The Macroeconomic Effects of Tariffs: Insights from 180 Years of US Trade Policy

While the current tariff increases are unprecedented in recent decades, some historical episodes resemble today’s policies. Before World War II, US tariff rates fluctuated sharply and frequently, driven by partisan and ideological conflict, fiscal pressures, and evolving international conditions. Our research exploits this historical variation to study the aggregate effects of tariff rate changes and to formulate explanations for these effects.

Identifying the causal effects of tariff changes on macroeconomic outcomes is challenging because many tariff reforms were themselves motivated by macroeconomic conditions. This makes it difficult to isolate the causal effects of tariff rate changes on the economy. We addressed this challenge by analyzing all major US tariff rate changes from 1840 to 2024. Drawing on historical research, congressional records, and statutes, we identified 35 major tariff rate changes and classified each according to its motivation. To estimate the causal effects of tariff rate changes, we focused on those that did not appear to be driven by contemporaneous or prospective macroeconomic conditions. Instead, we considered changes motivated by factors unrelated to the state of the economy, such as ideological commitments to protectionism or free trade and concerns about the distributional consequences of tariffs. We excluded tariff rate changes enacted to finance concurrent government spending, stabilize economic activity, or otherwise respond directly to prevailing macroeconomic conditions. This left us with 21 tariff rate changes, which we used to examine the macroeconomic effects of tariffs generally. 

Our findings reveal that increasing tariff rates contracted the US economy. Raising the average tariff rate by 1 percentage point reduced output by 0.9 percent at its peak and kept it below its previous trend for at least eight years. Manufacturing production declined even more sharply—by over 1.5 percent at its peak—suggesting that tariff increases did not shield domestic industry despite their protective intent. Additionally, trade contracted markedly: Imports fell immediately by around 4 percent, while exports initially increased slightly before falling, reaching a maximum decline of about 2 percent. The US dollar appreciated, consistent with the substantial drop in imports. The price response was more nuanced: Overall prices increased by around 0.5 percent at their peak. This estimate is imprecise, however, and the effect gradually dissipated as the economy contracted.

Our research indicates that both supply and demand channels explain the effects of tariff increases. The short-run increase in prices, combined with a decline in output, resembles cost-push inflation, consistent with higher input costs and reduced foreign competition. However, the persistent declines in output and trade suggest that demand effects were also influential, particularly through weaker exports and reduced aggregate demand. Thus, the simultaneous presence of supply-side inflationary pressures and demand-side pressures that slowed price growth could explain the muted overall change in aggregate prices.

The relative importance of supply and demand channels has varied over time. Before World War II (1866–1945), tariff hikes caused a sustained decline in output and a sluggish increase in prices. In the postwar era (1946–2024), tariff hikes also reduced output, but the response was more immediate due to a much quicker decline in exports than in the prewar era. Additionally, tariff hikes lowered prices in the postwar period. These differences suggest that tariff rate changes operated more strongly through the demand channel in the postwar era.

There are two primary explanations for the increased influence of the demand channel. First, the United States abandoned the gold standard in 1971, allowing for floating exchange rates. This enables tariffs to immediately appreciate the dollar: When US consumers demand fewer imports, they also demand less foreign currency, increasing the dollar’s relative value. This appreciation partly offsets increases in import prices while also reducing export demand by making US goods more expensive for foreign buyers. Both forces exert downward pressure on domestic prices, which helps explain why tariffs reduced inflation in the postwar era. Second, international negotiations largely drove tariff policy during much of the postwar era, so deviations were more likely to prompt retaliatory tariffs. Indeed, our findings show that foreign tariff rates increased significantly following US tariff hikes in the postwar era, whereas the foreign response was more modest in the prewar era. As a result, recent tariff increases have reduced US exports and output more than comparable tariff increases in the past.

Overall, our research indicates that tariff increases reduce domestic output and trade. While tariffs may protect some domestic industries, they ultimately reduce aggregate output, manufacturing activity, and the global competitiveness of US goods.

Note
This research brief is based on Tamar den Besten et al., “The Macroeconomic Effects of Tariffs: Insights from 180 Years of US Trade Policy,” National Bureau of Economic Research Working Paper no. 35102, April 2026. The views expressed in this paper are the sole responsibility of the authors and do not necessarily reflect the views of the Federal Reserve Bank of San Francisco or the Federal Reserve System.