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Chief economist's comment How do tariffs impact inflation?

Trade taxes, or tariffs, have been a burden for consumers for over four thousand years. Modern trade has become a lot more complex, and that means that the relationship between trade and inflation has also become more complex. There are eight mechanisms by which tariffs can impact inflation.

by Paul Donovan 14 Mar 2025

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At a glance

  • Trade taxes, or tariffs, have been a burden for consumers for over four thousand years, pushing up prices as money is paid to the government. Today's trade is a lot more complex than it was even fifty years ago, and this makes the relationship between taxing trade and inflation more complicated than in the past.
  • There are eight ways in which trade taxes can impact inflation. In assessing the extent of the inflation damage, investors need to ask four questions:
  • The net effect of tariffs will inevitably be higher consumer prices. The more complex way trade works adds uncertainty as to how much prices will rise.

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