Economic Letter

A range of tariffs on U.S. imports has been enacted or considered recently. Trade tariffs can potentially affect price inflation for consumption and investment goods. Estimates suggest that the impact on prices for investment goods is likely to be much larger than for consumption goods. For example, if an across-the-board 25% tariff is fully passed through to finished goods, near-term price increases are estimated to be about 9.5% for investment goods and 2.2% for consumption goods. These price increases for investment goods can have important implications for businesses’ investment decisions.