Long term effects of tariffs

The long-term effects of tariffs, particularly those implemented on a large scale such as recent or proposed Trump tariffs, are broadly negative for the US economy and its global trading partners. Key effects include:

• : Multiple analyses project that tariffs reduce US GDP in the long run. Estimates range from a 0.2% to as much as a 6% decline, depending on the scale and permanence of the tariffs2568. For example, the Penn Wharton Budget Model projects a 6% reduction in long-run GDP and a 5% decline in wages under the 2025 Trump tariff plan, with a typical middle-income household facing a $22,000 lifetime loss5.

• Lower Capital Investment and Productivity: Tariffs divert resources and investment toward less efficient domestic industries, reducing the capital stock and worker productivity over time57. This shift leads to lower overall economic output and incomes.

• Higher Consumer Prices and Inflation: Tariffs act as a tax on imports, raising prices for consumers and businesses. This results in an average tax increase per US household and contributes to higher inflation237. For instance, inflation is projected to jump by nearly 2 percentage points in the first year after large tariff hikes6.

• Job Losses in Export-Dependent Sectors: While some domestic industries may see short-term gains, export-heavy sectors like manufacturing and agriculture suffer from retaliatory tariffs imposed by other countries, leading to job losses and reduced production267. Durable manufacturing production could fall by almost 12% and agricultural production by 7% in the medium term6.

• Global Spillovers and Retaliation: Retaliatory tariffs by trading partners further reduce US exports, harming US exporters and deepening the negative impact on GDP and employment267. The global economy also experiences slower growth as a result68.

• Temporary Trade Balance Improvement: Tariffs may temporarily reduce the US trade deficit by decreasing imports more than exports, but this effect fades as underlying economic factors (like savings and investment) are largely unchanged8.

• Government Revenue Gains, But at High Cost: Tariffs do raise federal revenue—potentially trillions over a decade—but this comes at the expense of lower economic growth, lower incomes, and higher prices25. The revenue gain is offset by the broader economic harm.

• Increased Economic Uncertainty and Risk Premiums: Large, sustained tariffs can make US assets less attractive to global investors, raising the risk premium and potentially leading to capital outflows, higher interest rates, and even slower growth6.

• No Evidence of Long-Term Industrial Revival: Despite intentions to boost domestic manufacturing, historical and recent evidence shows tariffs do not lead to sustained increases in production or employment in targeted industries. Instead, they often cause lasting economic harm679.

In summary, the long-term effects of tariffs include lower growth, higher prices, reduced investment, job losses in key sectors, and only temporary improvements in the trade balance. These negative outcomes are compounded if trading partners retaliate, and the overall economic cost typically outweighs any revenue or short-term gains25678.

1. https://www.jpmorgan.com/insights/global-research/current-events/us-tariffs
2. https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/
3. https://www.rbc.com/en/thought-leadership/what-is-the-impact-of-tariffs-on-the-us-economy/
4. https://budgetlab.yale.edu/research/where-we-stand-fiscal-economic-and-distributional-effects-all-us-tariffs-enacted-2025-through-april
5. https://budgetmodel.wharton.upenn.edu/issues/2025/4/10/economic-effects-of-president-trumps-tariffs
6. https://www.piie.com/blogs/realtime-economics/2025/trumps-tariffs-damage-us-economy-more-if-they-drive-investors-away
7. https://taxfoundation.org/blog/trump-tariffs-prices-long-term-effects/
8. https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/spring-2025-economic-forecast-moderate-growth-amid-global-economic-uncertainty/macroeconomic-effect-us-tariff-hikes_en
9. https://pmc.ncbi.nlm.nih.gov/articles/PMC7255316/
10. https://www.bankofcanada.ca/publications/mpr/mpr-2025-01-29/in-focus-1/