By Dr. Stanley Nollen

On April 2nd 2025, newspaper readers were greeted with headlines like this one: 

“Trump Imposes 10% Baseline Tariff Rate on All Imports, and Higher Rates for Some Nations (Wall Street Journal, April 2, 2025) 

The baseline tariff of 10% meant that all imports from any country would face a 10% tariff. Higher ‘reciprocal tariffs’ were imposed on several other countries, for example: China 35%, European Union 20%, Japan 24%, South Korea 25%, and Vietnam 46%, with similar higher rates for several other countries.

In the following days, we read news stories that reported the views of economists, business people, and the public that said the tariffs would cause price inflation:

“ … economists said Trump’s tariffs could “reignite inflation” and increase costs for U.S. households (Reuters April 3, 2025)

“73% of Americans expect a price surge under Trump’s tariffs.” (Reuters April 8, 2025)

However, the expected surge in price inflation appeared not to happen, according to official US Bureau of Labor Statistics figures. The official consumer price index (CPI) as of March 2025 just before the tariffs were announced was 2.4% and the CPI most recently posted was 2.7%. (These figures report the annual rate of price increase for the past one year; on a monthly basis the rate of price increase was 0.2% in March and 0.3% in December.) 

While affordability is now a potent political issue, it looks like Trump’s tariffs have not caused price inflation, or at least not much of it. Why? Were economists wrong? Was the public misinformed?

No, neither was wrong or misinformed. We know why the measured effect of tariffs on prices is small as of now. Based on mainstream economics and the realities of the US economy, here are eight reasons.

• Many announced tariffs where withdrawn and did not go into effect at that level.

The April 2^nd tariffs against several countries were quickly cut back. Trump made deals with countries that promised to make direct investments in the US in return for cuts in tariffs. For example, the tariffs on imports were reduced to 15% for the EU, 15% for Japan, 15% for South Korea, and 20% for Vietnam. The tariff on imports from China want down and up and down again several times from a peak if 145% to a late 2025 rate of 30%.

• There were many ‘carve-outs’ so that the average tariff was less than many headlines reported.

The average effective tariff against imports into the US was 2.3% before the Trump’s tariffs. Now the figure is about 15-17%. (This figure measures total customs duties collected as a percentage of the value of imports; it reflects both statutory tariff rates and trade behavior (e.g., sourcing shifts, exemptions, tariff avoidance).

• Importers in the US absorbed part of the tariffs and passed along only a minority share of the tariffs to their customers.

Studies from authoritative sources say that US businesses paid about half of the tariffs, consumers paid about a third in the form of higher prices, and foreign exporters absorbed about 10% of the tariff by reducing their price to the US importer (sources include Goldman Sachs, Yale Budget Lab, EconoFact).

• There was a surge of import buying just after the tariffs were announced in April and before they came into effect, with a drop-off in imports coming into the US afterwards.

Imports of goods into the US were about $330 billion in January and February 2025 but jumped up to $347 in March, the month before the tariffs were announced in anticipation of them, but then dropped to around $270 billion for April, May, and June as importers advanced their import purchases ahead of the expected tariffs and reduced their imports after the tariff announcement (US Bureau of Economic Analysis). The smaller import figures for the months after the tariffs mean they could not have as great an effect on prices.

• The effects of tariffs on prices will be felt more in the long run than in the first few months.

Businesses often don’t raise their prices to customers right away because of uncertainty about where the tariffs will end up and uncertainty about what their competitors will do. Instead they take smaller margins in the short run. Tariffs are a once-for-all increase in the business’s costs, and many businesses chose to take lower profits rather than lose customers.

• Tariffs are quite a small share of the US economy, so their effect on prices overall cannot be large.

The size of the US economy in 2025 measured as gross domestic product was $30.6 trillion. Imports were about $3.4 trillion. That is a big number, but it is only a bit more than 10% of GDP. Imports are a relatively small tail wagging a big dog. 

• The tariffs affect goods, not services.  

Imports of services amount to roughly 20% of all imports, but services are not affected by tariffs because unlike goods, they are not shipped physically through ports of entry. This reduces the impact of tariffs on US consumer prices. 

• Prices to consumers are influenced by many forces, not just tariffs.

Tariffs are one among many costs of production for businesses. While tariffs were raised, there were other cost savings that tended to offset the impact of tariffs. For example, labor productivity increased about 3.5% in the post-tariff 2^nd and 3^rd quarters of 2025 (US Bureau of Labor Statistics).

So the short answer to the question is this: There was an inflationary impact of Trump’s tariffs. It was rather small but likely to grow over time. Why was it small, so far? Because the tariffs were not as high as originally announced, they were partly absorbed by businesses and not, so far, passed along to consumers, and they affect only a relatively small share of the US economy. A caution: the long run hasn’t arrived yet. The bigger question to ask next is what effect will the tariffs have on the growth and competitiveness of the economy.

Stanley Nollen is professor emeritus of international business, Georgetown University.