US Economy 2025: Tariffs Hit Record High, Affecting Consumers

The US tariffs have reached a record high, with an 18.2% average effective rate, resulting in a 1.8% increase in prices and an average per household income loss of $2,400 in 2025. The tariffs have also led to a decline in US real GDP growth, with a -0.5pp lower growth rate each year, and a persistently -0.4% smaller economy in the long-run.

The tariffs have had a significant impact on consumers, particularly in the clothing and textile industry, with prices increasing by 1.8% in the short-run and 1.5% in the long-run. The overall price level has risen by 1.8%, equivalent to an average per household income loss of $2,400 in 2025. Annual pre-substitution losses for households at the bottom of the income distribution are $1,300, while the post-substitution price increase settles at 1.5%, a $2,000 loss per household.

The labor market has also been affected, with a 0.4 percentage point rise in the unemployment rate by the end of 2025 and 0.7 percentage point by the end of 2026. Payroll employment is expected to be 494,000 lower by the end of 2025. The tariffs are expected to raise $2.7 trillion over 2026-35, with $456 billion in negative dynamic revenue effects, bringing dynamic revenues to $2.3 trillion.

The US average effective tariff rate has risen to 9.1% as of June, and is expected to increase further with the implementation of new tariffs. The trade war with China is expected to have a significant impact on the US economy, with China's exports to the US declining by $485 billion by 2027. Other countries, including Russia, Vietnam, and Japan, are expected to benefit from increased trade with China.