Economic Harm of Tariffs
According to extensive research from the Penn Wharton Budget Model and studies examining data from 151 countries over five decades, tariffs cause significant long-term economic damage by reducing GDP, lowering wages, decreasing productivity, and increasing unemployment. While tariffs may generate government revenue, they ultimately lead to higher prices for consumers and businesses, disrupt supply chains, diminish innovation, and can trigger retaliatory measures from trading partners that further harm exporting industries.
GDP Reduction of 6%
Recent economic projections paint a sobering picture of tariffs' impact on the U.S. economy. The Penn Wharton Budget Model forecasts that President Trump's tariff plan would reduce long-run GDP by approximately 6% and wages by 5% over the next 30 years. This economic contraction translates to significant personal costs, with middle-income households facing an estimated $22,000 lifetime loss. These projected losses are particularly striking when compared to alternative revenue-raising measures—the economic damage from tariffs is more than twice as severe as a revenue-equivalent corporate tax increase from 21% to 36%.
Other analyses offer varying but consistently negative GDP projections. J.P. Morgan Research estimates that a 10% universal tariff combined with a 110% tariff on China could reduce global GDP by 1%, with potential amplification through sentiment effects that might double this impact. The Tax Foundation calculates that Trump's imposed tariffs would reduce U.S. GDP by 0.8% before accounting for foreign retaliation, which would further decrease GDP by an additional 0.2%. These economic contractions would be accompanied by significant job losses, with estimates ranging from 27,000 to 142,000 fewer full-time equivalent positions.
Consumer Price Increases
Tariffs directly hit American consumers through price increases across a wide range of goods. Recent analyses estimate that the 2025 tariffs have already increased core goods PCE prices by 0.3%, with the total impact of all implemented tariffs raising consumer prices by 2.3% in the short run—equivalent to an average purchasing power loss of $3,800 per household. The effects vary significantly by product category: apparel prices have surged 17%, food prices have increased 2.8%, and motor vehicle prices have jumped 8.4% (adding approximately $4,000 to the average new car price).
These price increases function essentially as a regressive tax, disproportionately affecting lower-income households who spend a larger percentage of their income on goods. The impact extends beyond just immediate price hikes, as businesses facing tariff-induced cost pressures often respond by reducing investment and employment. Additionally, uncertainty about future trade policy has already begun to rattle business confidence, with February's services PMI falling below 50 for the first time in two years—indicating deteriorating business conditions even before the full implementation of announced tariffs.
Manufacturing Input Cost Burden
Tariffs create a particularly heavy burden for manufacturers by directly increasing input costs throughout their production processes. When duties are imposed on imported raw materials like steel, aluminum, and electronic components, manufacturers face inflated production expenses that squeeze profit margins. This cost pressure is especially pronounced in sectors like fabricated metals, electrical equipment, and furniture, where average tariff rates can range between 10-15% under certain scenarios.
The manufacturing sector feels these impacts acutely because approximately half of U.S. imports are business inputs—capital goods or industrial supplies and materials. For example, the 2018 steel tariffs demonstrably cost U.S. manufacturing jobs as higher steel prices drove up input costs. Recent data shows this pattern continuing, with manufacturers reporting that tariff-driven price increases are "overwhelmingly linked" to higher costs of imported inputs. This creates a competitive disadvantage for domestic producers who must either absorb these costs (reducing profitability) or pass them to consumers (potentially losing market share), all while facing potential supply chain disruptions and quality consistency challenges when forced to seek alternative suppliers.
Job Loss Implications
The labor market is already showing signs of strain under the weight of tariff policies. While the April 2025 jobs report showed 177,000 new positions and a steady 4.2% unemployment rate, economists warn this stability is deceptive and doesn't yet reflect the "shocks" of recent trade policy changes. Analysts project significant employment deterioration, with Yale's Budget Lab estimating 456,000 fewer jobs by the end of 2025 and the Tax Foundation calculating a long-term loss of 142,000 full-time equivalent positions from the tariffs implemented in 2018-2019 alone.
