State of U.S. Tariffs: May 23, 2025

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 19.5 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 21.9%, the highest since 1909.

Post-substitution—after imports shift in response to the tariffs—the 2025 tariffs are a 18.3 percentage point increase in the US average effective tariff rate, due to the substantial fall in China’s share of US imports as American consumers and businesses find alternatives for Chinese imports. China’s import share goes from 14% to 7% as a result of the tariffs, which, compositionally, means that fewer Americans are paying the China tariffs and means therefore it has less “weight” in the post-substitution average effective tariff rate calculation. The 18.3pp increase brings the overall US effective tariff rate to 20.7%, the highest since 1910. 

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.¹

The 2025 tariffs imply an increase in consumer prices of 2.2% in the short-run, assuming no policy reaction from the Federal Reserve. This is a pre-substitution number that captures consumer welfare effects. It is the equivalent of a loss of purchasing power of $3,600 per household on average in 2024 dollars. The post-substitution price increase settles at 1.8%, a $3,000 loss per household.

All 2025 US tariffs plus foreign retaliation lower real GDP growth by -0.8pp over calendar year 2025 (Q4-Q4). The unemployment rate ends 2025 0.44 percentage point higher, and payroll employment is 590,000 lower that same quarter. The level of real GDP remains persistently -0.53% smaller in the long run, the equivalent of $160 billion 2024$ annually, while exports are -17.3% lower.

Tariffs shrink the overall size of the US economy in the long-run by 0.5%, but beneath aggregate GDP they also drive reallocation across US sectors. Long-run output in the manufacturing sector expands by 2.3% under the tariffs; however, advanced durable manufacturing output falls 1.4%. Moreover, the expansion of the manufacturing sector more than crowds out the rest of the economy: construction contracts by 3.7%, agriculture by 0.9%, and mining & extraction by 1.3%.

Canada has borne the brunt of the damage from US tariffs so far, with its long-run economy -2.2% smaller in real terms (reflecting both US tariffs and Canadian retaliation to date). China’s economy is -0.3% smaller, roughly half the hit to the US. The EU economy is unchanged in the long-run, while the UK’s is 0.4% bigger.

The 2025 tariffs to date, were they to remain in place (and not expire after 90 days), would raise $2.8 trillion over 2026-35 conventionally-scored.² 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 -$549 billion over the decade.  

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 burden on the 2nd decile is 2.9x that of the top decile (-4.2% versus -1.4%). The average annual cost to households in the 2nd, 5th, and top decile rise to $1,800; $2,900; and $7,300 respectively.

The charts below show how the 2.2% price level increase from the 2025 tariffs to date would look across individual commodities in the short-run (pre-substitution), as well as the 1.8% 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 40% for leather products (shoes and hand bags), 31% for apparel, and 19% for textiles. After substitution and global supply shifts in the long-run, prices remain 18%, 15%, and 10% higher, respectively.
• Food prices rise 3.9% in the short-run and stay 3.2% higher in the long-run. Fresh produce is initially 7.7% more expensive while stabilizing at 3.7% higher.
• Motor vehicle prices rise 15.6% in the short-run and 11.9% in the long-run, the latter the equivalent of an additional $5,700 to the price of an average 2024 new car.