NextFin news, on November 19, 2025, the Independent Women's Forum published findings on a groundbreaking economic study conducted by researchers at the San Francisco Federal Reserve Bank regarding the macroeconomic impacts of tariffs. This study, analyzing 150 years of tariff policies in the U.S. and various other countries, challenges the long-standing economic assumption that tariffs are inherently inflationary. Instead, the research conclusively demonstrates that a hike in tariffs leads to lower consumer price inflation accompanied by a rise in unemployment. The study comes at a crucial juncture where President Donald Trump's administration continues to actively restructure trade agreements and tariff schedules with major trading partners, amidst ongoing judicial review by the U.S. Supreme Court on the constitutionality of these tariffs.
The study, formalized as a working paper in 2025, utilized a broad macroeconomic dataset going beyond sector-specific analyses typical of prior research. Key findings revealed that tariff increases historically act as aggregate demand shocks, exerting downward pressure on inflation while simultaneously dampening economic activity, reflected in rising unemployment rates. Researchers attribute this phenomenon to heightened economic uncertainty triggered by tariff shocks and the resultant decline in asset prices, both factors curbing consumer and investor confidence.
These conclusions align with recent observations of the U.S. economy, where inflation rates measured by the Consumer Price Index (CPI) have stabilized within a moderate 4.0%-4.3% range over the past 18 months, even as unemployment has shown an uptick. Such dynamics dispute prevalent narratives, particularly criticisms targeting the Trump administration’s tariffs as primary drivers of inflation. Federal Reserve Chairman Jerome Powell had hinted at this nuanced effect, clarifying that while tariffs may increase prices in select categories, their overall inflationary effect remains uncertain.
Historically, tariffs have been perceived by free-market economists and conservatives alike as counterproductive, leading to price increases that burden consumers – Milton Friedman notably critiqued tariffs as harmful tax mechanisms. Yet under President Trump, tariffs have been strategically employed not only as economic tools to address trade imbalances but also as instruments of foreign policy. This study’s results frame tariffs as having a deflationary influence on price levels over time, posing a complex policy tradeoff because of their associated increase in unemployment.
From an analytical perspective, the study reframes tariffs within a macroeconomic aggregate demand framework rather than a simplistic supply-side cost pass-through model. Through historical data encompassing both pre- and post-World War II periods, the statistical significance of tariffs’ inverse relationship with inflation robustly persists. The two pronged mechanism highlighted – uncertainty-induced demand contraction and wealth effects via declining asset prices – offers a theoretical foundation explaining why tariffs suppress inflation contrary to prior assumptions.
The implications are multifaceted: for fiscal policymakers, the lower inflation linked to tariffs may alleviate some pressure on monetary interventions aimed at price stability. However, the parallel increase in unemployment complicates policy objectives, as the Federal Reserve holds a dual mandate to maintain both low inflation and high employment. The rise in joblessness signals that tariffs can undermine economic growth and labor market conditions, potentially constraining the Fed’s room to maneuver on interest rates.
Moreover, in the geopolitical context of 2025, where the U.S. engages in active tariff negotiations across North America and with other global partners, this research suggests that tariff policy could be recalibrated with a more nuanced understanding of economic tradeoffs. The long-term expectation that tariffs will exert downward pressure on prices even as they disrupt labor markets raises questions about sustainable economic strategy, especially amid evolving global supply chains and inflation volatility worldwide.
Looking forward, businesses and investors will need to factor these findings into their strategic decisions. Companies reliant on imported materials may not face as pronounced cost pressures as anticipated, but domestic sectors vulnerable to unemployment risk may warrant attention from policymakers crafting retraining and social safety net programs. The Fed’s approach to interest rate policy is also likely to be influenced by these findings as it weighs inflation control against labor market slack in 2026 and beyond.
In summary, this new study from the San Francisco Federal Reserve Bank, as reported by the Independent Women's Forum, confirms that tariffs are not the inflationary force they were once presumed to be, but they do raise unemployment by restraining aggregate demand. For President Donald Trump's administration and U.S. economic policymakers, this necessitates a recalibration of both trade and monetary policy strategies to address this tradeoff effectively, ensuring price stability does not come at too high a cost to American workers and economic growth.
According to the Independent Women's Forum.
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