The Growth Hit From Trump’s Tariffs

On February 1, President Trump signed executive orders placing substantial new tariffs on Canada, Mexico, and China, the United States’ three largest trading partners (see our CFR Global Trade Tracker).

Tariffs harm economic growth through three broad channels.  First, they raise costs for businesses and consumers; higher costs reduce consumer purchasing power and business profitability, leading to lower spending and investment.  Second, the inevitable foreign retaliation damages business competitiveness and lowers exports.  Third, they reallocate resources to less efficient firms, lowering productivity and output.

Though Trump’s tariff pronouncements have been changing nearly day by day, and sometimes hour by hour, we focus our analysis on the three tariff initiatives that Trump had pledged to implement in short order: 10 percent universal tariffs, 25 percent tariffs on Canada and Mexico, and 60 percent tariffs on China.

As shown in the graphic above, the cumulative effect of these tariffs can be expected to reduce U.S. real gross domestic product (GDP) by 0.54 percent from the baseline expected level in 2025, 1.76 percent in 2026, 1.86 percent in 2027, and 1.53 percent in 2028.[1] This means a total cumulative loss of U.S. economic output of $1.4 trillion by the end of 2028.