Tariffs: Estimating the Economic Impact of the 2025 Measures and Proposals

Tariffs are taxes imposed by a government on imported goods, typically calculated as a percentage of the import’s value (known as an ad valorem tax). Governments use tariffs for various purposes, such as raising revenue, protecting domestic industries from foreign competition and influencing international trade patterns. By increasing the cost of imported products, tariffs encourage consumers to shift toward domestically produced goods, thus supporting local businesses and potentially stimulating domestic economic activity.

However, the overall impact of tariffs depends critically on how much of this cost increase is passed along to domestic consumers and producers, a concept known as pass-through. Empirical research has found that the pass-through rate is generally high (often near 100 percent), meaning that the burden of tariffs typically falls on domestic consumers and firms rather than foreign exporters.¹

The economic significance of tariffs is underscored by recent data from the First Quarter 2025 CFO Survey. As illustrated in Figure 1, more than 30 percent of surveyed firms identify trade and tariffs as their most pressing business concern, up sharply from just 8.3 percent in the previous quarter. This rapid rise highlights firms’ heightened sensitivity to tariff-related disruptions, reflecting widespread concern among business leaders about the potential economic consequences of recent tariff proposals.

In this article, we first provide historical context on U.S. tariff policy to frame the significance of the proposed tariff changes for 2025. Next, we analyze how tariffs impact producers differently across industries due to varying reliance on imported inputs. Finally, we examine the specific implications of recent tariff proposals for all counties in the U.S.

A Bit of History on Tariffs

Historically, the U.S. relied heavily on tariffs — often exceeding 30 percent — as its primary source of federal revenue from the nation’s founding until the introduction of income taxes in 1913. This is illustrated in Figure 2.

During this early period, these high tariffs also served to protect emerging industries through a strategy called import substitution. After World War II, international trade agreements like the General Agreement on Tariffs and Trade significantly reduced tariffs globally from an average of around 20 percent in 1947 to below 5 percent following the Uruguay Round in 1994. The globalization movement of the 1980s and 1990s further accelerated tariff reductions, culminating in the establishment of the World Trade Organization (WTO) in 1995. Since then, tariffs among WTO member countries have generally remained around 2.5 percent, reinforcing greater global economic interconnectedness.

The Benefits of Free Trade

Economist Greg Mankiw once noted, “Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards.”²

Free trade — international commerce with minimal barriers such as tariffs or quotas — promotes economic efficiency, growth and consumer welfare by allowing countries to specialize according to their comparative advantages. By removing trade restrictions, countries benefit from greater access to a wider variety of goods at lower prices, fostering increased competition, increased innovation and improved productivity. In turn, free trade expands markets, encourages the exchange of ideas and technology, and raises living standards by enabling consumers to purchase a broader selection of goods at lower prices.

Although free trade can present challenges for certain industries or workers facing international competition, its overall effect is typically positive, enhancing global economic welfare and fostering international cooperation. Economists often describe free trade as a “win-win” for countries involved.

The Backlash Against Free Trade

The recent backlash against free trade policies largely stems from the economic disruptions known as the “China shock,” a period characterized by rapid growth in imports from China following its entry into the WTO in 2001. The steep decline in manufacturing sector jobs as well as factory closures and economic hardship in many industrial regions of the U.S. have been attributed (in part) to a surge in Chinese imports,³ as well as “unfair trade practices” such as dumping and subsidization of Chinese production.⁴

Although consumers broadly benefited from lower-priced goods and enhanced variety of goods, the uneven distribution of economic gains and losses fueled public skepticism about globalization. The backlash reflects frustration over insufficient support for displaced workers and the uneven distribution of trade gains, highlighting the need for better policies in addressing and mitigating the adverse effects experienced by specific groups, something often overlooked by proponents of free trade. Developed economies (including the U.S.) have since faced growing pressure to provide greater support and protections for negatively affected industries and communities.

