What the Latest Tariffs Mean for the Economy

The new proposed tariffs won’t harm U.S. economic and employment growth as much as the full effects from the “Liberation Day” announcements in April. (Mario Tama/Getty Images)

The new proposed tariffs on imported goods from more than a dozen countries will create some pullback on U.S. economic and employment growth, but not as much as the full effects of President Donald Trump’s so-called “Liberation Day” announcements on April 2.

The Budget Lab at Yale released a new analysis of the trade deal with Vietnam, as well as effects of Trump’s new levies on 14 countries announced Monday that range from 25% to 40%. Those tariffs are set to go into effect on Aug. 1 unless the individual nations can cut deals with the administration.

Researchers find that the economic consequences of the latest trade policy moves won’t be as hefty as initially expected a little over three months ago. But taken with the tariffs already implemented by the administration so far this year, the latest proposals do still create some additional drags on economic and job growth.

Most of the tariff rates announced in this week’s letters sent by the White House are the same as announced on Liberation Day. But some, like Cambodia, Laos, and Myanmar, are lower. Since April 2, the Trump administration has paused the so-called reciprocal tariffs from going into effect, inking a temporary trade framework with China and deals with the U.K., and now Vietnam on July 2. Under the deal, Vietnamese goods will face a broad-based 20% tariff, and a 40% imposition on Chinese goods re-routed through Vietnam.

If none of the 14 countries manage to seal preliminary trade deals and the proposed tariff rates go into effect in perpetuity, the Yale researchers estimate that consumers will face an overall average effective tariff rate of 17.6%. That’s the highest rate since 1934, and up from the just 2.5% rate in 2024.

Capitol Economics’ Chief North America Economist Paul Ashworth similarly estimated that the effective tariff rate on U.S. imports will be as high as 17.3% with the addition of the latest proposals. But he contends the economic fallout should be “manageable.”

All of the 2025 tariffs, including the July 7 announcements, will create a drag of 0.7 percentage points on inflation-adjusted gross domestic product growth for the remainder of the year, Yale researchers find. Going forward, the U.S. economy will be 0.4% smaller on an annual basis, or the equivalent of a $110 billion loss annually.

Due to the tariffs announced and implemented, researchers anticipate that the unemployment rate will rise 0.4 percentage point by the end of 2025. Unemployment was just 4.1% in June. Payroll gains are expected to be 538,000 lower than otherwise expected for the year.

The 2025 tariffs are expected to increase consumer prices by 1.7% in the short run, researchers find. That’s based on the assumption that there’s no policy reaction from the Federal Reserve, and there is a full pass-through of tariffs to consumers. That ends up being the equivalent of a near-term income loss of $2,300 per household. If consumers start substituting goods as expected, it would be a loss of $1,900 per household.

The tariffs to date in 2025 are estimated to raise $2.6 trillion in revenue over 2026-2035, researchers find.

When the April 2 tariffs were announced, the Budget Lab estimated that real GDP growth would be 0.5 percentage points lower in 2025 from the reciprocal tariffs alone, and 0.9 percentage points lower from all tariffs announced up to that point.

Since then, the Trump administration has implemented a 10% minimum tariffs on all countries. Goods from Canada and Mexico are tariffed at a 25% rate, and goods from China above 30%. There’s now a 50% rate on steel, steel-derivative products and aluminum, as well as the 25% on automotive imports, though trade deals have created some carve-outs on rates and import volumes.

Last month, the Budget Lab estimated that real GDP growth was expected to be 0.6 percentage points lower from all of the 2025 tariffs implemented as of mid-June. Monday’s announcements bumped that up by 0.1 point. The latest levies also hike the unemployment rate by an additional 0.1 percentage point and lead to an additional loss of 144,000 payroll gains this year.

The nonpartisan Yale Budget Lab was co-founded by Natasha Sarin, Danny Yagan, and Martha Gimbel, all of whom previously served in government advisory roles under President Joe Biden.

Monday’s announcement was a “Liberation Day déjà vu,” writes Yuri Seliger, credit strategist at Bank of America Securities.

“The market action shows tariffs can certainly generate some volatility,” Seliger writes. However, ultimately the impact should be limited. “The tariff uncertainty is much lower now, after the administration showed it was sensitive to the market and economic impacts by pausing tariffs in April and de-escalating with China,” he added.

Write to Megan Leonhardt at megan.leonhardt@barrons.com