Economic experts from the Federal Reserve Bank of San Francisco have recently conducted a study examining how tariffs affect our economy based on past experiences. Their findings suggest that the impact of these import taxes can change over time, influencing both inflation and unemployment levels.
According to the research authored by senior policy advisor Oscar Jorda and Vice President Fernanda Nechio, tariffs can disrupt supply chains and raise costs for businesses, often leading to higher inflation and increased unemployment. However, they also noted that lowered demand can result in a contrasting effect: higher unemployment but lower inflation.
The economists analyzed 40 years of international trade data and found that when tariffs are imposed, unemployment tends to rise initially while inflation falls. Over time, unemployment may stabilize, but inflation could rise again, often peaking several years after the tariffs are introduced.
The recent spike in U.S. tariffs has raised concerns, particularly as this year’s average tariff rate has soared to around 18%, compared to approximately 3% in previous years. Experts caution that these unprecedented tariffs are accompanied by significant uncertainty, making the historical data harder to apply to today’s situation. They stressed the need for caution in interpreting these results because the recent rates exceed anything previously seen.
Economists believe that businesses may hold off on investments while they wait for more clarity on future trade policies. Similarly, consumers may alter their spending habits as they navigate this new economic landscape.
Moreover, recent data reflects a concerning trend: as tariffs were announced earlier this year, inflation has started to rise again after initially dipping to a low point. The Consumer Price Index (CPI) began the year at 3%, fell to 2.3% in April, and has now reached 3% once more.
The unemployment rate has also seen an uptick this fall, currently at 4.4%. While these numbers may fluctuate, they indicate ongoing challenges that policymakers must address to support a stable economy.
As the administration navigates these complex trade issues, it becomes increasingly important to understand the potential ramifications of tariff policies on American jobs and prices.
