Why haven't tariffs boosted inflation? This theory is gaining traction
livemint.com -- Friday, August 15, 2025, 6:28:53 AM Eastern Daylight Time
Categories: U.S.–China Relations, Economic Policy & Jobs, Trade Policy & Tariffs
But another argument for the limited impact is gaining traction: that tariffs being paid by importers are lower than advertised.
In a new study, Barclays economists went through census data to see what tariffs importers actually paid in May. They found that the weighted-average tariff rate -- the average of all tariffs, adjusted for import volume from each country -- that month was around 9%. That number is well below the 12% rate that they had previously estimated based on White House announcements, and far less than what some others have estimated.
The reason is that more than half of U.S. imports were duty-free, the Barclays study says, and because many U.S. companies and consumers bought less from countries with higher levies, particularly China.
"The real surprise in the U.S. economy's resilience lies not in its reaction to tariffs but that the rise in the effective tariff rate has been more modest than commonly thought," the Barclays report says.
JPMorgan economists argue that actual tariff rates in June were lower than headline averages suggest because importers switched to countries with lower tariffs or to domestic producers.
These lower effective tariff rates could help explain why consumer prices haven't risen as rapidly as some analysts feared. The impact of tariffs has been a charged topic. Trump this week asserted that tariffs haven't caused inflation and called on Goldman Sachs to replace an economist who had predicted price increases.
The new tariffs raised $58.5 billion in revenue between January and June, according to the Penn Wharton Budget Model. And inflation has crept up in recent months, with prices of imported goods such as furniture ticking higher. The latest inflation readings remain well above the Federal Reserve's benchmark of 2% year over year. In July, wholesale prices rose at the sharpest monthly rate in three years and well above economists' forecasts.
But the overall inflation picture in the first six months of the year hasn't been as ugly as many feared it would be in the wake of President Trump's tariff hikes.
Barclays research suggests that inflation hasn't increased that much partly because the U.S. hasn't collected tariffs on many goods -- for now. In June, just 48% of U.S. imports were actually subject to tariffs, thanks to myriad exemptions, according to the bank's analysis of U.S. Census Bureau data.
Goods like pharmaceuticals, certain electronics and semiconductors and many imports from Canada and Mexico were exempted from Trump's so-called reciprocal tariffs. There are also partial exemptions for goods with at least 20% U.S.-made components.
Ultimately, however, the actual rates importers pay are likely to rise in months to come, according to Barclays. Many of the existing loopholes could close. Trump has threatened 250% tariffs on pharmaceuticals and 100% tariffs on semiconductors. The White House has also said that as of later this month, it is suspending the de minimis exemption, which allows duty-free shipments to the U.S. as long as they are valued at $800 or less.
Others using different methodologies have pegged the tariffs at much higher rates. The Budget Lab at Yale, a policy-research center, for instance, estimates that U.S. consumers currently face effective average tariffs of 18.6%, down from 21.9% in late May. The lab's director of economics, Ernie Tedeschi, says his research also shows that the real average rate companies actually pay has been lower.
Ultimately, Barclays expects weighted-average tariffs to end up at around 15%, up from a current 10% and 2.5% last year. Other economists calculate even higher rates. That could mean much of the likely tariff hit is still in the future.
Overall tariffs paid have also been lower than headline rates suggest because many U.S. companies are importing fewer goods facing high duties, particularly from China.
But part of that, too, might be temporary. U.S. companies imported more early in the year to get ahead of tariffs, leading to lower imports in the following months. As inventories shrink, imports are likely to rise again. "Its unclear if you can decouple from China that strongly, that quickly," says Mark Cus, an economist at Barclays.
Barry Roth, who imports used cars from Canada for U.S. dealers, says he imported around 1,000 cars a month on average last year through November. In January, that surged to almost 1,500 as car dealers tried to get ahead of tariffs. Now, as many cars from Canada face 25% levies, he says he is lucky to import 400 vehicles a month.
But as dealers sell down their expanded inventories, they will either have to pay the tariffs or be left with fewer cars to sell. Either way, he says, prices are likely to rise. "It's not going to happen tomorrow, it's not going to happen next week, but it will ratchet up," Roth says.
Meanwhile, more companies say they are increasingly likely to pass tariffs on to their customers in the months ahead.
Many companies were slow to raise prices while they were waiting to see where levies would ultimately end up. Now that final tariff rates are becoming more clear, economists expect a steady trickle of companies asking their customers to pay more. "Companies are being strategic about their price hikes," says Aditya Bhave, an economist at Bank of America.
Randy Carr's Florida-based company World Emblem owns a business that imports from China, Vietnam and Cambodia uniform patches for U.S. law enforcement and first responders. Initially, he says, he didn't raise prices in response to tariffs, as the announced levies kept changing, and he didn't want to alienate customers by constantly adjusting his prices. Paying the tariffs cost his company more than $1 million, he says.
Now he feels more confident about where tariffs will end up, and his company is raising prices on the East Asian-made patches by 6% to 25% starting in September. "We just don't see the sense of waiting anymore," he says.
