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This report synthesizes empirical economic research to forecast the expected economic impacts of new U.S. tariffs introduced by the Trump administration in 2025. It provides a timeline-based analysis of anticipated effects, ranging from immediate consumer price increases to supply chain disruptions, medium-term labor market adjustments, reductions in GDP growth and investment, and long-term structural reconfigurations of global supply networks. Drawing on peer-reviewed economic literature and empirical analyses from recent U.S. trade interventions (such as the 2018–2019 tariffs under the previous Trump administration), the report highlights how tariffs influence prices, jobs, and trade flows—offering a grounded forecast to help anticipate and respond to their economic consequences.
The resurgence of aggressive tariff policy in 2025 can be better understood by examining the U.S. trade measures introduced in 2018–2019 and their associated market responses. In early 2018, President Trump’s administration departed from several decades of largely free-trade policies by imposing tariffs on imported washing machines and solar panels. Shortly thereafter, it enacted steep duties of 25% on steel and 10% on aluminum imports under the guise of national security [10]. These actions precipitated heightened trade frictions with key partners, most notably China. By mid-2018, the United States had imposed punitive measures on $34 billion in Chinese imports, escalating to tariffs on an additional $200 billion later that year [10]. China responded proportionately by targeting a range of U.S. exports, creating an environment of tit-for-tat retaliation.
Financial markets exhibited substantial volatility throughout 2018 and 2019, as tariff announcements became frequent catalysts for sharp swings in major stock indices. For instance, in March 2018, the Dow Jones Industrial Average recorded a single-day drop of 724 points following news of impending tariffs on steel and aluminum [13]. By late 2018, broader indices such as the S&P 500 had declined nearly 20% from their peak, partly attributed to intensifying trade tensions [14]. Although markets recovered in 2019—posting strong annual gains—analysts noted that progress in trade negotiations and a “Phase One” deal with China were instrumental in restoring investor confidence [15].
Building on these earlier interventions, 2025 witnessed the renewal of tariff-centric strategies soon after Donald Trump’s reelection. This time, tariffs arrived in broad waves, commencing with a 10% duty on all Chinese imports in February 2025, followed by incremental escalations that culminated in April with a 34% levy on virtually all goods from China. In a stark echo of past episodes, each announcement was met with swift Chinese retaliation, including higher tariffs on U.S. exports and heightened scrutiny of American firms in China [16]. Markets reacted accordingly: equity indices plunged amid concerns over renewed supply chain disruptions, reduced corporate earnings, and the possibility of retaliatory measures spreading beyond U.S.–China trade. While some degree of uncertainty had been priced in—given Trump’s campaign pledges—the scope and rapid escalation of the 2025 tariffs exceeded many observers’ expectations, creating turbulence reminiscent of 2018–2019.
Building on the lessons gleaned from the 2018–2019 experience, the following sections explore how the newly introduced 2025 tariffs may unfold in the short, medium, and long terms. Drawing on empirical findings from both academic and policy research, this timeline-based analysis traces the potential trajectory of consumer prices, supply chain adjustments, labor market shifts, and broader macroeconomic outcomes.
Studies show that new tariffs raise consumer prices almost right away. For example, Cavallo et al. (2021) find “nearly the full tariff rate is passed through to import prices within just one month of enactment” [1]. This indicates that the cost of tariffs on imported goods is quickly borne by domestic consumers, causing noticeable price hikes in the first month. Amiti et al. (2019-1) similarly document complete pass-through of the 2018 tariffs into domestic import prices, meaning U.S. consumers paid the full cost of those tariffs almost immediately [5]. These findings confirm that tariff-induced price increases show up in retail prices within the first few weeks.
Within a few months of tariff implementation, firms that rely on imported materials face rising costs and begin to adjust their supply chains. Handley et al. (2025) provide evidence that U.S. exporters dependent on tariffed inputs experienced a significant decline in exports in 2018–2019, as higher input costs disrupted their production plans [2]. In fact, the most tariff-exposed products saw substantially lower export growth by late 2018, reflecting how supply chain linkages quickly transmit import cost shocks to downstream output [2]. This short-run upheaval is also noted by Amiti et al. (2019-1), who report “dramatic changes to [the] supply-chain network” in the wake of the 2018 tariffs [5]—firms scrambled to re-source materials or delay orders, causing temporary disruption within the first quarter after tariffs were enacted.
Several months into the tariff regime, evidence emerges of weaker labor demand in industries hit by higher input costs or reduced export sales. Flaaen and Pierce (2019) find that by the end of 2018, U.S. manufacturing sectors more exposed to the tariffs saw net employment declines relative to less-exposed sectors [3]. They estimate that increased tariffs led to roughly a 1.4% drop in manufacturing employment in highly affected industries, as any job gains from import protection (+0.3%) were more than offset by larger job losses due to costlier inputs and foreign retaliation [3]. In practical terms, companies facing rising input prices scaled back hiring or initiated layoffs within a few months. This is supported by Blair and Gurevich’s (2021) comprehensive review, which synthesizes findings from numerous studies demonstrating that tariff-induced trade disruptions frequently result in significant declines in local employment, suppressed wage growth, and diminished labor market stability within affected regions [6]. Taken together, these findings indicate that within 3–6 months, employers in tariff-exposed sectors consistently respond by reducing recruitment or downsizing their workforce.
By the half-year to one-year mark, broader macroeconomic impacts become visible, including slower GDP growth and reduced business investment. Caldara et al. (2020) quantify the effect of the 2018 trade policy uncertainty on U.S. economic activity, finding that the surge in tariff uncertainty “reduced U.S. investment” significantly as firms pulled back on capital spending [4]. Their model implies that news of future tariffs and an uncertain trade environment led to roughly a 1.5% decline in business investment during the first year of the trade war [4]. Consistent with this, aggregate data showed slower growth in late 2018 and 2019—for instance, an Oxford Economics analysis estimated the U.S.–China tariffs and retaliation cost about 0.5% of U.S. GDP by 2019 [7]. Within 6–12 months, the tariffs contributed to weaker business confidence, causing firms to delay investments and dampening overall GDP growth.
