US Tariffs: 2025 Analysis

GDP Impact

According to analysis from Yale University's Budget Lab, all US tariffs enacted in 2025 through April are projected to reduce real GDP growth by 1.1 percentage points over calendar year 2025 (measured Q4-to-Q4). The International Monetary Fund (IMF) similarly projects that the combination of US tariffs and retaliatory measures could reduce US GDP by approximately 1% and global GDP by a similar magnitude.

Projected impact of tariffs on US real GDP growth (Source: Yale Budget Lab)

Inflation and Consumer Prices

Tariffs function as a tax on imports, with much of the cost ultimately passed through to consumers. Economic projections indicate that the current tariff structure will raise the overall price level by approximately 2.3% in the short run, equivalent to an average household consumer loss of $3,800 annually.

Projected impact of tariffs on consumer prices by category (Source: Yale Budget Lab)

Certain consumer goods are projected to see particularly steep price increases:

• Apparel and footwear: 15-30% price increases
• Consumer electronics: 10-25% price increases
• Automobiles and parts: 10-15% price increases
• Household goods and furniture: 8-18% price increases

Employment and Labor Market

The tariffs are projected to have significant effects on employment. The unemployment rate is expected to rise by 0.6 percentage points by the end of 2025, with payroll employment approximately 740,000 lower than would otherwise be expected.

Stock Market Impact

Financial markets have experienced significant volatility in response to tariff announcements and implementation. The S&P 500 index slumped 3.5% on April 11, 2025, following clarification that tariffs on Chinese imports would total 145%. This followed a period of substantial market turbulence as various tariff measures were announced and implemented.

The market impact has varied significantly by sector:

• Consumer discretionary stocks have been among the hardest hit, with many retailers seeing 8-15% declines
• Technology companies with significant exposure to China have experienced 5-12% declines
• Some domestic steel and aluminum producers have seen stock price gains of 3-8%
• Agricultural companies have faced pressure due to retaliatory tariffs on US exports

Government Revenue

The tariffs will generate significant government revenue, estimated at $2.4 trillion over 2026-2035, though this figure includes a negative dynamic revenue effect of $587 billion due to slowed economic growth. The net fiscal impact is projected to be less than the headline revenue figures suggest due to these offsetting factors.

Early American Tariffs (1789-1860)

The first major American tariff legislation was the Tariff Act of 1789, signed by President George Washington on July 4th. This act had two primary purposes: to raise revenue for the federal government and to protect domestic manufacturing. During this early period of American history, tariffs served as the primary source of federal revenue, accounting for 50-90% of government income.

Key tariff legislation during this period included:

• Tariff of 1816: The first explicitly protectionist tariff, designed to shield new American industries from European competition following the War of 1812
• Tariff of 1828: Known as the "Tariff of Abominations," this highly protective measure imposed duties averaging 50% and sparked significant sectional tensions between North and South
• Compromise Tariff of 1833: Gradually reduced tariff rates to resolve the Nullification Crisis

The Restriction Period (1861-1933)

From the Civil War through the Great Depression, US trade policy was characterized by high tariffs intended to protect domestic industry. During this "restriction period," as economist Douglas Irwin termed it, average tariff rates increased to approximately 50% and remained at that level for several decades.

Key developments included:

• Morrill Tariff of 1861: Raised industrial tariffs to an average of 20% to finance the Civil War
• McKinley Tariff of 1890: Raised average tariff rates to 49.5%, the highest in US history to that point
• Fordney-McCumber Tariff of 1922: Raised tariffs to protect industries that had developed during World War I
• Smoot-Hawley Tariff Act of 1930: Raised duties on over 20,000 imported goods to record levels, contributing to a collapse in international trade during the Great Depression

Trade Liberalization Era (1934-2017)

Following the economic catastrophe of the Great Depression, US trade policy underwent a dramatic shift toward liberalization. The Reciprocal Trade Agreements Act of 1934 marked the beginning of this new approach, empowering the president to negotiate bilateral agreements to reduce tariffs.

Key developments in this period included:

• GATT Formation (1947): The US played a leading role in establishing the General Agreement on Tariffs and Trade, which substantially reduced global tariff barriers
• Kennedy Round (1964-1967): Achieved tariff reductions averaging 35% on thousands of products
• Tokyo Round (1973-1979): Further reduced tariffs and addressed non-tariff barriers
• Uruguay Round (1986-1994): Led to the creation of the World Trade Organization (WTO) and substantial tariff reductions
• NAFTA (1994): Eliminated most tariffs among the United States, Canada, and Mexico

By the early 21st century, US tariffs had reached historic lows, with the average tariff rate on imported goods falling to approximately 1.6% by 2016.

Recent Shift (2018-Present)

Beginning in 2018, US trade policy began shifting back toward protectionism. The first Trump administration implemented significant tariffs on washing machines, solar panels, steel, aluminum, and a wide range of Chinese goods. After a brief period of stabilization during the Biden administration, the second Trump administration has implemented the most sweeping tariff increases since the early 20th century.

