Research about potential impact of tariffs on the US economy
Brookings: The U.S. tariff of 25% on imports from Canada and Mexico is going to reduce U.S. economic growth, reduce jobs, cause wages to fall, and prices to rise, and retaliation by Canada and Mexico will multiply the economic harms across the three countries.
- Analysis doesn’t include China
- The economic impacts are estimated over the medium term (three to five years).
Results:
- Negative Impact on GDP Growth: Without retaliation, U.S. GDP growth may drop by 0.25 points ($45B loss). With retaliation, the decline exceeds 0.3 points ($75B loss)."
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In the U.S., the 25% tariffs are estimated to cause over 177,000 job losses without retaliation, increasing to over 400,000 job losses if Canada and Mexico retaliate.
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U.S. wages are projected to decline by 0.2% without retaliation and by 0.5% with retaliation.
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U.S. exports to Canada and Mexico are expected to decline by around 6% with U.S. tariffs and 9% with retaliation.
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The tariffs are projected to cause inflation to rise in the U.S. by over 1.3 percentage points without retaliation. With retaliation, the inflation increase is estimated to be around 0.8 percentage points due to the greater economic slowdown.
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According to Tax Foundation tariffs will weight on GDP Growth and employment for the US instead of the opposite as Trump is declaring
- The average tariff rate on U.S. imports could rise to 8.4% in 2025, the highest since 1946.
- Second Trump administration tariffs now affect more than $1 trillion of imports, and when temporary exemptions for Canada and Mexico expire in April, the tariffs will affect more than $1.4 trillion of imports. (~5% of GDP)
- The after-tax income of American households is projected to decline by 1% on average in 2026 across all income levels:
- Lower-income households are hit harder in relative terms due to higher prices on basic goods.
- The top 1% of earners face a smaller decline of 0.8%, but no group escapes the overall cost burden
- Estimated $2.34 trillion in additional tax revenue over 10 years, but dynamic effects lower revenues as tariffs shrink the economy.
- Academic and governmental studies find that the previous Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.
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Potential Auto Tariffs Impact On PCE according to BoA. They also think tariffs to Mexico and Canada are likely to be negotiated
BoA says that their “back of the envelope” calculation is the announced auto tariffs would add around 0.25% to PCE inflation, but they continue to expect that “these announced measures will be negotiated down…Our view remains that the end game for Canada and Mexico is a renegotiation of USMCA and that any potential broad tariffs against these countries would prove be temporary.”
https://x.com/neilksethi/status/1905286189009023463/photo/1
Analyst Opinions on Trump Reciprocal Tariffs Impact on the Economy
- BoA: tariffs would raise the effective tariff rate by about 11pp to 20%. Think they would add 1- 1.5pp to inflation (the core PCE is currently at 2.8% y/y) and subtract a similar amount from GDP growth over the next couple of quarters.
More details
“As of April 1, the effective US tariff rate (based on all announced measures) stood at around 9%… If the tariffs announced yesterday stay in place indefinitely, we estimate that they would raise the effective tariff rate by about 11pp to 20%. These figures are far larger than what we or markets were expecting. They would push the US much further along the stagflationary path, close to a tipping point where demand collapses under the weight of higher prices.”
“If the tariffs stay in place, we think they would add 1- 1.5pp to inflation (the core PCE is currently at 2.8% y/y) and subtract a similar amount from GDP growth over the next couple of quarters, pushing the economy to the precipice of recession. The drag on growth could last longer than the boost to inflation.”
- Barclays: says if tariff rates stay at current levels they see real GDP of -0.1% this yr with the unemployment rate hitting 4.6% and core PCE 4.1%.
