Tariffs are not causing inflation. Consumer prices rose just 2.4% annually last month, core inflation remains low at 2.8%, and consumer spending is running at just 1.2% annualized over the last three months — near its lowest level since the pandemic.
Revenues from tariffs have reached a historic high of $22.2 billion in May.
The stock market is trading at an all-time high, while foreign treasury holdings remain at near record highs, countering fears that “liberation day” tariffs would threaten the preeminence of the U.S. dollar.
Depending on where you get your information, you would be forgiven for believing that we are getting buried by inflation, the stock market is in shambles, and that we need to start hoarding Chinese yuan to pay for our morning lattes. Indeed, economists have been warning us for months that sweeping tariffs would feed inflation, destroy corporate margins, and trigger a bond market revolt.
Fortunately, the data tells a more encouraging story, providing us with three main takeaways: 1) tariffs aren’t causing inflation, 2) tariff revenues are soaring, and 3) the stock and bond markets are doing just fine.
Tariffs Aren’t Causing Inflation
To start, the runaway inflation forecasted in the wake of President Trump’s April 2nd “liberation day” tariffs has still not materialized. Consumer prices rose just 2.4% annually in May, according to the Bureau of Labor Statistics, just a tick above the previous four-year low rate of 2.3% set in April. Core inflation (excluding food and energy) came in at 2.8%, slightly below expectations.
Notably, prices in key tariff-sensitive categories like cars and clothing have actually declined recently, as shown in the figure below. This defies repeated warnings that pro-American trade policies would immediately raise costs for American families.
Moreover, the Federal Reserve’s (Fed) preferred inflation metric, the core PCE index, grew at a mild rate of just 1.2% annualized over the last three months — near its lowest level since the pandemic. Even the San Francisco Fed’s decomposition of inflation shows these minimal price pressures are supply-driven and temporary, not systemic or demand-fueled.
That’s an important distinction: when inflation increases in the presence of one-off cost shocks like tariffs—rather than from high demand—it can strengthen the argument for an eventual cut in interest rates. This is because supply-driven inflation is typically temporary, allowing the Fed to prioritize growth through reduced interest rates, rather than restraining demand.
Tariffs are Generating Substantial Revenues
Given all the hand-wringing over tariffs, it’s easy to lose sight of the benefits they confer. For example, revenues collected from tariffs since the beginning of the year have reached $60.6 billion, with 63% ($37.8 billion) coming after the “liberation Day” tariffs were announced.
To put things into better perspective, we’ve raised the equivalent of about 2.3% of consumer goods spending in tariff revenues with little noticeable burden placed on consumers.
Notably, the cost of tariffs doesn’t appear to be falling entirely on importers either. For example import prices for non-fuel items rose just 1.7% as of May. That is extremely low considering that the average effective tariff rate is 15.8%. This means, the remaining cost burden is likely being distributed across the supply chain, as often happens when tariffs are imposed (see chart below).
It is also worth noting that, in addition to import costs, the final retail price of a good reflects other expenses like rent, wages, transport fees, and profits. And not every consumed good is imported; U.S.-made products have no tariff costs.
In any case, U.S. policymakers should take comfort at the improved resilience of the supply chain when compared to a few years ago, when chronic goods shortages sparked skyrocketing inflation. This is also encouraging news for the Federal Reserve as well. Inflation remains under control, tariff revenues are swelling the Treasury coffers, and the case for cutting interest rates is getting stronger.
Tariffs are NOT tanking the markets
Despite the warnings that liberation day tariffs were a one-way ticket towards a bear market, the S&P 500 has instead increased over 9% since the April announcement and had reached a new record by the end of June.
And it’s not just the stock market. The bond market is telling a similar story. Despite rising deficits and the introduction of aggressive new tariffs, U.S. Treasury yields ranging from 2–30 years have remained relatively low — a sign that dollar-denominated assets remain a safe haven. Even global capital is staying put: foreign investors now hold nearly $9 trillion in Treasuries, just shy of record highs.
If confidence in the dollar or U.S. fiscal sustainability were truly cracking, we’d see a flight from both bonds and the dollar. It is true that the dollar has declined in recent months. However, this has been a much needed adjustment after a long period of overvaluation.
Further, this is perfectly appropriate given the expectations of investors for a looming reduction in interest rates in the near future. This is because reduced interest rates lower the return on dollar-denominated assets, making them less attractive to global investors and naturally putting downward pressure on the dollar’s value.
Nevertheless, despite its recent loss in value, the inflation-adjusted value of the dollar is trading at a rate that far exceeds its 10-year average.
Tariffs are Gaining Acceptance
The great tariff panic hasn’t materialized. Inflation remains tame. The S&P 500 is hitting record highs. Bond yields are stable and still guided by economic data, not political headlines. And foreign investors — far from staging an exodus — continue to hold near record amounts of U.S. Treasuries.
Markets are not naïve. They’ve absorbed the news of Trump’s liberation day tariffs and priced them in or shifted to more U.S. sourcing. Investors are focusing on fundamentals: corporate earnings, AI-driven growth, and the Federal Reserve’s next move. Once controversial, tariffs are now becoming a normalized tool in U.S. economic policy.