In the longer run (one to two years out), firms undertake deeper structural changes to mitigate the tariffs, such as relocating production or permanently altering supply chains. Amiti et al. (2019-1) document persistent shifts in U.S. import sourcing after the tariffs—for example, China’s share of U.S. imports fell sharply as importers turned to alternative countries [5]. Similarly, Amiti et al. (2019-2) illustrate lasting structural impacts of tariffs, showing significant adjustments in sourcing strategies over the medium to long term [9]. A concrete case is provided by Flaaen et al. (2020), who study the U.S. washing machine tariffs. They find that initial country-specific tariffs (2012 and 2016) were “accompanied by production relocation to other export platform countries,” as manufacturers moved factories to bypass the duties [8]. When broad tariffs were imposed on nearly all source countries in 2018, firms had fewer relocation options—leading to a 12% surge in washer prices and even spillover price increases on dryers (which were not tariffed) [8]. Over 1–2 years, companies either shift their supply chains (opening new facilities in tariff-free locations, redesigning supplier networks) or, if unable to avoid the tariffs, accept permanently higher costs that alter market prices and competitiveness. The academic evidence clearly indicates that tariffs can induce lasting reconfiguration of production and sourcing strategies in addition to initial price and output effects.
Report compiled by ChatGPT 4.5 Deep Research (OpenAI) for Manos Tsagkias; Manos checked and edited the article.
[1] Cavallo, Alberto, Gita Gopinath, Brent Neiman, and Jenny Tang (2021). “Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy.” American Economic Review: Insights, 3(1): 19–34. (Demonstrates near-complete tariff pass-through to U.S. import and consumer prices within one month). Link
[2] Handley, Kyle, Fariha Kamal, and Ryan Monarch (2025). Rising Import Tariffs, Falling Exports: When Modern Supply Chains Meet Old-Style Protectionism. American Economic Journal: Applied Economics, 17(1): 208–238. (Shows that tariffs on inputs led to lower export growth for affected U.S. products within the year, evidencing supply-chain disruptions). Link
[3] Flaaen, Aaron, and Justin Pierce (2019). Disentangling the Effects of the 2018–2019 Tariffs on a Globally Connected U.S. Manufacturing Sector. Finance and Economics Discussion Series 2019-086, Federal Reserve Board. (Finds that tariff-exposed U.S. manufacturing industries had about 1.4% less employment by end-2018 due to higher input costs and retaliatory tariffs). Link
[4] Caldara, Dario, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino, and Andrea Raffo (2020). The Economic Effects of Trade Policy Uncertainty. Journal of Monetary Economics, 109: 38–59. (Estimates that the rise in trade policy uncertainty during the 2018 tariff episode reduced U.S. business investment and economic activity). Link
[5] Amiti, Mary, Stephen J. Redding, and David E. Weinstein (2019). The Impact of the 2018 Tariffs on Prices and Welfare. Journal of Economic Perspectives, 33(4): 187–210. (Documents immediate price increases on imported inputs and final goods, complete pass-through of tariffs to U.S. consumers, and major adjustments in supply chain networks). Link
[6] Blair, Emma, and Tamara Gurevich (2021). Trade, Trade Policy, and Local Labor Market Effects: A Review of Literature. U.S. International Trade Commission Working Paper Series. (Comprehensive review of empirical findings on how tariff policies affect local labor markets, wages, and employment patterns). Link
[7] Alex Mackle (2021). The US-China Economic Relationship: A Crucial Partnership at a Critical Juncture. Oxford Economics Report. (Estimates that U.S.–China tariffs and retaliatory measures cost the U.S. economy approximately 0.5% of GDP over 2018–2019, equivalent to about $108 billion in 2020 prices). Link
[8] Flaaen, Aaron, Ali Hortaçsu, and Felix Tintelnot (2020). The Production Relocation and Price Effects of US Trade Policy: The Case of Washing Machines. American Economic Review, 110(7): 2103–2127. (Shows that firms responded to tariffs by relocating production overseas when possible, and that broad-based tariffs led to large consumer price increases). Link
[9] Amiti, Mary, Stephen J. Redding, and David E. Weinstein (2020). Who’s Paying for the US Tariffs? A Longer-Term Perspective. AEA Papers and Proceedings, 110: 541–546. (Discusses who bears the burden of tariffs and persistent sourcing changes over time). Link
[10] The Guardian (2018). Trump to impose tariffs on steel and aluminum imports in bold trade move. March 1, 2018. (Article announcing the steel and aluminum tariffs.) Link
[11] Wikipedia (n.d.). China–United States trade war. (Entry detailing the $34 billion of tariffs applied in mid-2018, and the additional $200 billion in tariffs imposed by September 2018.) Link
[13] Market Watch (2018). Dow closes more than 700 points lower as trade fears spark plunge. March 22, 2018. (Dow Jones drops 724 points post-tariff news.) Link
[14] Wikipedia (n.d.). Economic policy of the first Donald Trump administration. (Discusses late 2018 market decline influenced by trade tensions.) Link
[15] Invesco (2019). Tariffs rattle stock markets: Long-term impact? (Commentary on market recovery in 2019 and investor optimism.) Link
[16] Axios (2025). Markets plunge as Trump reignites tariff war. April 3, 2025. (Single-day 4.8% drop in the S&P 500 after major tariff announcement.) Link