Fact Check: Are tariffs bad for the economy

Are Tariffs Bad for the Economy?

Introduction

The claim that "tariffs are bad for the economy" has been a topic of heated debate among economists, policymakers, and the public. Tariffs, which are taxes imposed on imported goods, can have complex and multifaceted effects on various economic stakeholders. This article will explore the available evidence regarding the economic impact of tariffs, examining both potential drawbacks and benefits without reaching a definitive conclusion.

What We Know

1. Consumer Impact: Tariffs generally lead to higher prices for consumers. A recent study indicated that the price level from tariffs enacted in 2025 could rise by 2.3%, resulting in an average loss of $3,800 per household in 2024 due to increased consumer costs 1. This aligns with findings from the University of California, Davis, which noted that tariffs increase the cost of goods, effectively acting as a tax on consumers 3.

2. Economic Growth: Research from Yale's Budget Lab suggests that tariffs can reduce both short- and long-term real GDP. The negative impact on GDP is particularly pronounced in the first two years following the implementation of tariffs 5. Similarly, a report from the Tax Foundation estimated that tariffs introduced during the Trump administration could shrink U.S. GDP by 0.4% over time 6.

3. Government Revenue: On the other hand, tariffs can generate significant revenue for the government. J.P. Morgan Research projected that new tariffs could raise nearly $400 billion, representing about 1.3% of U.S. GDP, marking one of the largest tax increases since the Revenue Act of 1968 7.

4. Global Trade Relationships: Tariffs can disrupt international trade and have broader implications for global economic relations. A report from the University of Chicago highlighted that tariffs can strategically shift global prices and serve as sanctions against foreign firms, which may lead to retaliatory measures 4.

5. Manufacturing Competitiveness: Critics argue that while tariffs may protect certain domestic industries in the short term, they can undermine manufacturing competitiveness and lead to job losses in the medium to long term 9.

Analysis

The evidence surrounding the economic impact of tariffs is substantial but varies in interpretation and implications.

• Source Reliability: Many of the sources cited are from reputable institutions such as Yale University, the University of California, and J.P. Morgan, which lends credibility to their findings. However, it is essential to consider potential biases. For instance, the Tax Foundation, while a respected think tank, has been criticized for its pro-business stance, which may influence its analysis of tariffs 6.

• Conflicting Perspectives: The debate over tariffs often reflects broader ideological divides. Proponents argue that tariffs can protect domestic industries and jobs, while opponents emphasize the negative effects on consumers and overall economic growth. This ideological lens can shape how data is presented and interpreted.

• Methodological Concerns: Many studies rely on economic modeling to predict the effects of tariffs, which can introduce uncertainty. For example, while the Yale study provides quantitative estimates of GDP impact, the assumptions underlying these models can significantly affect outcomes. A more nuanced understanding of the specific sectors affected and the time frames considered would enhance the analysis.

• Additional Information Needed: To further evaluate the claim, it would be beneficial to have more granular data on the specific industries affected by tariffs, as well as consumer behavior in response to price changes. Longitudinal studies tracking the economic impact over time would also provide a clearer picture of the long-term effects of tariffs.

Conclusion

Verdict: Mostly False

The claim that "tariffs are bad for the economy" is deemed "mostly false" based on the evidence reviewed. While tariffs do generally lead to higher consumer prices and can negatively impact GDP, they also generate significant government revenue and can protect certain domestic industries in the short term. The complexity of tariffs' effects means that they cannot be universally categorized as detrimental without considering the specific context and stakeholders involved.

It is important to note that the evidence is not definitive; various studies present conflicting perspectives, and the methodologies used can introduce uncertainty. Additionally, the long-term effects of tariffs may differ from their short-term impacts, complicating the overall assessment.

Readers are encouraged to critically evaluate information regarding tariffs and their economic implications, recognizing that the debate is nuanced and ongoing. Further research and data are necessary to fully understand the multifaceted impacts of tariffs on the economy.

Sources

1. Where We Stand: The Fiscal, Economic, and Distributional Effects of All U.S. Tariffs Enacted 2025 Through April. Yale Budget Lab. Link
2. The Effect of Tariffs on the US Economy | Economic Forecast. UCSB. Link
3. How Could Tariffs Affect Consumers, Business and the Economy? UC Davis. Link
4. How do tariffs work, and who will they impact? UChicago. Link
5. The Fiscal, Economic, and Distributional Effects of 20% Tariffs. Yale Budget Lab. Link
6. Trump Tariffs: The Economic Impact of the Trump Trade War. Tax Foundation. Link
7. US Tariffs: What's the Impact? J.P. Morgan Research. Link
8. Tariffs and Their Global Impact: A Note from the Desk of our Chief Economist. Oxford Economics. Link
9. Tariffs Are Great – If You Like Raising Prices, Undermining Middle-Class Jobs. Bush Center. Link
10. How impacted is your country by the Trump tariffs? World Economic Forum. Link