A multi-sector assessment of the macroeconomic effects of tariffs

We draw insights from multi-sectoral trade and macroeconomic models to quantify the implications of higher tariffs for inflation and output. While tariffs lower output in most jurisdictions, their inflationary consequences are nuanced. Tariffs are inflationary for countries that impose them and typically disinflationary for imposing countries' largest trading partners. For other countries, the estimated effects are generally small, as an inflationary impulse from disruptions to global supply chains balances out the disinflationary effect of lower global growth. For some countries, lower output and materially higher inflation pose difficult trade-offs for monetary policy, which could worsen if an initial rise in inflation becomes embedded in higher inflationary expectations.