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Trade

State of U.S. Tariffs: July 7, 2025

July 7, 2025
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Key Takeaways

  1. The Budget Lab (TBL) estimated the effects all US tariffs and foreign retaliation implemented in 2025 through July 7, including the effects of the US-Vietnam trade framework and the July 7 announcements on new rates for 14 countries. TBL analyzed the July 7 tariff rates as if they stayed in effect in perpetuity.

  2. Current Tariff Rate: Consumers face an overall average effective tariff rate of 17.6%, the highest since 1934. After consumption shifts, the average tariff rate will be 16.5%, the highest since 1936.

  3. Overall Price Level & Distributional Effects: The price level from all 2025 tariffs rises by 1.7% in the short-run, the equivalent of an average per household income loss of $2,300 in 2025$. This assumes the Federal Reserve does not react to tariffs and so the real income adjustment comes primarily through prices rather than nominal incomes; if the Federal Reserve reacted, the adjustment could in part come in the form of lower nominal incomes. Annual pre-substitution losses for households at the bottom of the income distribution are $1,200. The post-substitution price increase settles at 1.5%, a $1,900 loss per household.

  4. Commodity Prices: The 2025 tariffs disproportionately affect clothing and textiles, with consumers facing 37% higher shoe prices and 35% higher apparel prices in the short-run. Shoes and apparel prices stay 18% and 17% higher in the long-run respectively.

  5. Real GDP Effects: US real GDP growth over 2025 is -0.7pp lower from all 2025 tariffs. In the long-run, the US economy is persistently -0.4% smaller, the equivalent of $110 billion annually in 2024$.

  6. Labor Market Effects: The unemployment rate rises 0.4 percentage point by the end of 2025, and payroll employment is 538,000 lower.

  7. Long-Run Sectoral GDP & Employment Effects: In the long-run, tariffs present a trade-off. US manufacturing output expands by 2.0%, but these gains are more than crowded out by other sectors: construction output contracts by 3.5% and agriculture declines by 0.8%.

  8. Fiscal Effects: All tariffs to date in 2025 raise $2.6 trillion over 2026-35, with $408 billion in negative dynamic revenue effects, bringing dynamic revenues to $2.2 trillion.

Changes Since the Last Report

Since the June 17 report:

  • On July 2, President Trump announced that the US had reached agreement on a framework of a trade deal with Vietnam. The framework involves 20% tariffs on Vietnamese exports to the US, and 40% tariffs on goods suspected of being transshipped from China.1
  • July 7 Letters: The White House sent letters to 14 countries outlining new tariff rates: Japan, South Korea, Malaysia, Kazakhstan, Tunisia (25%), South Africa, Bosnia (30%), Indonesia (32%), Bangladesh, Serbia (35%), Cambodia, Thailand (36%), Laos, and Myanmar (40%). TBL assumed these tariffs apply to the same scope of goods imports as the “reciprocal” April 2 tariffs: that is, most goods but with specific commodity carve-outs.
  • With actual tariff revenue data for Q2 now in hand, TBL has updated its economic modeling to incorporate the actual average effective tariff rate for Q2 (7.8%). This may be revised slightly in the future as new data are released. 

TBL analyzes tariffs on a “real-time current policy” basis, where policy as it stands as of date certain is assumed to continue in perpetuity, even if framed as a temporary policy.

Results

The table below summarizes the effects of current tariffs in place as of July 7, assuming they stayed in force indefinitely. 

Average effective tariff rate

The distinction between pre-substitution metrics (before consumers and businesses shift purchases in response to the tariffs) and post-substitution (after they shift) is a crucial one. One metric where the difference is meaningful is the average effective tariff rate.

Measured pre-substitution—assuming there are no shifts in the import shares of different countries—the 2025 tariffs to date are the equivalent of a 15.2 percentage point increase in the US average effective tariff rate. That calculation assumes that, for example, the share of imports from China remains at 14%, where it was in 2024. This is the right way to think about the tariffs from the perspective of consumer welfare, since it reflects the full cost faced by consumers before they start making difficult spending choices. This increase would bring the overall US average effective tariff rate to 17.6%, the highest since 1934.

Post-substitution—after imports shift in response to the tariffs—the 2025 tariffs are a 14.1 percentage point increase in the US average effective tariff rate, which brings the overall US effective tariff rate to 16.5%, also the highest since 1936.

The timing of the transition from “pre” to “post” substitution is highly uncertain. Some shifts are likely to happen quickly—within days or weeks—while others may take longer.2

Average aggregate price impact

The 2025 tariffs imply an increase in consumer prices of 1.7% in the short-run, assuming no policy reaction from the Federal Reserve and full passthrough of tariffs to consumers. As a result, TBL assumes the real income adjustment comes primarily through prices rather than nominal incomes. If the Federal Reserve reacted, the adjustment could in part come in the form of lower nominal incomes. This is a pre-substitution number that captures consumer welfare effects. It is the equivalent of a short-run income loss3 of $2,300 per household on average in 2025 dollars. The post-substitution price increase settles at 1.5%, a $1,900 short-run loss per household. 

