Economist: Tariffs could dampen GDP growth; raise unemployment, inflation

The Trump tariffs could dampen the gross domestic product growth, not only for the U.S., but for the rest of the world.

That was the word from Dana Peterson, chief economist with The Conference Board, during a webinar the organization held to discuss U.S. public policies and the economy.

“Tariffs are really a tax on U.S. importers,” she said. “Those importers ultimately pass that cost down the supply chain, and the cost ultimately lands in the customer’s lap. If consumers cut spending, it impacts everyone up the chain.”

The U.S. imports more than 50% of 16 product categories from Mexico, Canada and China, she said – everything from toys to vegetables to glass. Tariffs, she said, “will touch everything consumers and businesses are concerned about.”  On Wednesday, Trump paused most reciprocal tariffs for 90 days. He reportedly raised the levy on China to 125%, however.

“The bottom line is that tariffs are no good to anyone. They are more damaging to the country that imposes them first than to the country they were imposed against.”

The Conference Board, using the Oxford Economics Model, estimated that U.S. tariffs would not only hurt U.S. GDP growth but would stunt that growth across the entire world. The U.S. would be hurt the most, with an estimated 1.2% drop in GDP year over year. Mexico would follow with an estimated 0.8% decrease in GDP growth year over year.

“What we see is there’s a lot of economic damage to be done for not that much in terms of revenue,” Peterson said.

Tariffs could make things worse for U.S.

And it gets potentially worse for the U.S. The U.S. could experience potentially negative repercussions from a trade war, The Conference Board found. Not only would GDP growth be cut but unemployment would rise by 0.3% and inflation would see a percentage point increase to finish the year at around 3.5%.

“Prices are already elevated, and consumers will feel bad seeing prices continue to rise while growth is slow,” Peterson said.

The potential increase to the U.S. unemployment rate could be 4.7% by the end of 2025, with a potential of 1.1 million jobs lost during that time, The Conference Board estimated.

“This happens because consumers might pull back on spending, and businesses will respond to that,” Peterson said.

As for the argument that tariffs are necessary to raise money for the U.S. Treasury, The Conference Board estimated that the U.S. would raise $460 billion in customs duty revenues in 2025. But that pales in comparison to the nearly $29 trillion U.S. government debt and the estimated $4.5 trillion-$5.1 trillion it would cost to extend the tax cuts in the Tax Cuts and Jobs Act.

“This will barely put a dent in the federal government’s debt,” Peterson said. “There’s a lot that’s lost for comparatively little gain.”

No call for recession

One assumption in making The Conference Board’s estimates is that the tariffs would remain in effect for a full year, said Yelena Shulyalyeva, The Conference Board’s senior U.S. economist.

Although tariffs are projected to slow the U.S. economy, The Conference Board is not calling for a slide into a recession.

“We forecast that the U.S. will be able to avoid a recession,” Shulyalyeva said. “We think growth will substantially slow down but the fundamentals in the U.S. economy will allow it to weather the storm this time around.”

Uncertainty over the tariffs is creating “a tremendous impact on business investment,” she said. “We also have to incorporate a significant decline in consumer confidence in our projections. Consumers are feeling more concerns about their economic prospects and that is being revealed in their actions.”

 

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