Behind these numbers lies a complex reality of sectoral shifts and economic uncertainty. Manufacturing, retail, and federal government sectors have already begun shedding jobs, while healthcare and transportation have temporarily gained positions—partly as companies stockpile goods ahead of tariff implementation. This pattern reflects the uneven impact of tariffs across industries, with manufacturing output projected to contract by 0.1%, construction by 1.5%, and agriculture by 1.2% in the long run. As businesses adjust to these trade shocks, economists anticipate monthly job growth shifting to job losses for the first time since December 2020, with unemployment climbing and more Americans unable to find work.
Long-term Growth Impact
The long-term economic consequences of tariffs extend far beyond immediate price increases and job losses. According to Yale's Budget Lab, while US manufacturing output may expand by 1.5% under tariff policies, this growth comes at the expense of other sectors, with construction contracting by 3.1% and agriculture declining by 1.1%. This sectoral reallocation shrinks the overall economy, with the US projected to be persistently 0.4% smaller in the long run—equivalent to an annual loss of $110 billion in 2024 dollars.
The tariffs' impact on capital investment is particularly concerning for long-term growth. As tariffs reduce economic openness and international capital flows, domestic households must absorb more government debt, diverting savings away from productive investments. This capital stock reduction—projected to fall by nearly 10-11% by 2054 depending on tariff incidence assumptions—significantly undermines worker productivity and wages. The resulting economic distortion is remarkably inefficient; tariffs reduce GDP and wages by more than twice as much as a corporate tax increase that would raise equivalent revenue, making all future households worse off while hampering innovation and competitiveness in global markets.
Essential Goods Inflation
The latest inflation data shows mixed trends for essential goods in 2025. While overall food prices are predicted to increase by 2.2% this year, there are significant variations across categories. Grocery prices (food-at-home) are expected to rise at a more modest 1.3%, while restaurant meals (food-away-from-home) are projected to increase by 3.6%. Some essential categories show concerning inflation: egg prices are predicted to surge by 20.3% due to ongoing HPAI outbreaks affecting the U.S. egg-layer flock, and beef prices are expected to increase by 1.5%.
However, there are bright spots in the inflation landscape. Pork prices are predicted to decrease by 0.8%, fats and oils by 1.6%, and fresh fruits are expected to see only a minimal 0.7% increase. The overall consumer price index (CPI) dropped to 2.3% in April 2025, marking the lowest inflation rate in four years. Despite this positive trend, economists warn that President Trump's newly imposed tariffs could soon reverse these gains, with Yale University's Budget Lab estimating they could raise prices by almost 2% in the short run, costing middle-class households over $2,200 annually. This creates a complex economic picture where current relief on some essential goods may be short-lived as tariff effects begin to ripple through the supply chain.
Household Budget Squeeze
The financial impact of tariffs on American families is substantial and regressive. Yale's Budget Lab projects that tariffs will cost the average American household nearly $5,000 in 2025, with lower-income families bearing a disproportionate burden as they spend a greater share of their budget on imported goods. The regressivity is stark: households in the second income decile face a burden 2.5 times higher than those in the top decile (-4.0% versus -1.6% of disposable income). In dollar terms, this translates to annual consumer losses of approximately $1,700 for low-income households, $3,000 for middle-income families, and $8,100 for top-earning households.
These tariffs are affecting everyday purchases across multiple categories, forcing families to adjust their budgets. Electronics could see price increases of up to 4.5%, clothing and apparel may jump by 16.9-18.3%, automobiles and parts are projected to rise by 8.4%, and various household goods face increases ranging from 3.3% to 9.6%. With 44% of Americans already feeling the impact of tariffs on their costs, many families are tightening their belts on discretionary spending like school supplies and family outings to accommodate these rising prices. This budget squeeze is particularly concerning as financially strained households may need to cut back on essentials or face increased consumer loan defaults, with Philadelphia Fed data showing a record 10.5% of credit card holders only able to meet minimum monthly payments.
Generational Wealth Effects
The economic consequences of tariffs will reverberate differently across generations, creating lasting intergenerational effects. For younger Americans, the projected 6% reduction in long-run GDP and 5% decline in wages translates to diminished lifetime earnings potential and reduced economic mobility. Middle-aged workers face immediate challenges as industries adjust to tariff shocks, with some sectors contracting while others potentially expand, forcing career transitions during prime earning years.
