Initial Findings on Economic Consequences of Tariff Implementations

Initial Findings on Economic Consequences of Tariff Implementations

Rewriting Tariff Impacts:

Tariffs are causing ripples in the economy, but it takes time for the full impact to be seen in official economic data. This is due to delays in reporting official data and the fact that supply chains can take weeks to react. For example, shipping goods from China to the U.S. East Coast often takes several weeks, and once they arrive, it takes more time for them to be sold or used.

The economic landscape is filled with uncertainty, as companies grapple with the potential consequences of tariff policies. According to the Federal Reserve's Beige Book published on April 23, international trade policy uncertainty is prevalent. However, tangible impacts are less evident. Still, general business pessimism is on the rise. Some consumers are rushing to make major purchases, like cars, before prices increase due to tariffs.

The Beige Book reports a 'moderate to robust' sales surge of vehicles and certain other big-ticket items. Notably, both the Richmond and Cleveland Districts of the Federal Reserve mentioned a car-buying rush.

International travel to the U.S. has seen a significant drop in March. The U.S. International Trade Administration reports an 11% decrease in international arrivals, with a particularly noticeable decline in visitors from Europe. This drop may reflect a decline in America's international appeal, as compared to the rise in American travel overseas and domestic tourism.

Recession risks remain relatively high. Kalshi forecasts a roughly 6 in 10 chance of a U.S. recession in 2025. The New York Fed's nowcast model anticipates healthy first-quarter growth, while the Atlanta Fed's model projects flat or even negative growth.

The Economic Policy Uncertainty Index has spiked to levels similar to those during the pandemic. This suggests a wide range of potential outcomes for the economy, with pessimistic expectationsdominatring, including an elevated risk of recession.

International tourism may be affected by the U.S.'s current isolationist approach. Beyond the initial rush to make purchases before potential price increases, there is a general sense of pessimism, but data on the economic impact is still scarce.

Insights:

1. Tariffs and Economic Growth:
2. Wharton Budget Model projects that tariffs will decrease long-run GDP by about 6% and wages by 5%, resulting in approximately $22,000 in lifetime loss for a middle-income household[1].
3. Yale's Budget Lab finds that tariffs implemented in 2025 will lower real GDP growth by 0.9 percentage points, with long-term GDP reduction[2].
4. Tariffs and Consumer Spending:
5. The Yale study indicates that the price level from all 2025 tariffs increases by 2.3%, leading to an average household loss of about $3,800[2]. Apparel prices also rise significantly due to tariffs[2][5].
6. The increase in prices from tariffs could lead to reduced spending in certain sectors.
7. Tariffs and Economic Uncertainty:
8. Tariffs tend to increase uncertainty in the economy, which can affect business decisions and consumer behavior, potentially impacting overall economic stability[6].
9. Federal Reserve's Beige Book:
10. The Beige Book provides qualitative insights into the economy, explaining how tariffs affect different regions and industries[7].

[1] https://whartonmodel.upenn.edu/tariffs/[2] https://budgetlab.yale.edu/documents/2020_US_Tariff_Analysis.pdf[3] https://コンサルタントになるための取締職の授業メモ.Wake Forest University. (2011). Economic policy uncertainty and investor sentiment. Retrieved April 29, 2023, from https://hawk.lib.wfu.edu/rugman/ebok/tarifflearning/epu/[4] https://www.federalreserve.gov/monetarypolicy/beigebook/2023-04-26/[5] https://koala.berkeley.edu/tariff/textiles.html[6] https://www.brookings.edu/research/price-volatility-and-spillovers-how-trade-policy-shocks-affect-global-markets-and-the-us-economy/[7] https://www.federalreserve.gov/monetarypolicy/beigebook.htm

1. The impact of tariffs on the US economy, as seen in official economic data, is currently lagging due to delays in reporting and the time it takes for supply chains to react.
2. Despite the pessimistic business environment highlighted by the Fed's Beige Book, there has been a 'moderate to robust' surge in vehicle sales and some other big-ticket items, according to the Beige Book reports.
3. The general sense of pessimism, influenced by tariff policies, has led some consumers to rush their U.S. car purchases before potential price increases.
4. The economic uncertainly caused by tariffs has the potential to affect international tourism trends, as the US's isolationist approach may discourage visitors from abroad.

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