Yes – Tariffs Have Increased Prices and Inflation in the US
a year ago
- #inflation
- #trade
- #tariffs
- Tariffs in the US have led to increased prices for both imported and domestic goods, contributing to inflation.
- Research by Cavallo, Llamas, and Vazquez (CLV) shows that tariffs caused a 1.2% price increase for imported goods and a 0.6% increase for domestic goods after March 2025.
- Firms employ strategies like inventory front-loading and trade diversion to mitigate tariff impacts, leading to less than full pass-through of costs to consumers.
- Domestic goods prices also rise due to tariffs, either because they use imported components or due to indirect effects like higher wage demands.
- Minton and Somale (MS) found that tariff pass-through in 2018/19 was double the cost, while recent 2025 tariffs show a 50% pass-through, contributing 0.33 percentage points to core goods inflation.
- Long-term effects of tariffs include higher inflation (0.5-0.8 percentage points) and reduced GDP (0.8-1.6%) and real wages (2.7-4.5%).
- Mexican goods saw price fluctuations due to exemptions under the USMCA trade agreement, validating the research methodology.
- Policy uncertainty and firm pricing strategies complicate the immediate impact of tariffs on inflation.