Why Sky-High Tariffs Haven’t Derailed the U.S. Economy—At Least Not Yet

Some economists forecast that tariffs would lead to ruin for the U.S. economy. Instead, the economy is growing faster than it has in years, surprising them. So what happened?

“If you walked 100 economists in a room one year ago and informed them of these developments today, I suspect virtually all would project the U.S. economy would be stagnant at best and cratering at worst,” said Ben Harris, director of economic studies at the Brookings Institution, during a recent panel discussion on tariffs and other economic policies from President Donald Trump.

After taking office early last year, Trump enacted a series of import taxes that fundamentally changed how the U.S. trades with other countries. Harris noted the average tariff rate jumped to 28% in April, up from 2.4% on election day. The Tax Policy Center estimated that, after negotiations, the current average tariff rate is now 17%.

But the impact from tariffs, so far, has been muted. Inflation has remained above the Federal Reserve’s target rate of 2% for nearly four years, but is still well below the highs notched in 2022. Gross domestic product (GDP) in the third quarter expanded at its fastest pace since 2023, and other economic measurements have also shown solid growth.

AI Spending, Corporate Moves Blunt Tariff Impact

There are several reasons tariffs haven’t created the economic drag initially expected, experts said at the roundtable. 

• Initial tariff levels were negotiated down: Some of the tariff negotiations have included exemptions and commitments to purchase from U.S. companies. This has resulted in a smaller impact than economists expected when tariffs were announced in April.
• Companies and households are still spending: Robust spending on artificial intelligence has helped lift the economy. Government deficit spending and tax cuts are also likely to have some impact. Meanwhile, consumers keep spending, despite having a very low opinion of the economy.
• Overseas sellers may have lowered prices to keep orders flowing: “That was Trump’s argument all along, that U.S. importers were never going to pay these tariffs, that consumers were never going to see higher prices, because the exporters were going to have to lower their prices to maintain market share,” said Wendy Edelberg, senior fellow at the Brookings Institution.
• Corporations tried to avoid passing along costs to consumers: “We saw corporations choose not to pass along tariffs to consumers, choose to stockpile goods in advance of the tariffs going into effect, choose to shift production so that they could avoid tariffs,” said Nora Todd, a former trade adviser in then-President Joe Biden’s administration.
• Economists may have overestimated the role of foreign trade in the U.S. economy: Harris, the director at Brookings, noted that Trump’s tariff collections have grown by less than $200 billion, which may be painful for consumers, but isn’t enough to disrupt a $30 trillion economy.

Tariffs Still Affecting Prices

Some of the factors that have held back the full impact of tariffs on the economy may be waning, the experts said.

Importers and exporters may have eaten some of the costs of tariffs, Edelberg said, but they are unlikely to keep doing so. 

“It is clear that imported goods that are subject to these tariffs are indeed showing higher prices for consumers, and in fact, that domestically manufactured goods that compete with those imported goods are also showing higher prices,” Edelberg said.

Edelberg predicted inflation will remain persistent throughout 2026 and into 2027. 

Ultimately, the fact that the tariff increases didn’t have the impact that some had forecast could help economists better understand how government policies affect the overall economy. 

“If nothing else, this year has tested the limits of our understanding of the potential impacts of policy making on the economy,” Harris said. “I suspect one enduring lesson learned, both over the course of 2025 as well as during the pandemic, is that the size and diversity of the U.S. economy usually protects it from sharp downturns.”