US real GDP & labor market effects

All 2025 US tariffs plus foreign retaliation lower real GDP growth by -0.7pp over calendar year 2025 (Q4-Q4). The unemployment rate ends 2025 0.4 percentage point higher, and payroll employment is 538,000 lower that same quarter. The level of real GDP remains persistently -0.38% smaller in the long run, the equivalent of $110 billion 2024$ annually, while exports are -15.1% lower.

Long-run US sectoral output & employment effects

Tariffs shrink the overall size of the US economy in the long-run by 0.4%, but beneath aggregate GDP they also drive reallocation across US sectors. Long-run output in the manufacturing sector expands by 2.0% under the tariffs, with nonadvanced durable manufacturing output 3.7% larger and nondurable manufacturing 1.0% larger. However, advanced manufacturing is down by 2.6%. Moreover, the expansion of the overall manufacturing sector more than crowds out the rest of the economy: construction contracts by 3.5%, agriculture by 0.8%, and mining & extraction by 1.2%.

Global long-run real GDP effects

Canada has borne the brunt of the damage from US tariffs so far, with its long-run economy -1.9% smaller in real terms (reflecting both US tariffs and Canadian retaliation to date). China’s economy is -0.2% smaller, about 2/3 as large as the hit to the US. The EU economy is 0.1 percentage point larger in the long-run, while the UK’s is 0.2% bigger thanks in part to the benefits of US-UK trade deal.

Fiscal impact & historical context

The 2025 tariffs to date, were they to remain in place (and not expire after 90 days), would raise $2.6 trillion over 2026-35 conventionally-scored ($2.4 trillion over 2025-34).4 Given the negative output effects of the tariffs, there would be additional dynamic reductions in tax revenue as a result. Based on Congressional Budget Office rules-of-thumb, TBL estimates that these effects would total -$408 billion over the decade (-$370 billion over 2025-34), bringing total dynamic revenue to $2.2 trillion over 2026-35 ($2.0 trillion over 2025-34).

Short-run distributional impact

Tariffs are a regressive tax, especially in the short-run. This means that tariffs burden households at the bottom of the income ladder more than those at the top as a share of income. The regressivity is about the same when looking at all 2025 tariffs: the short-run burden on the 1st decile is more than 3x that of the top decile (-3.2% versus -0.9%). The average annual cost to households in the 1st and top decile rise to $1,200 and $4,700 respectively in 2025$. The median cost is $2,100 per household.

Tariffs are more distributionally-ambiguous in the longer-run. Tariffs reduce both labor income and above-normal returns to capital, or rents. We assume that owners of capital hold rents rather than consume them in the short-run, but do consume them over their lifecycle in the long-run. The implication is that the tariff burden is more regressive in the short-run and more evenly-distributed across households in the long-run.

Commodity price effects

The charts below show how the 1.7% price level increase from the 2025 tariffs to date would look across individual commodities in the short-run (pre-substitution), as well as the 1.5% long-run price increase (post-substitution). Some high level takeaways:

  • Consumers face high increases in clothing and textile prices in the short-run: prices increase 37% for leather products (shoes and hand bags), 35% for apparel, and 18% for textiles. After substitution and global supply shifts in the long-run, prices remain 18%, 17%, and 10% higher, respectively.
  • Food prices rise 2.9% in the short-run and stay 2.6% higher in the long-run. Fresh produce is initially 5.9% more expensive while stabilizing at 3.4% higher.
  • Motor vehicle prices rise 13.5% in the short-run and 10.6% in the long-run, the equivalent of an additional $6,500 and $5,100 respectively to the price of an average 2024 new car.

Footnotes

  1. As of writing, no further details on the US-Vietnam framework have been publicly released by either country. TBL modeled the tariffs under this deal as if they had similar scope to the July 7 tariffs: applying to the same goods as the “reciprocal” April 2 tariffs but not applying to or stacking with commodity tariffs that fall under Section 232 authority, e.g. on steel & aluminum. TBL assumed 16.5% of Vietnamese exports are rerouted from China.
  2. TBL assumes throughout its tariff analysis that the transition to longer-run GTAP equilibria occurs after three years.
  3. TBL defines “income” as CBO-concept post-tax-and-transfer income. “Short-run” refers to the effect over the next couple of years; TBL proxies for this definition by using CBO projections of the distribution of income in 2027, expressed in 2025 dollars.
  4. TBL employs a “relaxed conventional” assumption for the retaliation scenario, whereby foreign income is permitted to fall but US income remains fixed.