A study from President Donald Trump’s Council of Economic Advisers (CEA) finds that the price of imported goods has fallen this year, allegedly contradicting fears that tariffs will lead to an acceleration of inflation. However, the CEA study raises more questions than it answers:
Regarding the impact of tariffs on prices, the timeframe used by the CEA is way too short to draw any definitive conclusions. The CEA study runs through May 2025. Trump’s 10% nonreciprocal tariffs were only imposed in April.
It is not surprising that new tariffs imposed on China earlier in the year would have a limited impact on overall prices. U.S. companies scrambled to import as many goods as possible to stockpile before new tariffs were fully implemented, mitigating the immediate impact of tariffs on prices.
Imports from China account for just 13.2% of total U.S. imports. Therefore, big increases in the price of specific imported goods from China due to tariffs will have a limited impact on the overall average price of imports from all countries.
Tariffs on steel and aluminum were increased earlier in the year, but they account for just 3.3% of overall U.S. imports. Therefore, big increases in the cost of imported steel and aluminum resulting from tariffs would also have had a limited impact on the overall average price of imports.
On their own, tariffs typically provide a one-time boost to prices, as opposed to ongoing inflationary price increases. For instance, a new 25% tariff on South Korea would leave Americans with less money to spend on other goods, so the combination of higher-priced Korean goods with less demand for other goods may offset each other with respect to inflation. The inflationary impact largely results from other macroeconomic factors, such as whether the Federal Reserve decides to cut interest rates in an attempt to accommodate the economic damage inflicted by tariffs.
It is important to compare economic changes resulting from tariffs to what would have happened in the absence of tariffs. What really matters is not whether the cost of imported goods fell since the start of the year, as the CEA concludes, but whether they would have fallen even more in the absence of tariffs. The CEA study explicitly ignores this counterfactual.
The CEA report provides a good opportunity to consider the overall impact of international trade with respect to the availability of affordable goods and services throughout the United States. To name just one example, the overall U.S. Consumer Price Index (CPI) has increased by 250% since 1990. During this time, the CPI for clothing remained essentially unchanged, thanks to the availability of affordable imports. Less trade means less competition and higher prices.
When discussing the study, CEA Chairman Stephen Miran said: “All I mean to say is that prediction is difficult, and we should always speak in terms of odds and possibilities.” But it’s not difficult to predict that double-digit tariffs on our major trading partners costing $300 billion a year will mean higher costs for the Americans who pay them.