Key insights
- A Brookings paper finds Trump's tariffs had minimal impact on 2025 US GDP (-0.13% to +0.1%), but significantly increased federal revenue. Tariffs led to higher prices for consumers, largely offset by revenue gains. China's share of US imports fell sharply, indicating trade decoupling, but imports shifted to other countries. No evidence of increased 'friend-shoring' was found. Overall, a slight negative for US equities due to increased costs for consumers.
WASHINGTON, March 25 (Reuters) - U.S. President Donald Trump’s barrage of tariffs last year had only a minimal impact on U.S. economic output but raised significant federal revenue and contributed to a further U.S.-China trade decoupling, a new Brookings Institution academic paper showed on Wednesday.
The paper analyzing the short-run impact of Trump’s tariffs found that their "net welfare impact" on the U.S. economy was a range of adding 0.1% of GDP to subtracting 0.13% of GDP, depending on assumptions about changing terms of trade, including the extent to which demand shifts to domestically produced goods.
Here are some other key findings of the study conducted by University of California-Los Angeles economist Pablo Fajgelbaum and Yale University economist Amit Khandelwal: * The minimal impact on real consumption masks large grosstransfers to producers from consumers, but this distortion islargely offset by higher federal revenues and wage gains in someindustries. * Pass-through of the tariffs to higher "tariff-inclusive"prices is high, at 80% to 100%. In a baseline scenario, theresearchers estimated this at 90%, meaning that only 10% of thehigher tariff cost was borne by foreign exporters. * Tariff rates rose to an 80-year high of 9.6% from 2.4% butapplied tariff rates are lower and only affecting a smallportion of GDP. The paper said about 57% of U.S. imports stillenter duty-free, due to the U.S.-Mexico-Canada trade agreementand tariff exemptions for energy and certain electronicsimports. * Revenue from the tariffs collected in 2025 totaled $264billion, accounting for about 4.5% of total receipts, comparedto about 1.6% over the past decade. * China’s share of U.S. imports fell to just 7% in December2025, from a 23% share in December 2017, before Trump imposedpunitive tariffs on Chinese goods during his first term. Butmany of these imports have shifted to other countries. * The paper finds no evidence that tariffs have increased"friend-shoring" of supply chains to U.S.-allied countries, thatthey have increased U.S. manufacturing employment or reduced theoverall U.S. trade deficit. Any benefits of the Trumpadministration’s recent trade agreements aimed at openingforeign markets to U.S. exports remain to be seen.