Pablo Fajgelbaum of the University of California, Los Angeles & NBER and Amit Khandelwal of the Yale University & NBER have looked closely at 2025 to see what, if any, the effects of tariffs were on the U.S. economy.
We’re by now all familiar with some version of this chart:
At the end of 2025 the U.S. was applying an aggregate tariff on foreign goods of 9.6%, an 80-year high. A big move from which major ructions were predicted.
What the researchers find though, via their deep dive over the 50 or so pages of their report is that the net economic impact of tariffs on U.S. GDP has been either a benefit of 0.1% or a loss of 0.13% i.e. negligible.
The reason for the variance is there have been benefits like higher federal revenue and higher wages in some sectors but there have been dis-benefits associated with prices and margins elsewhere. The reason both numbers are so tiny is that imports only account for 10.8% of U.S. GDP.
It’s hard to say, definitively at this stage, whether tariffs have been a benefit or a dis-benefit for the U.S. The paper stresses there may be longer run consequences that merit further study but the here and now is that despite all the hollering and shouting, in 2025 at least, tariffs were not a factor either propelling or retarding U.S. economic progress.
A couple of things did change very clearly. Federal revenue rose appreciably due to tariff collection and trade was diverted away from China.
However, the list of what tariffs didn’t do is longer: they didn’t reduce the trade deficit, they didn’t lead to lower prices set by foreign exporters, they didn’t promote (much) manufacturing jobs, they didn’t increase “friend shoring” and they haven’t led to a re-shoring of key sectors.
Let the argument continue but I think large servings of humble pie are now due for the clackeratti who howled so earnestly in 2025 about the dire consequences of tariff imposition. That analysis was wrong and peddlers should fess up and explain the variance; but I doubt they will..
If you need more the paper in full is available via this link Tariffs in 2025: Short-Run Impacts on the U.S. Economy.
Happy Sunday.