The 2018-19 Tariffs

Between 2018 and 2019, the U.S. imposed tariffs ranging from 10 percent to 25 percent on hundreds of billions of dollars of imports from China. These tariffs significantly disrupted global supply chains, increasing input costs for American businesses and raising consumer prices. The resulting disruptions contributed to a decline in manufacturing employment, heightened investment uncertainty and substantial shifts in global supply chains. Rather than returning production to the U.S., many firms responded by shifting supply chains to other countries, such as Mexico and Vietnam.⁵ Consequently, the expected boost in domestic production and employment was modest.

Empirical research indicates that each 10 percent increase in tariffs generally raises producer prices by about 1 percent.⁶ Given the increase in the average effective tariff rate during 2018-19, this translated into roughly a 0.3 percent rise in the consumer price index.

Although these tariffs provided some targeted economic benefits by increasing employment in protected sectors, they ultimately produced a net loss to the U.S. economy. A 2019 working paper found that tariffs generated approximately $51 billion (about 0.27 percent of GDP) in losses for consumers and firms reliant on imported goods, though factoring in job gains within protected industries reduced the net loss to about $7.2 billion, or roughly 0.04 percent of GDP.⁷

Additionally, although tariffs boosted employment in specific protected sectors, they resulted in a relative employment decline of about 1.8 percent — equivalent to approximately 220,000 jobs lost in industries heavily dependent on imported inputs — as firms faced higher production costs. When accounting for China’s retaliatory tariffs on U.S. exports and subsequent economic impacts, a 2024 working paper estimates that the total employment reduction rises to approximately 2.6 percent, equivalent to about 320,000 jobs.⁸

Thus, the economic effects of the 2018-19 tariffs — while beneficial for a limited set of domestic industries — resulted in a net negative outcome for the broader economy. These burdens were felt most by U.S. consumers, producers reliant on imported inputs and workers in adversely affected sectors.

The 2025 Tariffs

As of this writing (March 2025), the U.S. has introduced new tariffs, including an additional 20 percent on all imports from China and a 25 percent tariff on aluminum and steel imports from several countries. Further tariffs of 25 percent on goods imported from Canada and Mexico which are not subject to the United States-Mexico-Canada Agreement (USMCA) are scheduled to take effect in April 2025, along with potential tariffs targeting automotive imports and goods imported from the European Union (EU). These recent tariff proposals could have significant implications for industries and regional economies across the U.S., especially once fully implemented.

A natural question arises: How substantial are these tariffs compared to those implemented in previous periods? To assess the impact of the proposed tariffs for 2025 relative to historical tariffs, we use a measure known as the average effective tariff rate (AETR). The AETR aggregates tariffs across various imported goods and countries into a single number. Specifically, it is computed by weighting the tariff imposed on each good imported from each country by that good-country combination’s share of total imports. For example, if the U.S. imports 20 percent of its steel from Mexico (facing a 10 percent tariff) and 80 percent from Canada (facing zero percent tariffs), the AETR for steel would be 2 percent (0.2 × 10% + 0.8 × 0%). Thus, the AETR represents the average tariff cost per dollar of imports, providing a useful metric to evaluate and compare the overall impact of tariff proposals across different scenarios and historical periods.

We construct a benchmark AETR using data from the 2024 U.S. Trade Census. We follow closely the work by Michael Waugh. The Census reports both duties (tariff revenue collected) and imports (the dollar value of goods imported) over time. The AETR is defined as the ratio of duties to imports: AETR = duties / imports.

In our benchmark scenario, the AETR is 2.2 percent. This means that, on average, the government collected 2.2 cents in tariff revenue for every dollar of imported goods. Establishing this baseline allows us to meaningfully assess the potential economic impact of new tariff proposals introduced in 2025 by comparing them to current trade patterns and tariff levels.

Because the Census data provide detailed information at both the product and country level, we observe imports and tariff revenues by country of origin and by product, classified at the six-digit level of the Harmonized Tariff Schedule (HTS). The HTS is an internationally standardized system used to classify traded goods. This granularity allows us to compute effective tariff rates at the level of individual HTS-6 products and trading partners by taking the ratio of duties collected to the value of imports for each good-country pair. This allows us to compute AETR by country of origin.

The first column of Table 1 displays the AETR for five geographical regions of interest: Canada, Mexico, the EU, the rest of the world (ROW) and China. The overall AETR can be found at the bottom of the table. The last column provides information on the share of imports of each country.

