""The tariffs are a big tax increase," the report states simply. According to UBS, the current tariff policies imply a weighted-average tariff rate of 13.6%, based on 2024 import shares, a fivefold jump from just 2.5% at the beginning of the year. This steep rate effectively translates to a tax on imports representing 1.2% of GDP."
"The most immediate impact of the trade regime is felt in rising prices, which are "keeping things elevated." UBS estimates that the new trade regime will add 0.8 percentage points to core PCE inflation in 2026, enough to erase a year's worth of disinflation progress and keep prices climbing at roughly 3.5% even if other pressures like housing or energy ease."
"Over the longer term, UBS expects the tariffs to have a cumulative direct impact of 1.4 percentage points on the level of core PCE through 2028, rising to nearly 1.9 points once knock-on effects like supply chain rerouting and domestic producers raising prices under tariff protection are factored in. Simply: tariffs alone could account for nearly two-thirds of the remaining gap between current inflation and the Fed's 2% target."
Current tariff policies raise the weighted-average tariff rate to about 13.6% based on 2024 import shares, translating into an import tax equal to roughly 1.2% of GDP. Tariff-driven price pass-through is projected to add about 0.8 percentage points to core PCE inflation in 2026, keeping core inflation near 3.5% absent offsetting declines elsewhere. Over 2026–2028 the direct cumulative impact on core PCE is about 1.4 percentage points, rising to nearly 1.9 points including supply-chain rerouting and domestic price responses. These tariff effects substantially reduce real household income gains and act as a persistent drag on growth.
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