Report: The Impact of Tariffs on the U.S. Economy (Trump Era)

First: Key Tariffs Currently in Place

Since Donald Trump took office, a broad package of tariffs has been imposed, most notably:
1- High tariffs on Chinese imports (exceeding 100% in some cases).
2- Proposed general tariffs ranging from 10–20% on most imports, and up to 60% on China.
3- Tariffs on steel and aluminum, in addition to duties on countries such as Canada and Mexico.
As a result, the average tariff rate rose to its highest level since the 1930s.

Second: Changes in Inflation Levels

Studies have shown that the impact of tariffs on inflation has been noticeable but relatively limited:
1- Tariffs contributed about 10.9% of annual inflation in 2025.
2- They increased inflation by approximately 0.7 percentage points in the price index.
3- Some studies suggest inflation would have been closer to the 2% target without tariffs.
Other research indicates the effect may be limited due to weak demand.

Third: Impact on Availability of Goods

Tariffs have led to:
1- Higher prices for both imported and domestic goods due to increased input costs.
2- A redirection of supply chains toward other countries instead of returning to domestic production.
3- Reduced variety of goods available to consumers.

Fourth: The Federal Reserve’s stance:

The Federal Reserve’s stance has been mixed:
Its chair warned that tariffs could lead to higher inflation and slower growth.
Some officials described them as a “stagflationary shock.”
Later, internal Fed studies suggested the impact might be temporary or even disinflationary by reducing demand.

Fifth: Relations with Trade Partners

Policies led to escalating trade wars, particularly with China.
The U.S. faced retaliatory measures that weakened its gains.
Trade shifted toward alternative countries (especially in Asia), reducing policy effectiveness.

Sixth: Judicial Rulings

In 2026, the Supreme Court invalidated some tariffs as unconstitutional and moved toward refunding collected payments.
Nevertheless, the administration sought to reimpose them through alternative legal frameworks.

Seventh: Positive and Negative Effects

Positives:
1- Limited support for certain domestic industries and increased business registrations.

2- Strengthening of the push toward industrial self-sufficiency.
Negatives:
1- Higher cost of living for households (about $700 annually).
2- Consumers and businesses bore most of the burden (over 90%).
3- Weak manufacturing performance and unfulfilled job growth promises.
4- Slower economic growth and increased uncertainty.

Eighth: Outlook for Trade Partnerships

1- Escalation Scenario (Relatively Strong)
Continued protectionism and trade wars
Reason: strong domestic political shift toward economic nationalism
2- De-escalation Scenario (Moderate Strength)
Renegotiation with trade partners
Reason: pressure from businesses and inflation concerns
3- Restructuring Scenario (Strongest Long-Term)
Diversification of global supply chains rather than reliance on a single country
Reason: lessons learned from trade disruptions

Ninth: Recommendations for Investors

1- Diversify investments geographically to reduce trade policy risks.
2- Focus on benefiting domestic sectors (e.g., heavy industries).
3- Be cautious of companies heavily dependent on imports.
4- Monitor Federal Reserve decisions closely due to their direct market impact.
5- Invest in alternative supply chains and emerging markets.

Conclusion:

The experience of tariffs demonstrates that they are a complex policy tool: they have partially increased prices and negatively affected growth and international trade, while delivering limited gains to domestic industry—making them a high-cost and relatively low-effectiveness policy in the long run.