We then consider four distinct tariff scenarios.

Scenario 1

The benchmark AETR of 2.2 percent reflects the tariff regime in place at the end of 2024, incorporating WTO most-favored-nation (MFN) tariffs, the China-specific tariffs imposed during the 2018-19 period, and any other tariff measures or exemptions still in effect. In Scenario 1, we simulate the impact of an additional 25 percent tariff on all steel and aluminum imports, as well as a 20 percent tariff on all imports from China.

The increase in the AETR from 2.2 percent to 7.1 percent may seem large, but it is driven by the size and composition of the affected import flows. The 25 percent tariff on steel and aluminum alone raises the AETR to approximately 4.4 percent. Although steel and aluminum represent a relatively narrow range of products, they generate a disproportionately large share of tariff revenue due to both the volume of imports and the uniform 25 percent duty applied.

According to U.S. Customs and Border Protection, Section 232 duties may not be waived due to a free trade agreement. As a result, these tariffs apply even to imports from close trading partners such as Canada and Mexico. This has a pronounced effect on the tariff burden faced by goods imported from these countries. In Scenario 1, Canada’s AETR rises from just 0.1 percent to 1.5 percent, and Mexico’s AETR rises from 0.2 percent to 2.8 percent. These are substantial increases, especially considering that Canada and Mexico account for 12.6 and 15.5 percent of total U.S. imports, respectively. The fact that Section 232 tariffs override free trade agreement provisions magnifies their impact on these key trading partners.

The additional 20 percent tariff on China further raises the AETR to 7.1 percent. While China’s share of U.S. imports has declined from 22.0 percent in 2017 to 13.8 percent in 2024, it remains a major trading partner. The uniform application of the tariff across all Chinese imports — many of which were already subject to duties — results in a substantial increase in tariffs applied to goods coming from China. As a result, China’s own AETR rises dramatically to 33.5 percent under this scenario.

Scenario 2

In Scenario 2, we add 25 percent tariffs on goods imported from Canada and Mexico that are not covered under the USMCA to the tariffs in Scenario 1. As a result, the overall AETR rises from 7.1 percent to 10.4 percent. The impact is especially pronounced for these two countries: Canada’s AETR increases to 11.9 percent (nearly 10 times higher than its benchmark level), while Mexico’s AETR rises to 15.5 percent.

The increase in the overall AETR — just over 3 percentage points — reflects the composition of imports affected by the new tariff. While approximately half of imports from Canada and Mexico fall outside the scope of the USMCA and are therefore subject to the new measure, these goods do not make up the most import-heavy segments of U.S. trade with those countries.

In contrast to Scenario 1, where tariffs targeted high-volume sectors like steel and aluminum, the newly taxed goods in Scenario 2 are more dispersed across sectors with lower aggregate import values. As a result, the effect on the overall AETR is substantial but not as dramatic as the country-specific increases suggest.

Scenario 3

Scenario 3 builds on the previous measures by adding a 25 percent tariff on all motor vehicles imports, regardless of origin. The products targeted by this policy fall primarily under Chapter 87 of the HTS, titled “Vehicles Other Than Railway or Tramway Rolling-Stock, and Parts and Accessories Thereof.” Although this policy targets a single sector, it affects imports from all major trading partners. As a result, the overall AETR increases from 10.4 to 12.4 percent — with especially sharp effects in countries that are closely integrated into U.S. auto supply chains, such as Mexico, Canada and the EU.

The largest relative increase occurs in imports from Mexico and Canada, two countries with deep integration into North American auto supply chains. Mexico’s AETR rises to 20.1 percent (a 30 percent increase relative to the previous scenario), while Canada’s increases to 14.1 percent. This reflects the fact that a substantial share of U.S. auto imports originates from these two countries, and many of those goods fall outside of USMCA exemption provisions.

The most notable new impact, however, is on the EU. Its AETR increases from 2.5 to 4.4 percent — a substantial jump driven by its status as a major exporter of passenger vehicles to the U.S. In contrast, China’s AETR remains unchanged at 33.5 percent, as autos from China were already subject to elevated tariffs under prior scenarios.

