Tariffs can cause lasting inflation and global economic harm
Economists warn that in a networked global economy tariffs work as supply shocks that raise input costs, push inflation beyond targeted sectors, reduce output and spread disruption through financial markets and currencies.
- Tariffs raise the cost of imported intermediate inputs and act as supply shocks across production networks.
- Higher input costs propagate across sectors, cutting output and productivity while pushing up prices beyond targeted industries.
- Price rigidities make tariff-driven inflation persistent, requiring prolonged monetary tightening that deepens output losses.
- Announced tariff threats and uncertainty can change firm and household behavior, move exchange rates, and create financial volatility even before tariffs are applied.
- Policymakers must assess trade policy alongside supply chains and global financial responses because tariffs are global macroeconomic shocks, not localized tools.