What is the endgame for US tariffs?
We think it’s likely that high and broad-based US tariffs are here to stay because, of all the purported goals of trade policy, they’re proving most successful at raising revenue.
Trade policy uncertainty peaked in April but remains elevated, in large part because there is little clarity on the endgame for tariffs. The administration offered multiple, often conflicting, explanations of trade policy: raising revenues, reducing the trade deficit, using them as a negotiation tool to open foreign markets and contributing to reshoring America’s industrial production for national security reasons.
To help gauge the intent of policy, we built a forward-looking framework for analyzing how tariffs achieve or undermine the various goals touted by policymakers. That helps provide a guide to what tariff policy will achieve, and therefore point toward where tariff policy is ultimately heading.
What you will learn:
- The 10% universal tariff and other measures will contribute $2.5tn in additional tariff revenues over the next decade, helping to offset a large part of the deficit impact from tax cuts in the One Big Beautiful Bill Act.
- Tariffs are likely to help rein in the trade deficit. Imports will probably shrink by more than exports, partially because trading partners aren’t retaliating tit for tat. Trade “deals” are mostly about damage limitation.
- It’s unclear if tariffs will succeed in contributing to national security by bolstering the industrial base. Uncertainty and added capital costs from tariffs on investment goods will limit the degree of reshoring in many industries.
- We believe the risks are skewed toward higher tariffs over the long term, and those measures could prove sticky for future administrations.
