Impact of Tariffs on US Economy, Inflation, and Employment in 2025
In 2025, the average effective tariff on US imports rose sharply from 2% to 18%, reaching the highest level since the 1930s, according to Yale Budget Lab data. However, many of the highest tariffs were not fully in effect throughout the year due to postponements and exemptions, including those granted to Mexico and Canada under the USMCA agreement announced on March 6, 2025.
Importers anticipated the tariff changes by front-loading imports before implementation, saving approximately $6.5 billion, or about 13.1% of the new tariff bill, through May 2025. Despite retailers having depleted pre-tariff inventories, the pass-through of tariffs to consumers has been limited; tariffs raised prices of affected goods by approximately 5.4% at retail, contributing about 0.7 percentage points to the Consumer Price Index (CPI).
CPI inflation for the 12 months to November 2025 was measured at 2.7%, unchanged from late 2024, although the overall price level remained higher. Unemployment increased to 4.6% in November 2025 from 4.1% in late 2024, with economic growth slowing toward the end of the year. This slowdown and delayed GDP data releases were partly due to measurement challenges arising from an October-November 2025 government shutdown, which likely also biased CPI figures downward.
Importers have absorbed much of the cost increases so far, but if tariffs remain in place, prices could rise further in 2026, potentially leading to a drop in real incomes.
