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Here’s How Low Inflation Would Be Without Trump’s Tariffs, According to New Research
By Adam Hardy MONEY RESEARCH COLLECTIVE
NBER finds tariffs raised inflation 0.7 points, adding pressure to American budgets.
It’s well established that increased tariffs lead to short-term price hikes on certain goods for consumers. But the complexities involved with international trade have made it difficult to pin down exactly how tariffs change the U.S. inflation rate.
At last, researchers at the National Bureau of Economic Research, or NBER, have come up with an answer. Since President Donald Trump announced broad tariff measures starting in the spring, the import taxes have increased the inflation rate by 0.7 percentage points between March and August, as analyzed in an NBER paper published Monday.
The annual inflation rate for August — which was 2.9% — would have been 2.2% without tariffs, the researchers said, putting the U.S. “much closer to the Federal Reserve’s inflation target” of 2%. Instead, the costs for all sorts of everyday items, including goods produced domestically, have gone in the opposite direction due to tariffs.
“Prices began rising immediately after the broader tariff measures announced in early March and continued to increase gradually over subsequent months,” the researchers said.
Labor Department data shows that inflation had been cooling for several consecutive months at the start of the year before Trump implemented broad tariffs.
The NBER researchers were able to quantify the exact impact of tariffs on inflation levels by matching daily retailer prices to specific products and countries subject to the new tariffs. ”Our results show that tariff costs were gradually but steadily transmitted to U.S. consumers,” they said.
While tariffs of between 10% and 50% are still in effect, the cornerstone of Trump’s economic policy faces an uncertain future. The Supreme Court is currently deciding whether the president has unilateral authority to impose tariffs. A ruling is expected in June or July.
How tariffs affect inflation
Tariffs are import taxes set on certain goods that come from other countries. However, the tax isn’t paid directly by the country the goods are coming from. Instead, it is paid by U.S. businesses that import the goods and distribute them throughout the U.S.
In the NBER analysis, the average tariff rates for imported goods were about 20%. The U.S. businesses that face this tax hike have a few options: They could eat the cost and keep prices for consumers the same — but lose revenue. They could hike their prices by about 20% to fully offset the tariffs. Or they could raise prices modestly and take a slight hit to revenue.
Research shows the last option is usually what happens. Before making its way to the consumer at the checkout counter, an imported item might pass through several businesses, and each one might tack on a higher price. The result for a consumer may be noticeably higher costs for specific items.
Data from the Harvard Business School Pricing Lab, which was involved in the NBER study, illustrates how tariffs have increased the prices of imported goods. For example, the largest price increases hit carpets (50%), clothing (13%), glassware and tableware (11%), as well as coffee and tea (6%).
Some goods that escaped tariffs directly still rose in price as well. Even U.S.-made carpets surged in price by 36% over the same period of time. Of all the goods the HBS Pricing Lab tracked — both domestic and imported — costs rose 3.7% total.
Of course, not everyone is buying carpets and tableware right now, highlighting the importance of the role tariffs play on the overall inflation rate, which aims to be a snapshot of everything a typical American buys. While a 0.7 percentage point increase in the inflation rate might not sound like much, it weighs heavily on already-strained budgets.
“All Americans are going to be impacted by this,” Ernie Tedeschi, the director of economics at Yale’s Budget Lab, previously told Money. According to Budget Lab research, tariffs represent an income loss of $1,700 for the average U.S. household.
“In a trade war,” Tedeschi said, “there’s no place to run, no place to hide.”
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Adam Hardy is Money's lead data journalist. He writes news and feature stories aimed at helping everyday people manage their finances. He joined Money full-time in 2021 but has covered personal finance and economic topics since 2018. Previously, he worked for Forbes Advisor, The Penny Hoarder and Creative Loafing. In addition to those outlets, Adam’s work has been featured in a variety of local, national and international publications, including the Asia Times, Business Insider, Las Vegas Review-Journal, Yahoo! Finance, Nasdaq and several others. Adam graduated with a bachelor’s degree from the University of South Florida, where he studied magazine journalism and sociology. As a first-generation college graduate from a low-income, single-parent household, Adam understands firsthand the financial barriers that plague low-income Americans. His reporting aims to illuminate these issues. Since joining Money, Adam has already written over 300 articles, including a cover story on financial surveillance, a profile of Director Rohit Chopra of the Consumer Financial Protection Bureau and an investigation into flexible spending accounts, which found that workers forfeit billions of dollars annually through the workplace plans. He has also led data analysis on some of Money’s marquee rankings, including Best Places to Live, Best Places to Travel and Best Hospitals. He regularly contributes data reporting for Best Colleges, Best Banks and other lists as well. Adam also holds a multimedia storytelling certificate from Poynter’s News University and a data journalism certificate from the Investigative Reporters and Editors (IRE) at the University of Missouri. In 2017, he received an English teaching certification from the University of Cambridge, which he utilized during his time in Seoul, South Korea. There, he taught students of all ages, from 5 to 65, and worked with North Korean refugees who were resettling in the area. Now, Adam lives in Saint Petersburg, Florida, with his pup Bambi. He is a card-carrying shuffleboard club member.