Overall, the addition of auto tariffs in Scenario 3 disproportionately affects North American and European trading partners, further raising the effective tariff burden on key sectors of U.S. imports.

Scenario 4

Scenario 4 further expands the scope of tariff measures by introducing a new 25 percent tariff on all imports from the EU. This broad application leads to a substantial rise in the overall AETR, which increases from 12.4 to 17.0 percent.

The sharp increase reflects the scale of trade impacted: The EU accounts for approximately one-fifth of all U.S. imports, making it one of the U.S.’s largest trading partners. As a result, the imposition of a uniform tariff across this volume of trade has a pronounced effect on the aggregate tariff rate. The AETR for EU imports alone surges from 4.4 percent to 29.4 percent in this scenario, one of the steepest increases observed across all trading partners in our simulations.

The calculations above represent the immediate (“upon-impact”) effects of the proposed tariffs without accounting for subsequent adjustments that importers or consumers might make in response. For example, the significant reduction in China’s share of U.S. imports — from 22.0 percent in 2017 to 13.8 percent in 2024 — demonstrates how businesses adapted to the 2018-19 tariffs by shifting their supply chains away from China toward alternate trade partners.⁹ Similar adjustments could also occur under the new tariffs proposed for 2025. However, initially, these estimates highlight the direct and immediate economic disruptions industries and consumers could face, providing a valuable baseline to assess potential impacts before market reactions and supply-chain adjustments take place.

Average Effective Tariff Rates by Industry

By combining detailed data on imports and tariffs at the product-country level, we can estimate the overall tariff impact at the industry level. To achieve this, we aggregate tariffs using each product-country pair’s share of total industry imports as weights. Note that we do not have data on the share of an industry that relies on imports, so this calculation informs us of the impact on industries that have inputs which are most exposed to the proposed tariffs. Industries are classified according to the North American Industry Classification System (NAICS) at the three-digit level. This method provides a clear picture of tariff exposure across different industries, allowing us to compare their vulnerability under various tariff scenarios.

Figure 4 highlights the sector-specific effects of the comprehensive tariff package introduced in Scenario 2, which includes a 20 percent tariff on all imports from China, a 25 percent tariff on aluminum and steel imports from all countries, and a 25 percent tariff on goods imported from Canada and Mexico that are not covered under the USMCA.

While these combined measures result in an overall AETR increase from 7.1 to 10.4 percent, the chart shows that the impact is far from uniform across sectors. The most affected industries are in manufacturing, particularly those with strong exposure to imports from China and North America. Fabricated metal products face the highest average tariff rate (above 30 percent) due to their direct inclusion under the steel and aluminum tariff measures. Leather, apparel and textile products also see steep increases, reflecting their reliance on imports from China and USMCA partners in categories not covered by the trade agreement.

On the other end of the spectrum, sectors like oil and gas, petroleum and coal products, and agriculture-related goods such as crops and forestry face much lower average tariffs. This is consistent with their more limited exposure to the targeted trade flows or their continued protection under existing trade agreements and exemptions.

Taken together, this chart illustrates how Scenario 2’s multipronged tariff approach imposes concentrated costs on key segments of the U.S. manufacturing base, particularly intermediate and finished goods that depend on complex cross-border supply chains. While the average increase in tariff levels is significant, the real economic burden is felt most sharply in a handful of highly exposed sectors.

Figure 4 illustrates the AETR by industry under Scenario 2, in which tariffs on all imports from China increase by an additional 20 percent, all imports on aluminum and steel increase by 25 percent, and non-USMCA goods from Canada and Mexico are subject to a 25 percent tariff relative to the benchmark case. The burden of these tariffs falls predominantly on manufacturing industries, with fabricated metals, electrical equipment, apparel and furniture each experiencing average tariff rates ranging between 10 percent and 15 percent.

Although we assume full pass-through of tariffs to domestic prices, the industry’s overall cost increase is estimated to be smaller than the headline 20 percent tariff. This occurs because these industries source a portion of their imports from other countries that remain unaffected by the tariff increase.

