Impact of New Tariffs on US Businesses and Consumers

Tariffs and Price Level Increases

• 📈 Tariffs are demonstrably increasing the price level of affected goods, with durable goods prices rising unusually.
• 💡 An estimated three-quarters of tariffs are being borne by consumers, rather than businesses or foreign producers.
• ⚠️ While not a persistent inflationary trend, tariffs cause a one-time price level increase that can feel inflationary due to gradual phasing.

Persistent Inflationary Risks

• 🧠 The Federal Reserve is concerned about tariffs spilling over into supply chains and potentially causing persistent inflation over 2-3 years.
• 🗣️ Inflation expectations are also rising, as evidenced by consumer surveys like the University of Michigan.

Economic Impact and Distributional Effects

• 📊 Research estimates an overall average effective tariff rate of 18.6%, the highest since 1933.
• 📉 Tariffs are projected to cause an average per household income loss of $2,400 in 2025.
• ⚖️ These effects, while not permanent, can be persistent over 2-3 years.

Unequal Impact on Households and Products

• 💰 Lower-income families are disproportionately affected, bearing three times the tariff hit as a share of their income.
• 🛒 This is due to lower-income households spending a larger share of their budget on imports, particularly from China, for necessities like clothing and electronics.
• 🚗 Apparel, electronics, and cars are expected to see double-digit price increases, while services will be relatively unaffected.