"A new study that examined 150 years of tariffs in the U.S. and abroad found they disrupt the economy and financial markets so much that the result is lower inflation. The conclusion goes against the conventional wisdom on how import taxes affect prices and comes as President Donald Trump's tariffs have stirred a growing backlash among Americans who are angry about higher food, utility and insurance costs."
"In a working paper published on Thursday, San Francisco Fed researchers Régis Barnichon and Aayush Singh said higher tariffs lead to reduced economic activity, higher unemployment and lower inflation in the short term. "The inflation response goes against the predictions of standard models, whereby CPI inflation should go up in response to higher tariffs," they wrote. "Instead, tariff shocks appear to act as aggregate demand shocks-moving inflation and unemployment in the same directions.""
Higher tariffs reduce economic activity, increase unemployment, and lower inflation in the short term. Tariff shocks behave like aggregate demand shocks, moving inflation and unemployment in the same direction. Tariffs can generate uncertainty that weakens consumer and investor confidence, and they can cause asset-price declines and greater stock-market volatility that further depress demand. Historical estimates show a permanent 4-percentage-point tariff increase before World War II reduced inflation by about 2 percentage points and raised unemployment by roughly 1 percentage point. Postwar estimates are less precise but point to similar effects.
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