Figure 5 illustrates how expanding tariffs to cover automobile imports reshapes the distribution of tariff burdens across industries. Building on the measures in Scenario 2 — which already included 20 percent tariffs on all Chinese imports, 25 percent on aluminum and steel, and 25 percent on non-USMCA goods from Canada and Mexico — Scenario 3 adds a 25 percent tariff on all auto imports, significantly affecting sectors closely tied to the automotive supply chain.

This shift is immediately visible in the jump for transportation equipment, which now faces average tariff rates above 25 percent, placing it among the top three most affected sectors. This reflects the heavy dependence of U.S. auto manufacturing on imported parts and finished vehicles, particularly from Canada, Mexico and the EU.

Fabricated metals and leather products remain at the top of the distribution — consistent with earlier scenarios — as they continue to be impacted by the Section 232 tariffs on steel and aluminum and exposure to non-USMCA trade. Apparel, textiles and electrical equipment also continue to face elevated average tariffs, due to both their sourcing from China and regional trade partners.

Sectors with relatively modest exposure include food, chemicals, agriculture and energy, which remain near the bottom of the distribution. These industries are less reliant on affected countries for imports or benefit from trade exemptions under existing agreements.

Figure 6 reveals the far-reaching impact of the most aggressive tariff package simulated, which layers a 25 percent tariff on all EU imports on top of previously implemented measures: 20 percent on all Chinese imports, 25 percent on steel and aluminum, 25 percent on non-USMCA goods from Canada and Mexico, and 25 percent on auto imports.

The result is a broad elevation of tariff exposure across most manufacturing sectors, pushing the overall AETR to 17.0 percent and significantly amplifying pressures across key industries. Fabricated metals — already heavily affected by the steel tariffs — now face an average tariff burden of over 35 percent, with leather goods and transportation equipment close behind. The auto tariff and the full coverage of EU imports drive up the average rate on transportation equipment to over 25 percent, reflecting the EU’s role as a major supplier of high-value finished vehicles and components.

Compared to earlier scenarios, more sectors are now pulled into the high-tariff range, with industry clusters like machinery, beverages and tobacco, electrical equipment, and textiles all facing average tariff rates of 18-22 percent. The inclusion of the EU broadens the reach of the tariff burden beyond China and North America and affects a wider set of capital-intensive and consumer-intensive industries.

Our analysis of AETRs indicates that manufacturing and mining industries face the highest exposure under the proposed 2025 tariffs. This finding aligns closely with evidence from the First Quarter 2025 CFO Survey, shown in Figure 7. According to CFO responses, manufacturing firms exhibit the strongest reactions to trade disruptions: Over 50 percent of manufacturing CFOs reported actively planning to diversify their supply chains, nearly 40 percent accelerated purchases in anticipation of tariffs, and a considerable share sought alternative foreign suppliers.

Similarly, firms in construction, mining and utilities reported taking proactive measures, such as diversifying supply chains and identifying new domestic suppliers, consistent with the significant tariff exposure calculated for these industries. This consistency underscores how tariff-related disruptions are prompting tangible strategic adjustments by firms, especially within industries identified as most vulnerable by our AETR analysis.

Average Effective Tariff Rates by County

We can also estimate AETRs at the county level by combining industry-specific tariff rates with the employment share of each industry within individual counties. Specifically, we weight the tariff faced by each industry by its employment share in the county, then aggregate across all industries in each given county. While this approach is necessarily approximate, it offers a useful proxy for assessing how tariff burdens differ across regions and helps identify counties whose workforces may be most affected. Figure 8 displays the geographic distribution of tariff incidence across U.S. counties as of December 2024. The impact in this case is spread quite evenly across counties, with relatively low imputed rates.

In Figure 9, we show the effects of Scenarios 3 (Figure 9a) and 4 (Figure 9b). Figure 9a illustrates the uneven geographic distribution of tariff exposure across the U.S. While the nationwide AETR rises to 12.4 percent under this scenario — driven by the addition of a 25 percent tariff on all auto imports — the local impact varies considerably depending on the industrial composition of each region.

