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Trump’s tariffs had limited impact on US economy: Study
Despite the tariff hike being larger than the 1930 Smoot-Hawley tariffs, the aggregate impact on the US economy appears small—between 0.1 per cent of gross domestic product (GDP) and minus 0.13 per cent, wrote Pablo Fajgelbaum, professor of economics at the University of California, Los Angeles, and Amit Khandelwal, Don-Soo Hahn professor of global affairs and economics at Yale University.
Though President Donald Trump’s 2025 tariff hikes raised US trade protectionism to the highest level in at least 80 years, these so far have had only a small effect on the US economy, a paper discussed at the Brookings Papers on Economic Activity conference recently noted.
That is because federal revenue generated by the tariffs and gains to US producers largely offset the tariffs paid by US importers.
That is because federal revenue generated by the tariffs and gains to US producers largely offset the tariffs paid by US importers, they wrote.
While the aggregate net economic impact may be small, the authors noted that the tariffs also have distributional impacts between producers and importers. They estimate roughly 90 per cent of the tariffs have been passed through to importers, with foreign exporters absorbing only about 10 per cent of the cost by lowering their before-tariff prices.
Except from China, the majority of US exports have not faced retaliatory tariffs. And, the tariffs’ magnitude may be smaller than perceived by the public because announced tariffs “exceeded the actual tariffs imposed at the border,” they wrote.
Moreover, 57 per cent of imports entered the US duty-free. That includes most imports from Canada and Mexico, which enter under the United States-Mexico-Canada Free Trade Agreement of 2020.
The authors found evidence that the tariffs are achieving the administration’s objectives of raising federal revenue and decoupling trade with China. However, they found no evidence, or said it is too early to determine, whether other stated goals will be met, including lowering import prices excluding tariffs, reducing the US trade deficit, increasing trade with friendly nations, boosting manufacturing jobs and wages, and reshoring strategic industries, a release from the Brookings Institution said.
The authors found that the reduction of US-China trade, which began shrinking with the application of tariffs in 2018, during the first Trump administration, “accelerated markedly in 2025”. However, the overall US goods trade deficit in 2025 rose modestly from 2024 and manufacturing jobs declined slightly despite the tariffs.
They also found that the tariffs were seemingly unrelated to trading partners’ pre-existing geopolitical alignment with the US, noting that tariffs on NATO members and key defence allies are only slightly lower than those imposed on the rest of the world.
Fibre2Fashion News Desk (DS)