after booming under the prior administration. Factory construction that surged recently has begun to deflate, and nearly every type of manufacturing is contracting—autos, once expanding, have swung into decline.
Why do tariffs do this? The short answer is that many imports are not finished consumer goods but intermediate goods—steel, auto parts, electronic components—used to make cars, appliances, and other final products. Tariffs on these inputs raise production costs, slow supply chains, and reduce output. That’s why even rebate checks to consumers won’t fully restore purchasing power: if tariffs have shrunk the supply of cars or other goods, people have less to spend their checks on.
The deeper theoretical reason comes from Diamond and Mirrlees (1971). They showed that if a government wants to raise revenue and redistribute income while minimizing distortions, it should avoid taxing intermediate goods. Taxing inputs reduces the ability of the economy to produce a large “pie” to redistribute. It is preferable to tax final goods or factors of production (labor, capital) rather than the goods firms buy to produce other goods. Later work has relaxed the original assumptions and generally upheld the core insight: taxes on intermediate goods are especially harmful to production efficiency.
Real-world tax systems roughly follow this principle. Income and payroll taxes tax factors of production; corporate tax systems typically allow deductions for business expenses, thereby avoiding double taxation of intermediates. Value-added taxes (VATs), common in Europe, exclude business-to-business purchases from tax incidence in practice. By contrast, broad tariffs that hit many intermediate imports violate the Diamond-Mirrlees principle and reduce domestic production.
In the U.S., roughly half of imports are intermediate goods. Trump’s tariff regime applies to many of those imports, so it directly taxes the inputs American manufacturers need. That explains the observed drop in manufacturing output and employment. Even though effective tariff rates have been lower than some headline threats—around a little over 10% so far—and the administration has granted exemptions and delays, the impact is still meaningful: supply-chain frictions, higher input prices, and slower production.
There are limited circumstances where taxing intermediate goods can be justified. If the policy toolkit lacks other targeted means to help workers harmed by trade exposure, some economists show a case for modest tariffs to protect specific domestic workers. Costinot and Werning (2022) argue that when income taxes are the only other instrument, optimal tariffs to redistribute toward those harmed could be slightly positive. But the optimal rates they compute are tiny—fractions of a percent—far below the multi-percentage-point tariffs enacted. In short, the world departs from the Diamond-Mirrlees ideal only slightly in most realistic scenarios, not nearly enough to justify large, economy-wide tariffs on inputs.
The political consequence is straightforward: Trump’s tariffs are doing real economic harm in sectors he promised to help, and voters notice. Manufacturing and related industries are shedding jobs, and consumer sentiment and presidential approval have fallen in step with high-profile tariff moves and other disruptive policy episodes. The administration’s posture of dismissing economists compounds the problem. Economists do not have perfect foresight, but there are well-understood results—like the harms of taxing intermediate goods—that carry clear policy implications. Ignoring those lessons can shrink the economic pie before attempts at redistribution, producing poorer outcomes and political backlashes.
Had the administration heeded standard public finance insights, it could have designed more targeted, smaller interventions—subsidies or narrowly focused protections for workers in specific industries—rather than broad tariffs that hit the inputs of U.S. production. That might have preserved manufacturing activity and avoided eroding voters’ economic confidence.
The broader lesson applies across administrations: economists are not infallible, but they know some things about how taxes and trade interact with production. Policies that ignore core public-finance principles, especially those that tax intermediate goods, risk reducing output and producing political consequences. Tariffs intended to boost domestic manufacturing can be self-defeating if they instead raise costs, slow supply chains, and shrink the very sectors they aim to help.