Sign Our PetitionThe recent analysis of tariff impacts on inflation sheds light on the complex interplay between trade policy and economic realities that often eludes public discourse. The findings from Barclays economists indicate that the effective tariffs being paid by importers are substantially lower than official rates, which contradicts the narrative that tariffs universally drive inflation. This revelation serves as an important reminder of how economic policies can be intricately woven into political rhetoric, particularly in the context of President Trump’s administration and its ongoing trade disputes, notably with China. As we navigate these discussions, it’s critical to unpack how historical precedents inform our current understanding of tariffs and their broader implications on the economy and social equity.
Historically, tariffs have been used as tools of economic protectionism and have often sparked debates about their efficacy in achieving desired outcomes. From the Smoot-Hawley Tariff of the 1930s, which exacerbated the Great Depression, to more modern applications, tariffs have been seen both as a means of protecting domestic industries and as a source of economic strain on consumers. In the current context, while the Trump administration championed tariffs as a way to bolster American manufacturing and bring jobs back to the U.S., the reality is that their effectiveness has been complicated by global supply chains and the modern economy's interconnectedness. The Barclays report highlights that nearly half of U.S. imports are exempt from tariffs, suggesting that the administration's strategies may not have the intended effect of reshoring jobs or significantly affecting consumer prices.
Moreover, the commentary on tariffs not leading to widespread inflation raises questions about the narratives that have been perpetuated by various economic actors, including the Trump administration itself. The claim that tariffs do not spur inflation allows market actors to sidestep the reality that these policies disproportionately affect working-class Americans, who are often the first to feel the pinch of price increases on goods that remain subject to tariffs. While the current findings may suggest a more benign impact on inflation, the underlying dynamics of supply chains and consumer purchasing behavior must be understood in the context of ongoing social struggles for economic justice. The burden of tariffs is not distributed evenly; it hits hardest on low- and middle-income families, who spend a larger share of their income on consumer goods.
The ongoing discussions surrounding tariffs also intersect with broader social movements advocating for workers' rights and fair labor practices. As importers seek cheaper alternatives in countries with lower tariffs, the potential for exploitation of labor in those regions increases. This dynamic raises ethical questions about the origin of goods and the conditions under which they are produced. The push for fair trade practices is more crucial than ever, as consumers become more aware of the implications of their purchasing choices. Advocates for labor rights and social justice can leverage this moment to call for policies that prioritize not just economic efficiency, but also the dignity and well-being of workers globally.
Furthermore, the potential for rising effective tariff rates in the future, as noted in the Barclays study, signals that the conversation around tariffs is far from over. With the looming threat of steep tariffs on pharmaceuticals and semiconductors, it is essential to advocate for transparency and accountability in trade policy. Citizens must engage with policymakers to ensure that any tariffs imposed do not contribute to a cycle of inflation that ultimately burdens the working class, but instead are designed to promote sustainable economic growth and equitable labor practices. The economic landscape continues to evolve, and it is imperative for those advocating for social justice to remain vigilant and informed, using empirical data to challenge narratives that serve to protect corporate interests over the welfare of ordinary people.
In conclusion, the recent analysis of tariff impacts provides a rich terrain for discussing the intersections of economic policy, social justice, and historical context. As we confront the realities of tariffs and their varying impacts, it’s vital to engage in thoughtful dialogues that consider the broader implications for working families and global labor markets. By grounding our discussions in historical precedents and emphasizing the need for equitable practices, we can arm ourselves with the knowledge necessary to advocate for policies that genuinely uplift and support the most vulnerable among us. In doing so, we can push back against simplistic narratives that fail to capture the complexities of our interconnected world.
The recent analysis of tariffs and their impact on inflation provides an important lens through which to view ongoing economic policy debates in the United States. The findings from Barclays economists indicate that actual tariff rates are lower than previously estimated, which complicates the narrative surrounding the economic repercussions of the Trump administration's trade policies. This situation invites a broader discussion on the effectiveness of tariffs and their implications for American consumers and businesses, particularly in the context of a resilient economy that has, to some extent, weathered the storm of heightened trade tensions.
Historically, tariffs have been employed as a tool for economic protectionism, aimed at shielding domestic industries from foreign competition. The Smoot-Hawley Tariff Act of 1930 serves as a cautionary tale, as it raised duties on hundreds of imports and is often cited as a factor that exacerbated the Great Depression. Fast forward to contemporary America, tariffs re-emerged under the guise of national security and trade fairness, particularly during the Trump presidency. The notion that tariffs are a panacea for economic woes is flawed, as seen in the current scenario where lower effective tariff rates may be mitigating some of the anticipated inflationary pressure. This nuanced understanding of tariffs can serve as vital ammunition in discussions with those who advocate for protectionist policies without recognizing their historical consequences.
