How do tariffs impact the US economy?

This letter presents new empirical evidence on the economic impact of tariffs on the US economy using structural vector autoregressions (SVARs). A persistent increase in tariffs on imports from the rest of the world reduces real GDP growth, permanently lowering real GDP relative to the trend before the tariff increase. The magnitudes are broadly consistent with available estimates of the negative impact of increases in average personal income tax rates. The contraction in economic activity is associated with a decrease in stock market capitalization. The federal deficit in percent of GDP worsens. Inflation increases initially, but then falls below average for a few years, implying a negligible effect on the price level.