Counties shaded in darker blue and green (indicating average tariff levels of 2-7 percent) dominate much of the country, especially in the Mountain West, Great Plains and Southeast, reflecting regions where trade-exposed sectors are less central to local economic activity. These areas are less reliant on global supply chains or major manufacturing hubs and thus feel more limited direct effects from the tariff expansion.

In contrast, counties shaded in red and orange — which face average tariff rates exceeding 10 percent — cluster heavily in the industrial Midwest, parts of the Great Lakes and some manufacturing-intensive areas of the South. These regions include major auto and parts manufacturing zones — such as southern Michigan, northern Indiana, central Ohio, and parts of Tennessee and Kentucky — where the 25 percent auto tariff hits hardest. The map reflects how deeply integrated these counties are in global automotive supply chains, especially with partners like Canada, Mexico and the EU.

Notably, Southern California and parts of the Bay Area also register higher average tariffs (4-7 percent), likely due to their significant exposure to global trade in both consumer electronics and automotive products, including imports from Asia and Mexico.

The map makes clear that while tariff increases are national in scope, their economic footprint is intensely local, with disproportionately high exposure in communities dependent on manufacturing and cross-border inputs. These areas may face rising production costs, disrupted supply chains and downstream employment effects if such tariffs are implemented.

Figure 9b depicts the geographical distribution under Scenario 4, which introduces the broadest and most aggressive tariff package in the analysis, adding a 25 percent tariff on all EU imports to the measures already in place under Scenario 3. The map vividly illustrates how this expansion intensifies and geographically widens the economic exposure to tariffs across the U.S.

Counties shaded in darker red and orange — which now appear more frequently across the map — signal areas where AETRs exceed 10 percent and, in some cases, reach above 14 percent. These high-tariff counties are concentrated in the Great Lakes region, Midsouth and parts of the South Atlantic, which are regions with strong manufacturing footprints and close supply-chain ties to the EU, particularly in automobiles, machinery, chemicals and fabricated metals.

Midwestern industrial centers — especially in Michigan, Ohio and Illinois — show increased intensity compared to Scenario 3, as the EU tariff hits imported inputs and finished goods from one of the U.S.’s largest trading partners. These areas are highly integrated into transatlantic trade and host production clusters that depend on EU-origin intermediate goods and capital equipment.

Meanwhile, manufacturing and trade hubs in North Carolina, South Carolina and Alabama — states with growing foreign direct investment and vehicle assembly plants — also show elevated exposure. These regions face the compounded effects of the EU tariff on top of previous measures on autos and metals.

This broadening geographic impact underscores how a full-scale EU tariff escalates tariff exposure from a mostly regional issue to a national economic concern, affecting a wide array of industries and communities. The increasing presence of mid- and high-tariff zones highlights the potential for more widespread supply chain disruption and cost pass-throughs in this most expansive scenario.

The geographic analysis of tariff exposure at the county level — which emphasizes employment composition across industries — aligns closely with recent CFO expectations about hiring in response to tariff policy. As illustrated in Figure 10 from the First Quarter 2025 CFO Survey, manufacturing firms — concentrated in regions heavily affected by the proposed tariffs — are significantly more likely to anticipate reducing employment, with about 32 percent reporting plans to decrease hiring due to tariff concerns. Similarly, firms in construction, mining and utilities also express notable employment concerns, with nearly 22 percent expecting decreased hiring. These concerns are echoed in retail and wholesale trade, with about one-quarter of them expecting declines in hiring due to tariff announcements.

These employment outlooks from CFOs reinforce our findings that counties specializing in manufacturing and mining face heightened vulnerability, suggesting potential negative economic consequences such as job losses and reduced local economic activity in regions most exposed to higher tariffs.

Uncertainties Remain

While this study provides our best estimates of the effect of tariffs on different industries and regions of the U.S., the analysis is incomplete, and several uncertainties remain. The scenarios we presented do not incorporate proposals to impose reciprocal tariffs or additional tariffs on copper, semiconductors, pharmaceuticals, timber and lumber, and certain agricultural products. There is a high degree of uncertainty regarding which of these tariffs will be implemented, as well as their timeline and magnitude. This, in turn, generates uncertainty to consumers and firms.

