Tariffmagedeon Will Not Hurt Consumers
President Trump’s new round of tariffs is set to take effect, and once again, critics are predicting economic disaster. A sober look at the history of tariffs and recent economic research about their effects suggest this fear-mongering is unwarranted.
The administration is moving forward with a 25 percent tariff on imports from Mexico and Canada and an additional 10 percent tariff on Chinese goods. The media and corporate lobbyists insist that these measures will drive up inflation and crush American consumers. But new research from the Federal Reserve Bank of Atlanta suggests otherwise. Their analysis shows that the actual impact on consumer prices will be modest, with estimated increases of just 0.81 to 1.63 percent—a far cry from the economic catastrophe predicted by Trump’s opponents.
A One-Time Adjustment, Not an Inflationary Spiral
The Atlanta Fed’s research makes a crucial distinction that the media conveniently ignores: tariffs create a one-time price adjustment, not ongoing inflation. Inflation happens when prices keep rising year after year, but tariffs function as a structural shift in trade costs, not a continuous upward pressure on prices.
The study also highlights that 80 percent of the expected price impact comes from tariffs on Mexico and Canada, not China. That’s a key takeaway because it confirms that Trump’s policy is aimed at restructuring North American trade, not just confronting Beijing. This should come as no surprise—Trump has long argued that the outsourcing model that shifted U.S. manufacturing to Mexico was unsustainable.
What’s more, it also suggests that the effects of the tariffs on U.S. prices are likely to be short-lived because it should not be too difficult for Mexico and Canada to make changes to their economic policies required to get tariff relief. The changes in Mexico and Canada that would likely satisfy President Trump are relatively minor adjustments.
Mexico and Canada Are Feeling the Pressure
While the usual suspects claim that tariffs will devastate American consumers, the biggest pain is being felt south of the border. The latest S&P Global Mexico Manufacturing PMI shows that Mexico’s industrial sector is already contracting at its fastest pace in five months, driven by plummeting U.S. demand. Exports to the U.S. are falling at their fastest rate since 2021, and factory job losses in Mexico are accelerating. That’s not the sign of a U.S. economy in crisis—it’s evidence that Trump’s policies are working exactly as intended.
Meanwhile, Canada and Mexico are scrambling for last-minute concessions to avoid the tariffs. The Wall Street Journal reports that Canadian officials have been pushing Washington for exemptions, while Mexico’s President Claudia Sheinbaum is still hoping for a last-minute deal. Trump, for his part, isn’t budging. The days of easy trade deals and one-sided benefits are over.
The Inflation Narrative Doesn’t Hold Up
The Atlanta Fed’s study does not support the media’s claim that tariffs will cause runaway inflation. Instead, it models different scenarios and shows that the actual impact on consumer prices depends on how businesses and consumers adjust. The study acknowledges that full cost pass-through is uncertain, as businesses could absorb some of the cost through lower margins or alternative sourcing strategies. If certain imports become more expensive, buyers may shift toward domestic alternatives, which could dampen the overall inflationary effect. The study also suggests that while tariffs increase prices at the point of imposition, tariffs do not cause continuing upward price momentum—a key distinction between a one-time adjustment and persistent inflation. Broader inflationary trends, as past economic research has shown, are often shaped by monetary policy, fiscal spending, and supply chain conditions.
A 2021 study from economists at Harvard, the Federal Reserve, and the University of Chicago reinforces this point. That research found that while import prices rose due to tariffs, the impact on retail prices varied by product. Some goods, like washing machines, saw clear price increases, while many other retail prices remained stable as businesses absorbed costs rather than passing them on to consumers.
While the study also found that Chinese exporters did not lower prices to offset tariffs, most of the price increases didn’t make their way onto store shelves, suggesting that U.S. firms bore the costs at the import level. Retailers adjusted supply chains to minimize price increases, with some increasing inventory before tariffs hit and others shifting sourcing away from China altogether. These findings suggest that the common assumption that 100 percent—or even 50 percent—of tariffs are passed through to consumers is likely overstated. Much of the tariff burden is absorbed by importer margins, rather than showing up in direct consumer price increases.
Even inside the Trump administration, there are reportedly concerns about potential inflationary effects from the tariffs. The administration’s economic advisers should rest easy. Trump’s first-term tariffs did not significantly raise consumer prices, and new research suggests that even in the worst case scenario of full pass-through to consumers, price hikes would be quite small.
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