Tariffs in 2025: Short-run impacts on the US economy
The 2025 US tariffs took protectionism to an 80-year high, yet their net welfare effect is tiny (between -0.13% and +0.10% of GDP) because consumer losses are roughly offset by wage and revenue gains, while about 90% of the duty shows up in prices paid by US importers. They worked as a revenue tool and a lever against China, but the evidence for deficit, jobs or reshoring goals is thin.
Summary
Fajgelbaum and Khandelwal document that average US tariffs rose from 2.4% to 9.6% in 2025, with rates correlated to bilateral trade deficits rather than to strategic or geopolitical goals, other than China. They estimate pass-through to tariff-inclusive import prices at 80-100% (90% baseline) and, using a static multi-sector trade model, a net welfare impact between -0.13% and +0.10% of GDP, masking large transfers from consumers to producers. Customs revenue reached $264 billion, 3.3 times 2024, and trade with China was diverted. Whether the tariffs will cut deficits, lower foreign export prices, boost manufacturing jobs or reshore sectors remains uncertain.
Editor's opinion
Rigorous macro-trade analysis, but it's economic-policy research adjacent to strategy rather than a firm-level lever.
Key concepts
Tariff pass-through · Static trade model with input-output linkages · Terms-of-trade adjustment · Net welfare effect · Trade diversion from China