Economic Letter
Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.
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What Can History Tell Us About Tariff Shocks?
Regis Barnichon, Aayush Singh
The change in the average U.S. tariff rate in 2025 was the largest in the modern era. One way to assess the effects of such a large shock on unemployment and inflation is by looking at data from pre-World War II periods with tariff rate changes of a similar magnitude. Analysis shows that previous tariff hikes raised unemployment and reduced both economic activity and inflation. Uncertainty may be a factor behind these effects: A large tariff increase raises uncertainty, which can depress overall demand and lead to lower inflation.