Successful Tariff Cases

Failed Tariff Cases

Automotive Industry

The automotive sector faces particularly severe impacts from the 2025 tariff structure. A study by the Center for Automotive Research estimates that the 25% tariff on automotive imports could cost US automakers $108 billion annually. Even domestically manufactured vehicles rely heavily on imported components, with the average American-made car containing 40-60% imported parts.

Several automakers have already announced price increases, while others are adjusting production strategies to mitigate tariff impacts. Some manufacturers are exploring increased domestic sourcing, though industry experts note significant constraints on the ability to rapidly reshape complex global supply chains.

Consumer Electronics

Consumer electronics face substantial tariff exposure, particularly due to the high concentration of manufacturing in China and Southeast Asia. The 145% tariff on Chinese imports will dramatically impact products ranging from smartphones and laptops to household appliances and gaming consoles.

Industry analysis projects:

• Smartphone price increases of 15-30% depending on manufacturing origin
• Laptop and tablet price increases of 12-25%
• Smart home device price increases of 15-35%
• Reduced consumer purchasing power leading to 15-25% volume decreases

Many electronics manufacturers are accelerating plans to diversify production away from China, though such transitions typically require 2-3 years for completion. In the interim, consumers will face significantly higher prices for these products.

Apparel and Footwear

The apparel and footwear industry relies heavily on imports, with approximately 97% of clothing and 98% of footwear sold in the US manufactured overseas. Major production hubs face substantially increased tariffs: Vietnam (46%), Bangladesh (37%), Cambodia (49%), and China (145%).

Price effects by consumer category, showing significant impacts on apparel (Source: Yale Budget Lab)

The American Apparel & Footwear Association projects:

• Price increases of 15-30% for most clothing items
• Price increases of 20-40% for footwear
• Reduced consumer purchasing leading to unit sales declines of 10-20%
• Retail job losses of 30,000-50,000 due to reduced sales volume

Steel and Aluminum

Domestic steel and aluminum producers are among the few industries that stand to benefit from the current tariff structure. The combination of existing 25% tariffs on steel imports and the new overlapping tariffs creates substantial protection for domestic producers.

However, these benefits come at a substantial cost to steel-consuming industries, which employ approximately 40 times more workers than steel production. For every job created in steel production, economists estimate 6-8 jobs lost in steel-using industries due to higher input costs.

Agriculture

The agricultural sector faces unique challenges from the current tariff environment. While tariffs on imported agricultural products provide some protection for domestic producers, the more significant impact comes from retaliatory tariffs imposed by trading partners on US agricultural exports.

China's increase of retaliatory tariffs to 125% presents particular challenges for:

• Soybean exports (China previously purchased ~60% of US exports)
• Pork producers (China was the third-largest export market)
• Tree nut growers (almonds, walnuts, pistachios)
• Fruit exporters

The USDA estimates that retaliatory tariffs could reduce US agricultural exports by $12-18 billion annually, with particularly severe impacts on midwestern grain producers and California specialty crop growers.

Retaliatory Tariffs

Major trading partners have implemented or announced significant retaliatory tariffs in response to US measures:

Trade Diversion Effects

The steep tariffs on certain countries are creating significant trade diversion effects, as importers seek alternative sourcing to avoid the highest tariffs. This is particularly evident with Chinese goods facing 145% tariffs, where production is shifting to:

• Vietnam and Cambodia (despite their own substantial tariffs of 46% and 49%)
• Mexico (25% tariff represents significant advantage over China's 145%)
• India (26% tariff)
• Bangladesh (37% tariff)

However, economists note that these shifts face significant constraints in the short term due to capacity limitations, infrastructure requirements, and the complex nature of established supply chains.

Dollar Impact

The US dollar has experienced significant volatility in response to tariff developments. Following the announcement of China's increase to 125% retaliatory tariffs, the dollar fell 1.8% against a basket of major currencies, reflecting concerns about US economic growth and potential inflation.

Currency analysts project:

• Short-term dollar strength as tariffs initially increase demand for dollars to pay for more expensive imports
• Medium-term dollar weakness as trade volumes decline and economic growth slows
• Increased currency volatility as markets adjust to the new trade environment

WTO Challenges

Multiple countries have filed or announced intentions to file World Trade Organization (WTO) challenges to US tariff measures. China's Commerce Ministry has filed another lawsuit with the WTO against US tariffs, arguing they violate foundational WTO principles.

The WTO dispute resolution process faces significant challenges, however:

• The US invoked national security exemptions under IEEPA for the tariffs, which complicates WTO adjudication
• The WTO Appellate Body remains non-functional due to US blocking of judge appointments
• The dispute resolution process typically requires 2-3 years for resolution

These practical limitations reduce the likelihood of effective WTO constraints on current US tariff policies in the near term.