In short, the markets have adapted to this new trade environment. The idea that tariffs are tanking the economy or triggering a collapse in investor confidence simply doesn’t match the data. It’s time to update the narrative: tariffs are not breaking the market—they’re just part of it now.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Tariff Truths: What the Data Actually Says About Inflation, Revenue, and Reality
KEY POINTS
Depending on where you get your information, you would be forgiven for believing that we are getting buried by inflation, the stock market is in shambles, and that we need to start hoarding Chinese yuan to pay for our morning lattes. Indeed, economists have been warning us for months that sweeping tariffs would feed inflation, destroy corporate margins, and trigger a bond market revolt.
Fortunately, the data tells a more encouraging story, providing us with three main takeaways: 1) tariffs aren’t causing inflation, 2) tariff revenues are soaring, and 3) the stock and bond markets are doing just fine.
Tariffs Aren’t Causing Inflation
To start, the runaway inflation forecasted in the wake of President Trump’s April 2nd “liberation day” tariffs has still not materialized. Consumer prices rose just 2.4% annually in May, according to the Bureau of Labor Statistics, just a tick above the previous four-year low rate of 2.3% set in April. Core inflation (excluding food and energy) came in at 2.8%, slightly below expectations.
Notably, prices in key tariff-sensitive categories like cars and clothing have actually declined recently, as shown in the figure below. This defies repeated warnings that pro-American trade policies would immediately raise costs for American families.
Moreover, the Federal Reserve’s (Fed) preferred inflation metric, the core PCE index, grew at a mild rate of just 1.2% annualized over the last three months — near its lowest level since the pandemic. Even the San Francisco Fed’s decomposition of inflation shows these minimal price pressures are supply-driven and temporary, not systemic or demand-fueled.
That’s an important distinction: when inflation increases in the presence of one-off cost shocks like tariffs—rather than from high demand—it can strengthen the argument for an eventual cut in interest rates. This is because supply-driven inflation is typically temporary, allowing the Fed to prioritize growth through reduced interest rates, rather than restraining demand.
Tariffs are Generating Substantial Revenues
Given all the hand-wringing over tariffs, it’s easy to lose sight of the benefits they confer. For example, revenues collected from tariffs since the beginning of the year have reached $60.6 billion, with 63% ($37.8 billion) coming after the “liberation Day” tariffs were announced.
To put things into better perspective, we’ve raised the equivalent of about 2.3% of consumer goods spending in tariff revenues with little noticeable burden placed on consumers.
Notably, the cost of tariffs doesn’t appear to be falling entirely on importers either. For example import prices for non-fuel items rose just 1.7% as of May. That is extremely low considering that the average effective tariff rate is 15.8%. This means, the remaining cost burden is likely being distributed across the supply chain, as often happens when tariffs are imposed (see chart below).
It is also worth noting that, in addition to import costs, the final retail price of a good reflects other expenses like rent, wages, transport fees, and profits. And not every consumed good is imported; U.S.-made products have no tariff costs.
In any case, U.S. policymakers should take comfort at the improved resilience of the supply chain when compared to a few years ago, when chronic goods shortages sparked skyrocketing inflation. This is also encouraging news for the Federal Reserve as well. Inflation remains under control, tariff revenues are swelling the Treasury coffers, and the case for cutting interest rates is getting stronger.
Tariffs are NOT tanking the markets
Despite the warnings that liberation day tariffs were a one-way ticket towards a bear market, the S&P 500 has instead increased over 9% since the April announcement and had reached a new record by the end of June.
And it’s not just the stock market. The bond market is telling a similar story. Despite rising deficits and the introduction of aggressive new tariffs, U.S. Treasury yields ranging from 2–30 years have remained relatively low — a sign that dollar-denominated assets remain a safe haven. Even global capital is staying put: foreign investors now hold nearly $9 trillion in Treasuries, just shy of record highs.
If confidence in the dollar or U.S. fiscal sustainability were truly cracking, we’d see a flight from both bonds and the dollar. It is true that the dollar has declined in recent months. However, this has been a much needed adjustment after a long period of overvaluation.
Further, this is perfectly appropriate given the expectations of investors for a looming reduction in interest rates in the near future. This is because reduced interest rates lower the return on dollar-denominated assets, making them less attractive to global investors and naturally putting downward pressure on the dollar’s value.
Nevertheless, despite its recent loss in value, the inflation-adjusted value of the dollar is trading at a rate that far exceeds its 10-year average.
Tariffs are Gaining Acceptance
The great tariff panic hasn’t materialized. Inflation remains tame. The S&P 500 is hitting record highs. Bond yields are stable and still guided by economic data, not political headlines. And foreign investors — far from staging an exodus — continue to hold near record amounts of U.S. Treasuries.
Markets are not naïve. They’ve absorbed the news of Trump’s liberation day tariffs and priced them in or shifted to more U.S. sourcing. Investors are focusing on fundamentals: corporate earnings, AI-driven growth, and the Federal Reserve’s next move. Once controversial, tariffs are now becoming a normalized tool in U.S. economic policy.
In short, the markets have adapted to this new trade environment. The idea that tariffs are tanking the economy or triggering a collapse in investor confidence simply doesn’t match the data. It’s time to update the narrative: tariffs are not breaking the market—they’re just part of it now.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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