Moreover, the recent findings challenge the simplistic narrative that tariffs necessarily lead to inflation. As highlighted in the Barclays study, nearly half of U.S. imports were exempt from tariffs, leaving a significant portion of the economy untouched by these levies. This suggests that many Americans are insulated from the intended consequences of such policies. Instead of focusing solely on tariffs, a more comprehensive approach to economic policy could prioritize investments in domestic industries and workforce development. By fostering innovation and supporting American workers, we can create a more sustainable economic environment that does not rely on punitive measures against foreign imports.
So, what can we, as engaged citizens, do about this? First and foremost, we can advocate for policies that prioritize domestic production and fair labor practices rather than relying on tariffs as a crutch. This requires a concerted effort to support local businesses, invest in job training programs, and push for legislation that incentivizes ethical manufacturing practices. Furthermore, engaging in community discussions about the implications of economic policies can help to demystify complex issues like tariffs and inflation, allowing for more informed public discourse. By fostering dialogue around these subjects, we can encourage a broader understanding of economic systems beyond partisan lines.
Lastly, it is crucial to hold elected officials accountable for their economic decisions. As the findings suggest that current tariff policies may not be as effective as advertised, citizens should demand transparency and thorough analysis of the intended and unintended consequences of such measures. This includes advocating for independent economic assessments and ensuring that policymakers prioritize the interests of American consumers and workers over political rhetoric. By being proactive in our engagement, we can contribute to shaping a more equitable economic future that benefits all Americans, rather than allowing a handful of powerful interests to dictate the terms of our economic discourse.
The article presents a complex picture of the current state of tariffs, inflation, and trade dynamics. While it discusses some economic explanations for why tariffs have not led to the expected inflationary pressures, it also highlights the potential for future increases in tariffs and the implications for consumers and businesses. Here is a detailed list of actions that can be taken in response to the findings in the article, along with specific steps and resources.
### What Can We Personally Do About This?
1. **Stay Informed**: Knowledge is power. By understanding the implications of tariffs and trade policies, individuals can make informed choices about their purchases and support advocacy efforts.
2. **Advocate for Fair Trade Practices**: Engage in advocacy efforts that promote equitable trade practices and protect workers’ rights both domestically and internationally.
3. **Support Local Businesses**: Prioritize purchasing from local or U.S.-made products to reduce dependence on imported goods affected by tariffs. This also supports local economies.
4. **Contact Your Representatives**: It is crucial to communicate with local, state, and federal representatives regarding trade policies, tariffs, and their effects on the economy.
5. **Participate in Petitions and Campaigns**: Join campaigns or petitions that advocate for fair trade policies, transparency in tariff applications, and accountability in government.
### Exact Actions We Can Take
1. **Sign Petitions**: - **Petition for Fair Trade Policies**: Look for petitions on platforms like Change.org or MoveOn.org that focus on fair trade practices. An example is the "Sign to Demand Fair Trade Practices" petition on Change.org. - **Example Petition**: [Fair Trade Practices in the U.S.](https://www.change.org/p/fair-trade-practices-in-the-u-s)
2. **Contacting Representatives**: - **Write to Your Senators**: Express your views on tariffs and their impact on consumers. - **Example Contacts**: - **Senator Elizabeth Warren** - Email: https://www.warren.senate.gov/contact - Mailing Address: 2400 JFK Federal Building, 15 New Sudbury Street, Boston, MA 02203 - **Senator Bernie Sanders** - Email: https://www.sanders.senate.gov/contact - Mailing Address: 1 Berkshire Square, Suite 5, Burlington, VT 05401
- **Contact Your Representative in the House**: Share your concerns about tariffs and their implications for inflation and consumer prices. - **Example Contact**: - **Representative Alexandria Ocasio-Cortez** - Email: https://ocasiocortez.house.gov/contact - Mailing Address: 114 East 16th Street, New York, NY 10003
3. **Engage in Community Discussions**: Organize or attend community meetings focused on trade policies and their local impact. This can help raise awareness and build collective action.
4. **Support Organizations**: - Contribute to or volunteer with organizations that advocate for fair trade, economic justice, and consumer protection. Examples include: - **Public Citizen**: [Public Citizen Website](https://www.citizen.org) - **Trade Justice Alliance**: [Trade Justice Alliance](http://www.tradejustice.org)
5. **Use Social Media**: Share information and raise awareness about the effects of tariffs on consumers and workers. Use platforms like Twitter, Instagram, and Facebook to promote awareness campaigns.
### What to Say
When contacting representatives or engaging in discussions, it’s essential to communicate your views clearly:
- **Express Your Concern**: “I am writing to express my concern about the impact of rising tariffs on consumer prices and the economy. The potential increase in tariffs, particularly on essential goods like pharmaceuticals and electronics, could significantly affect families in our district.” - **Advocate for Transparency**: “I urge you to support policies that promote transparency in tariff applications and advocate for fair trade practices that benefit consumers and workers.”
- **Request Action**: “Please consider supporting legislation that addresses the gaps in our current trade policies and protects consumers from unnecessary price increases due to tariffs.”
By taking these actions, you can contribute to a broader movement advocating for fair trade and economic justice, ensuring that tariff policies benefit the wider community rather than just a select few.