President Donald Trump Claims, "Tariffs Don't Cause Inflation, They Cause Wealth" -- but Economic Data Says Otherwise

Statistically, the stock market has thrived with President Donald Trump at the helm. The Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) catapulted 57%, 70%, and 142%, respectively, during his first nonconsecutive term, and have gained an additional 20%, 25%, and 28% since Trump's second term began, as of Nov. 10.

While stock market returns have been higher under Donald Trump than under most other presidents since the late 1890s, it doesn't mean Wall Street, investors, or consumers are satisfied with all of Trump's policies.

The president's tariff and trade policy may be the most polarizing of all.

President Trump's tariffs are doing a number on consumer prices and the U.S. economy. Image source: Official White House Photo by Joyce N. Boghosian.

Tariffs have been a foundational tool for President Trump throughout his nearly six years in the White House. While speaking at a midterm election campaign rally in Montana on Oct. 14, he proclaimed:

We don't have inflation, and tariffs don't cause inflation. You know what they cause? Wealth.

Though tariff revenue collected by the U.S. has soared during President Trump's second term, several economic reports show that tariffs are, indeed, accelerating the prevailing inflation rate.

President Trump has leaned on tariffs during his second term

Although tariffs have been a big talking point of Donald Trump's second term, they played an important role in his first nonconsecutive term as well. Beginning in 2018 and continuing in 2019, the Trump administration imposed escalating tariffs on various goods, including tech products, imported from China, sparking a trade war between the two largest countries by gross domestic product.

Ahead of the 2024 presidential election, then-candidate Trump claimed, "To me the most beautiful word in the dictionary is 'tariff.’"

Trump's usage of tariffs likely has three purposes. First, he wants to encourage foreign companies to manufacture their products in the U.S. to avoid the higher costs of tariffs. Second, he's attempting to revive U.S. manufacturing and save jobs. Third and finally, he aims to make U.S. goods more price-competitive with those being imported.

Trump: Tariffs don’t cause inflation. They cause wealth. https://t.co/U2prDNdRJy

— Acyn (@Acyn) October 15, 2026

The president's flagship tariff and trade policy, the "Liberation Day tariffs," was unveiled on April 2, 2025. It introduced a sweeping global duty, along with higher reciprocal tariffs on dozens of countries deemed to have unfavorable trade imbalances with America.

Roughly 10 months after enacting these tariffs under the International Emergency Economic Powers Act, the U.S. Supreme Court struck them down. This was followed by a temporary (150-day) 10% global import duty under Section 122 of the Trade Act of 1974, and finally by the Trump administration imposing sweeping duties of 10% to 12.5% on more than 80 countries in late July 2026 under Section 301 of the Trade Act of 1974.

According to data tracked by the Bipartisan Policy Center, derived from daily U.S. Treasury statements, gross tariff and excise revenue collected, as of Nov. 9, totaled $264 billion in calendar year 2026. That's up from $227 billion at the same time in 2025 and more than triple the $82 billion collected as of Nov. 9 in 2024.

Yes, the U.S. is generating far more revenue from tariffs under President Trump than under the previous administration. But there are consequences to tariff use that are clearly showing up in economic data, according to Federal Reserve economists.

Image source: Getty Images.

Tariffs are negatively impacting inflation and the U.S. economy

While the jury is still out on whether tariffs are "creating wealth," several reports by Federal Reserve economists show that Trump's tariffs have raised consumer prices and/or harmed the U.S. economy.

Recently, three New York Federal Reserve economists writing for Liberty Street Economics published a report ("How Fast Do Tariffs Pass Through into Consumer Prices?") examining the effect of President Trump's 2025 tariffs on consumer prices. Economists found that these duties contributed an estimated 2.9 percentage points to goods price inflation by February 2026, and that prices would have actually declined if the tariffs hadn't been imposed.

The report outlined three factors that pushed up prices:

• The tariff itself increased consumer prices.
• Duties on unfinished goods (i.e., input tariffs), such as steel, increased domestic manufacturing costs, which were, in some instances, passed on to consumers.
• When tariffs made imported products notably costlier, domestic manufacturers would occasionally raise their prices to capture some of the difference.

New from the New York Fed: "By February 2026, tariffs had contributed 2.9 pp to goods price inflation, and without them goods prices would have fallen slightly." About one quarter of every point in higher tariff rates shows up in consumer prices within one year. • A 10% across-the-board tariff yields a 2.6% rise in consumer goods prices after one year. • About two thirds of the increase comes from pricier imports, which get passed through quickly. • Another third comes from U.S. made goods, as producers face higher input costs and less import competition. This takes longer, about 6-12 months, to filter through.

— Nick Timiraos (@NickTimiraos) October 6, 2026

However, this wasn't the only instance in which New York Fed economists observed negative consequences from the use of Trump's tariffs. A December 2024 Liberty Street Economics report ("Do Import Tariffs Protect U.S. Firms?") examined the impact of the president's 2018-2019 China tariffs on the stock market and the companies affected by these tariffs.

To begin with, economists highlighted that input tariffs often increased domestic production costs and made U.S. goods less price-competitive with imports.

More importantly, the NY Fed's economists noted that public companies whose stocks reacted poorly on tariff-announcement days had worse future real outcomes. In other words, public companies that were directly affected by Trump's China tariffs saw average drop-offs in employment, labor productivity, sales, and profits from 2019 to 2021.

The president's tariffs, coupled with inflation driven by the Iran war, have become entrenched in the U.S. economy. Combating entrenched inflation can be challenging for the nation's central bank. Fed Chair Kevin Warsh and his colleagues may have little choice but to get far more aggressive with the current rate-hiking cycle.

If the Federal Reserve raises interest rates several times, it could drastically slow the partially debt-financed artificial intelligence (AI) data center build-out that's powered the U.S. economy and halt the AI-driven bull market in its tracks. In short, a few hundred billion in added annual revenue may play a significant role in upending what's been a rip-roaring bull market under Donald Trump.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.