Future generations will inherit an economy with a significantly smaller capital stock—projected to be 10-11% lower by 2054—resulting in persistently lower productivity and wages. While tariff revenues may reduce federal debt by 10.7-11.6% by 2054, this benefit is overwhelmingly outweighed by the economic damage. The Penn Wharton Budget Model concludes that "all future households are worse off" under these policies, with middle-income households facing lifetime losses of approximately $22,000. This intergenerational burden is particularly inefficient compared to alternative revenue-raising measures, as tariffs create more than twice the economic harm of a revenue-equivalent corporate tax increase, leaving each successive generation with a less productive and competitive economy.
Family Growth Challenges
The financial strain of tariffs could significantly impact family planning decisions across America. With tariffs expected to cost the average household between $3,800 and $4,900 annually, many families may delay having children or decide to have fewer children altogether. This economic pressure is particularly concerning as the cost of raising a child was already estimated at over $233,000 (or about $17,000 annually in today's dollars) before the implementation of these tariffs.
Parents face especially steep price increases on essential children's items. Children's clothing produced in Asia could see price hikes of up to 50%, while critical safety products like car seats and cribs—often manufactured in China—will become substantially more expensive. The Juvenile Products Manufacturers Association warns that these increased costs could have "devastating" consequences, potentially forcing families to use second-hand safety equipment that doesn't meet current standards or forgo such products entirely4. Low-income families will bear the heaviest burden, with tariffs costing households in the second income decile 2.6 times more of their disposable income than those in the top decile (-2.3% versus -0.9%), potentially exacerbating existing demographic trends of declining birth rates among financially stressed Americans.
Small Business Survival Challenges
Small businesses are facing existential threats from the unpredictable tariff landscape, with many owners reporting immediate operational disruptions. According to CNN, some have been forced to cut employee hours, postpone product launches, and completely rethink their product strategies amid the chaotic implementation of varying tariff levels. The uncertainty has become so severe that 66% of small business owners either have been or expect to be impacted by tariffs, with many bracing for a recession.
The challenges are particularly acute for businesses with limited resources and thin margins. Companies like EarthQuaker Devices, Manley Labs, and FishUSA report severe cash flow constraints, delayed orders from cautious buyers, and the inability to plan for future inventory needs. Manufacturing-dependent small businesses face compounding problems as components cross borders multiple times, with some owners expressing anger and frustration at their own government. As Julie Robbins, CEO of EarthQuaker Devices, starkly warned, "if this continues, we could witness a mass extinction of small businesses" – a sentiment echoed by economic indicators showing small business optimism falling below its 51-year average for the second consecutive month.
Economic Damage Assessment
The economic evidence paints a clear picture: tariffs impose substantial costs on the American economy with limited offsetting benefits. Multiple economic analyses project significant GDP reductions ranging from 0.4% to 6% in the long run, translating to annual losses between $110-170 billion in today's dollars. These policies create a particularly inefficient form of taxation, reducing economic output more than twice as severely as revenue-equivalent corporate tax increases.
The burden falls unevenly across society, with consumers facing price increases of 1.7-2.9%, manufacturing sectors experiencing input cost pressures, and hundreds of thousands of workers facing potential job losses. While tariffs may generate government revenue and potentially boost specific manufacturing sectors, these gains come at the expense of broader economic contraction across construction, agriculture, and other industries. As households absorb higher prices and reduced wages, and businesses navigate supply chain disruptions and market uncertainty, the evidence suggests tariffs represent a policy approach that ultimately shrinks rather than strengthens America's economic future.
Sources:
CNN: "Small businesses struggle under Trump’s tariff whiplash: ‘I’m so angry that my own government has done this to me’"
Penn Wharton Budget Model: "The Economic Effects of President Trump's Tariffs"
J.P. Morgan Research: "How will the US-China tariff deal impact China's growth outlook?"
Tax Foundation: "How Much Revenue Can Tariffs Raise?"
Yale Budget Lab: "The Fiscal, Economic, and Distributional Effects of a 20% Broad Tariff"
NPR: "How tariffs could impact availability of baby products"
Newsweek: "Trump Tariff Revenue Soars in May"
