Zachary Karabell is an author and investor and writes the “The Edgy Optimist” on Substack.
On April 2, President Donald Trump announced sweeping global tariffs, calling it “Liberation Day.” Markets plunged in response. Most observers predicted sharply higher inflation, domestic and global economic contraction, and widespread spikes in unemployment.
As the year ends, little of that has happened. Why? And what does that mean for next year?
2025 ends on a positive note for the economy, in terms of the numbers and relative to expectations in April. That should be celebrated. “Things aren’t as bad as feared” isn’t a resounding vote of confidence, but it’s better than the alternatives.
Though the optimistic signs may be true, only a small portion of the American public feels it’s true. That is a political challenge for Republicans as it was for Democrats in 2024.
The reasons tariffs didn’t tank the economy are fairly simple: There is a wide gap between tariffs that were announced in April and the following months and the tariffs that have actually been applied and collected. The announced tariffs would have been about 25 percent across the board, the highest rate in roughly a century. The actual tariff rate? According to Yale’s Budget Lab, it was about 17 percent as of November. Even that estimate is likely higher than the actual rate. Judging from how much revenue has been collected, the realized rate is probably around 9 percent in aggregate. For instance, more than 85 percent of all trade between the U.S. and Canada remains tariff free because of prior agreements, so even though the U.S. announced a rate of 35 percent, the actual amount is around 8 percent.
The U.S. government collected about $200 billion in tariff revenue for the fiscal year ending in September; tariffs have generated about $25 billion a month since April. Big numbers are just big numbers, but when you put them in context, those tariff numbers are more like rounding errors than game changers. The gross domestic product of the United States in 2025 will be about $31 trillion. U.S. imports is likely to total just under $4 trillion by the end of the year.
Modest tariffs have caused some consumer goods to increase in price. Hence, the inflation rate ticked up. On the flip side, the U.S. economy in 2025 benefited from one trend that would have been difficult to predict a year ago: spending on AI data centers. The tens of billions of dollars spent and hundreds of billions planned account by some estimates for almost half of U.S. Gross Domestic Product growth in 2025, making the overall economic picture surprisingly positive.
So, in most respects — GDP growth, inflation and employment — America’s economy has had a decent year, along with stock market gains of more than 15 percent, which benefits more than half the country that owns stocks.
The problem is that most people don’t feel it.
The president gave an 18-minute speech last week, touting what he claimed was a stellar 2025 American economy, flush with foreign investment, lower inflation, deals being made, drug prices lowered and tariffs generating revenue. “After just one year, we have achieved more than anyone could have imagined,” he boasted.
Most Americans don’t agree. The problem is that economic stats often describe the system as a whole, not the lived experience of many of the country’s 340 million people. And about 74 percent think the economy is at best fair and mostly poor.
Those sentiments haven’t changed in the past few years. The only thing that has changed is that now Republicans are more likely to think things are good whereas a year ago, under President Joe Biden, they thought things were bad. And today, Democrats overwhelmingly think negatively about the economy; a year ago, they were more positive.
Trump and Republicans are confronting the challenge Biden faced: what to do about good numbers in the face of unfavorable sentiment. It’s clear that healthy data doesn’t matter unless those statistics apply to everyday expenses for most people. Data center spending may boost GDP, but unless you are a contractor or you have a dangerously high percentage of data center stocks in your investment portfolio, you don’t experience that at all.
What people do experience is groceries, housing costs and health care, all of which are going up much more steeply than overall inflation numbers.
As 2025 ends, we should recognize the statistics for what they are. They are facts, not feelings. We can genuflect to the steady resilience of the American economy, and we must also acknowledge that for many people these abstract numbers don’t describe their actual lives.
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