Did Trump's tariffs actually suppress prices?… A 150-year data reveal of the reversal

A study shows that the tariffs implemented by President Donald Trump last year may have actually had a suppressive effect on inflation. Traditionally, tariffs are viewed as a factor driving up prices, but this analysis presents a different perspective, offering a new angle for economic discussions.

In a report released on January 5th (local time), a research team from the Federal Reserve Bank of San Francisco published their review of long-term economic data from major developed countries such as the United States, the United Kingdom, and France. Analyzing empirical data from the past 150 years, the team found that for every 1 percentage point increase in tariffs, the inflation rate typically decreases by 0.6 percentage points.

This result diverges from conventional economic wisdom. It is generally believed that tariffs push up import prices, leading to overall consumer price increases. However, the research team suggests that tariff hikes do not directly raise prices but instead suppress demand by causing a slowdown in consumption and investment, ultimately easing inflationary pressures. Notably, the phenomenon of rising tariffs accompanied by increasing unemployment can be interpreted as a sign that overall economic contraction may help curb inflation.

This argument—that tariffs might stabilize prices by being associated with economic slowdown—also provides insights for recent U.S. Federal Reserve monetary policy decisions. Reuters commented that this analysis demonstrates a case where interest rate cuts may not stimulate inflation and could serve as an appropriate policy response.

However, there is disagreement within the academic community regarding this view. While the analysis benefits from long-term data, some point out that since the 1930s, the U.S. has rarely maintained high tariffs at current levels, and the economic system then was entirely different from today, which limits the universality of the conclusion. The 1930s was a period of the gold standard, and the U.S. manufacturing sector was more concentrated in the eastern regions than it is now.

This research provides new insights into how President Trump’s trade policies might influence domestic prices and the real economy in the short term. This trend could impact future election debates on trade and monetary policy, and may serve as a basis for future interest rate decision analyses.