By making products more expensive, tariffs may lower demand, which could affect firms. A respondent to the First Quarter 2025 CFO Survey in charge of a manufacturing firm said, “We are in the steel industry. While the tariffs will increase costs for the company, we expect most of those costs to be passed on. The bigger concern is what will the impact be on the overall demand.” Another respondent in the same sector said, “Tariffs remain an unknown that could have a large impact on our company due to both imports of our raw materials and exports of our finished product, not to mention the impact of demand on our industrial customers.”

The analysis performed in the previous sections kept everything else constant. For example, the analysis used 2024 import shares, which assumes that firms’ decisions regarding import sources remained unchanged. Figure 7 suggests otherwise, as some importers are planning to diversify their supply chains in response to proposed tariffs. However, these adjustments take time. This is illustrated by the response of a manufacturing firm in the CFO Survey: “How can we plan if we do not know what the tariff situation is for the next five years? Factory and supply chain sourcing decisions cannot be changed at moment’s notice.”

In addition, this analysis did not consider changes in investment or hiring, which could affect production and the level of imports. In that sense, the analysis is “static.” A business services firm responding to the CFO Survey said, “The impacts of tariffs constraining global trade could be very impactful to our business in cross-border payments — the uncertainty of what tariffs, how high, reciprocal or not, etc., is spilling over into spending decisions.” Around 25 percent of CFO Survey respondents were planning to reduce hiring and capital spending in response to tariffs in 2025. When focusing exclusively on the manufacturing sector, these numbers increase to about 32 percent and 29 percent, respectively. Construction, mining and utilities had a similar response.

Conclusion

The 2025 tariff proposals represent significant shifts in U.S. trade policy, with potentially large economic impacts varying across industries and regions. Our analysis highlights that the immediate tariff burden — measured by the AETR — could rise substantially, from a modest 2.2 percent in the benchmark scenario to as high as 17.0 percent under the most aggressive proposal (Scenario 4). While earlier tariffs on Chinese imports had relatively muted impacts due to shifts in supply chains, the new measures targeting Canada, Mexico, the EU and automobiles threaten widespread disruptions across key U.S. industries.

Regions deeply integrated into North American manufacturing supply chains — particularly automotive and metal-intensive industries — would bear the heaviest tariff burden under a scenario imposing 25 percent tariffs on Mexico and Canada and imports from aluminum and steel. This includes states like Michigan, Ohio, Indiana and others in the Midwest and Southeast, as well as the Pacific Northwest due to its resource-based trade ties with Canada. When tariffs on the EU and the auto sector are included, these effects are further amplified and severely affect counties heavily reliant on such imports, particularly those in transportation equipment, machinery and fabricated metals.

These concerns are echoed by business leaders, as shown by recent data from the First Quarter 2025 CFO Survey. Over 30 percent of firms now rank trade and tariff policies as their most pressing business concern, which is more than triple the share from the previous quarter. In particular, manufacturing firms are actively adjusting strategies, with more than half planning to diversify their supply chains and nearly one-third reducing their hiring plans. Firms in construction, mining and utilities also anticipate significant disruptions, reflecting the industry’s heightened tariff exposure.

Ultimately, the proposed tariffs may raise input costs, disrupt supply chains and result in higher consumer prices, potentially outweighing any targeted employment gains in protected industries. Policymakers should carefully weigh these costs against intended policy goals and consider targeted measures to support the industries and communities most adversely impacted by these tariff changes.

Marina Azzimonti is a senior economist and research advisor, Zachary Edwards is a research analyst, Sonya Waddell is a vice president and economist, and Acacia Wyckoff is a research associate, all in the Research Department at the Federal Reserve Bank of Richmond.

To cite this Economic Brief, please use the following format: Azzimonti, Marina; Edwards, Zachary; Waddell, Sonya; and Wyckoff, Acacia. (April 2025) “Tariffs: Estimating the Economic Impact of the 2025 Measures and Proposals.” Federal Reserve Bank of Richmond Economic Brief, No. 25-12.

This article may be photocopied or reprinted in its entirety. Please credit the authors, source, and the Federal Reserve Bank of Richmond and include the italicized statement below.

Views expressed in this article are those of the authors and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.