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How Much Did Labor Productivity Gains Offset the Inflationary Impact of the 2025 Tariffs?
Abstract: In 2025, the average realized tariff on U.S. imports rose from about 2.5 percent to about 10 percent. The resulting increase in U.S. firms’ input costs had the potential to raise inflation significantly and explain why inflation remained significantly above the Federal Reserve’s 2 percent target last year. On the other hand, as the tariffs took hold, U.S. workers’ productivity grew, which could have helped companies reduce their costs and thereby mitigate inflationary pressures from the tariffs. To study the extent to which productivity gains may have offset the tariff-driven cost increases, the authors construct measures of sectoral increases in input costs induced by the new tariffs and compare them with sectoral labor productivity gains.
JEL Classification: E31; F13; E24; D24;
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Bibliographic Information
Provider: Federal Reserve Bank of Boston
Part of Series: Current Policy Perspectives
Publication Date: 2026-08-19
Number: 26-7