A new Federal Reserve analysis reveals that tariffs — including those implemented during President Trump’s first term and maintained into his second — are linked to both rising inflation and higher unemployment. The study challenges previous assumptions that tariffs primarily affect prices, not jobs.
The research, released by the San Francisco Fed’s Economic Research Department, analyzed global trade data from the past 40 years. Economists Oscar Jorda and Fernanda Nechio concluded that tariffs not only raise production costs but also weaken consumer demand, contributing to job losses. These combined effects place additional pressure on both inflation and employment.
Tariffs disrupt supply chains and increase input costs for U.S. manufacturers, which in turn raises consumer prices. At the same time, the higher costs dampen business investment and household spending, leading to layoffs or slower hiring. The report noted this dual impact is difficult to model due to the current historically high tariff levels.
Under President Trump’s first term, tariffs were used to counter unfair trade practices and bring back domestic manufacturing. The approach continued into his second term as part of a broader America First economic agenda. While tariffs have succeeded in encouraging some domestic production, the Fed’s findings suggest broader economic trade-offs are now surfacing.
The economists stressed that the unique scale of current U.S. tariffs goes beyond historical norms, making past data less reliable for forecasting. They warn that policymakers must weigh the inflationary and employment effects together rather than in isolation.
As President Trump’s administration moves forward with potential new trade actions, the report underscores the importance of balancing national economic goals with long-term market stability.
