President Trump’s tariff proposals have sparked criticism and warnings about higher consumer prices. However, these claims just hit a brick wall. The Federal Reserve Bank of Boston recently confirmed that Trump’s tariff proposals would have only a negligible effect on inflation. This follows a report from the Congressional Budget Office that tariffs would cause only a minimal, one-time price increase.
Specifically, the December 2024 CBO report estimated that a global 10 percent tariff would lead to a one-time, 0.6 percent increase in prices. Similarly, the recent study by the Federal Reserve of Boston found that Trump’s proposed 25 percent tariff on Canada and Mexico — along with a 10 percent tariff on China — would cause a one-time inflation effect of only 0.5 percent to 0.8 percent.
Despite the claims of wild price hikes from tariff critics, the Federal Reserve thinks Trump’s most substantial tariffs would only minimally affect inflation. Any small price increases would likely be spread over several years and further mitigated by increased domestic U.S. production.
The reports by the Fed and CBO rebut a core economic assumption of recent decades. After 30 years of free trade policy, the economic data demonstrate that neither tariffs nor surging imports have ever significantly affected inflation.
Washington’s free-trade lobbyists have long argued that the United States and Europe benefit from cheaper goods from developing countries — that these imports reduce prices and costs for consumers. It’s why they have continually pushed the United States to open its market to more imports. However, the result has been a soaring U.S. international trade deficit. In 2024, the United States hit a record goods trade deficit of $1.21 trillion.
This massive trade deficit has not delivered on the promises of substantially lower consumer prices. Instead, a study by the Organization for Economic Cooperation and Development estimated that globalization lowered annual inflation by only 0.1 percent in the United States between 1996 and 2005. And what has been the cost of this tiny amount of inflation reduction? According to the National Bureau of Economic Research, the United States lost up to 2.4 million jobs, precisely because of the import surge from China between 1999 and 2011.
Just as this surge in imports had only a minimal effect on U.S. inflation, tariffs will also have a minimal effect. Consider a 2023 study by the International Trade Commission regarding the 25 percent steel and 10 percent aluminum tariffs imposed in 2018. The ITC found only minimal domestic price effects but a significant boost in domestic production. From 2018 to 2021, the tariffs increased the price of domestically produced steel by 0.7 percent. Meanwhile, domestic steel production climbed 1.9 percent. Similarly, the aluminum tariffs increased domestic prices by 0.9 percent while domestic production jumped 3.6 percent. Overall, this translated to a $2.25 billion increase for the two industries in 2021.
Those who warn of tariff problems exaggerate the price costs and ignore the positive effects that come from expanded domestic manufacturing. That’s unfortunate because the overall goal should be to create good-paying jobs throughout the U.S. economy.
The Coalition for a Prosperous America recently studied a potential 10 percent global U.S. tariff on imports. It found that the benefits would be significant: $728 billion in economic growth, 2.8 million jobs, and a 5.7 percent boost in household income — equivalent to $4,252 per family. The inflation effect would be negligible, as the Fed and CBO confirmed.
For too long, economists have ignored the real-world benefits of protecting and rebuilding America’s industry. Instead, they have exaggerated globalization’s ability to keep prices low. They’ve also disregarded the collateral damage from decades of rising imports — including millions of lost jobs and volatile inflation from overseas supply chain disruptions.
Tariffs are an effective tool for boosting domestic production. They stimulate critical domestic investment and increase U.S. manufacturing capacity. It’s past time to abandon the outdated dogma of unregulated free trade — and start focusing on rebuilding American industry to create jobs and ensure long-term economic resilience.
