On February 6th, the Federal Reserve Bank of Boston released a study confirming that President Trump’s tariff proposals would have a negligible impact on inflation—mirroring similar findings by a December 2024 Congressional Budget Office (CBO) tariff analysis and CPA’s own economic projections on a global 10% tariff.
The Fed’s study estimated the inflation impact of President Trump’s tariff proposals. The report examined both of the following tariff proposals from President Trump.
- An additional 25% tariff on all imported goods from Canada and Mexico combined with an additional 10% tariff on all imported goods from China.
- An additional 60% tariff on all imports from China and an additional 10% tariff on all imports from the rest of the world.
Federal Reserve Confirms Trump Tariffs Would Have Minimal Inflation Effects
The study confirms that even President Trump’s most substantial tariff increases have a minimal impact on inflation, leading to a small total cumulative price increase, likely spread out over several years. The Boston Federal Reserve study estimates the following total one-time inflation impacts from President Trump’s tariff proposals.
Additional 25% tariff on Mexico/Canada & 10% on China
➔ Total cumulative 0.5% to 0.8% inflation increase
Additional 60% tariff on China & 10% on the Rest of the World
➔ Total cumulative 1.4% to 2.2% inflation increase
Importantly, these inflation estimates are total cumulative inflation increases, not annual inflation increases. These cumulative inflation increases usually spread out over multiple years, making the impact on annual inflation even more indistinguishable. Over a 6-year tariff adjustment period, these inflation impacts would fall to a 0.13% and 0.37% maximum annual inflation increase respectively.
The Federal Reserve’s economic foundation behind the low inflation impact is the fact that imports only make up a small portion of total consumer spending. The Fed’s study finds that imports account for only 10% of total Personal Consumption Expenditure (PCE). As a result, the inflation impacts of imports and tariffs can only ever be a portion of that 10%. Total consumer inflation is impacted by many supply and demand factors, with imports only ever being a small variable.
This minor share of imports within total consumer spending is even further muted when considering imports from particular countries, even China and Mexico. The Federal Reserve study estimates total imports from China only amount to 1.3% of total consumer spending. Imports from Mexico only account for 0.8% of consumer spending, and only 0.5% for Canada. These top three trading countries combined only account for 2.6% of total U.S. consumer spending, so any tariff policy against these countries will inevitably have a minor inflation impact.
Fed Study Echoes December CBO Findings
The Federal Reserve inflation estimates track closely to the December 2024 Congressional Budget Office (CBO) tariff analysis. The CBO also examined the impact of an additional 60% tariff on China and 10% on the rest of the world. CBO’s forecast was even more optimistic about the minute impact of tariffs on prices. According to their preliminary findings, the 60/10 tariff package would lead to only a one-time 1% increase in prices. Further, CBO said that “after 2026, the tariffs would not have additional significant effects on prices.”
These very modest inflation forecasts from both the Federal Reserve and the CBO echo the results from CPA’s economic projections on a global 10% tariff. In CPA’s analysis, we also estimate a minimal impact from a global 10% tariff. CPA’s study forecasts an additional half percent of inflation per year over an anticipated six-year adjustment period, equaling a 3.26% cumulative 6-year inflation increase. In fact, both the Federal Reserve and CBO studies forecast even less inflation than was in the CPA study. However, this is largely because our study also includes an income tax cut equal to the tariff revenue. This tax cut and stimulated demand add to the inflation projection.
Conclusion
Official government economic studies continue to confirm that tariffs have little impact on inflation. Both the CBO, and now the Federal Reserve, confirm that even the most ambitious tariff proposals would have only a minor cumulative price impact, spread over several years and barely noticeable on an annual basis. And the increased domestic production boosted by the tariffs would further mitigate any inflation effects.
For too long, free trade ideologues have used exaggerated inflation fears to block policies that would benefit American workers and industries. But the evidence continues to prove otherwise. Tariffs can be implemented to bolster U.S. economic security, stimulate domestic manufacturing, and create American jobs, without derailing price stability. Unchecked imports pose a far greater risk to U.S. economic security and jobs than any reasonable tariff policy could.
