"When Donald Trump took office last January, most economists feared what would happen if he raised tariffs. The expectation was that, as the new duties drove up prices of consumer goods and inputs affecting households and companies, respectively surging inflation and falling real incomes would follow. This would be a supply shock, so the US Federal Reserve could not do much to counteract it."
"Trump did raise tariffs to shocking levels, violating international agreements and blowing up the Republican party's oft-professed commitment to free trade. In terms of severity and disruptiveness, Trump's 2025 tariffs went far beyond the already harmful tariffs of his first term, and even beyond the infamous Smoot-Hawley Act of 1930. According to the Yale Budget Lab, the average effective tariff on US imports rose from 2% to 18%, the highest level since the 1930s, this year."
"But things did not turn out as anticipated. It is possible that consumer price inflation (CPI) did not rise at all: the most recently reported rate, for the 12 months ending in November, is 2.7% the same level as in the closing months of 2024. (Of course, the price level is higher, contrary to Trump's claims.) The unemployment rate rose only a little, from 4.1% at the end of 2024 to 4.6% in November."
Economists expected large tariff hikes to trigger a supply shock with surging inflation and falling real incomes that the Federal Reserve could not counter. Tariffs were raised dramatically in 2025, pushing the average effective tariff on US imports from 2% to 18%, the highest since the 1930s. Despite that, consumer-price inflation for the 12 months to November remained at 2.7%, unchanged from late 2024, while unemployment rose only from 4.1% to 4.6%. Economic growth probably slowed, but a government shutdown delayed data collection. Overall economic damage in 2025 was smaller than predicted.
Read at www.theguardian.com
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