- USB: plausible US’ 2025 real GDP could be compromised by 1.5-2pp and inflation could rise to close to 5% if these tariffs are not reversed soon
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Ed Yardeni: PCE inflation could be between 3-4% rest of the year, with a possible shallow recession later in the year
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JPM: PCE inflation could increased by 1-1.5% this year, with the economy falling very close or into a recession
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Tax Foundation: Trump’s tariffs will raise nearly $3.2 trillion in revenue over the next decade and reduce US GDP by 0.8 percent. In 2025, Trump’s tariffs will increase federal tax revenues by $290.4 billion, or 0.95 percent of GDP
- Carlyle Group: effective rate now more in the range of 15%-18%, which is 50%-60% larger in terms of impact than what was expected. The economy is now dealing with a potential 1.5% hit to GDP implicit of tax liabilities.
More details
“Most were anticipating that the effective tariff rate would have gone up by about 10% — so a 1% GDP hit — but it looks like it’s more in the range of 15%-18%, which is 50%-60% larger in terms of impact than what was expected,” Thomas said. “The economy is now dealing with a potential 1.5% hit to GDP implicit of tax liabilities.”
Thomas said it will take “months of hard data” to convince the Federal Reserve that the economic shock is real and a rate cut is appropriate. “If unemployment rises from 4% to 4.5%, we could have the Fed cutting rates by July, September,” he said. “Any cut that they do make will have to be done gingerly. I appreciate it’ll be a more measured response, maybe 50bps in cuts.”
Will continue to edit this, as I encounter more…
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Magaly’s assessment Trump April 2 tariffs Announced
This could changed as more data and analysis start to come out
The overall outlook from analyst estimates, if tariffs remain in place, is
- The economy would fall or be very close to a mild recession
- PCE inflation would increase ~ 1 -2%, close to 4%
- Since prince increase is a one-time effect, the growth consequences would be more long-lasting
These are my current probabilities (with information as of now and uncertainty), and without taking much into account about other policies as spending cuts or less immigration.
In my opinion, these levels of tariffs increases significantly the risk of experiencing a recession in the next year, these are the arguments:
- A 20% effective rate from 4% as its being estimated on all imports (~4.1 Trillion in 2024) would be a ~$650 billion cost headwind. This is 3.2% of consumer spending, 17% of US corporate profits, and 2.2% of GDP. (my assumptions is consumer and businesses will divide the price increases hit)
- PCE inflation increasing to ~4%, would bring real disposable income close to zero or negative (disposable income currently growing at 4.4% y/y, but slowing), creating an additional headwind to consumer spending. Especially, if uncertainty continues to depress sentiment and increase the consumer saving rate.
- Hit to margins (not all costs expected to be passed to consumers) from importers (small share of total businesses), and from slower spending, but mostly uncertain outlook also expected to continue pausing or completely delaying investment spending.
- If retaliation happens, the economic consequences could be worse, since exports could also be hit with higher tariffs by partners (exports 11% of GDP)
The market is now pricing a 62% probability of four cuts in 2025 (up from 37% yesterday). The cuts are priced in June, July, Oct, and Dec (95bps, up from 77)
- There’s an additional 43bps priced for 2026 (so still over 1.5 cuts), 138bps through Dec '26.
- I think the FED is in a difficult place, the market is more convinced they will focus on weak growth more than inflation (because of 1 one-time price effect only), but I think the FED could be more hesitant to cut if they see inflation increasing beyond 3% again.
- Despite today’s sell-off, the market is still only down by ~12%, IMO the market is still not currently completely pricing a recession or in panic mode (usually 20-30% sell-offs), and bigger sell-off could come if data start to get worse, or no much transaction in negotiations take place.
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JPMORGAN: TRUMP TARIFFS WILL PUSH U.S. INTO RECESSION THIS YEAR
JPMorgan now expects the U.S. economy to contract this year, slashing its GDP forecast from +1.3% to -0.3% following Trump’s sweeping tariffs.
Unemployment is projected to rise to 5.3%, with the Fed likely to cut rates at every meeting through January—even as inflation climbs.
https://x.com/MarioNawfal/status/1908278404798955659?s=19
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