Aug 19 (Reuters) – Robust U.S. productivity levels appear to have blunted the full inflationary impact of President Donald Trump’s large-scale trade tariffs, new research from the Federal Reserve Bank of Boston said.
“Industries in which tariffs induced higher costs in 2025 also experienced greater labor productivity growth, which helped them mitigate those higher costs,” bank researchers wrote in a paper released on Wednesday.
That means that while firms may have confronted higher input costs due to the president’s tax increases, by getting more output out of their workforces they were able to hold off on passing on those costs. That in turn helped inflation, which has been above the Fed’s 2% target for half a decade, come in lower than it otherwise would have due to the taxes.
Altogether, the tariffs, which rose from an average level of 2.5% before Trump’s return to 10%, joined with healthy productivity rates, added 0.5 percentage point to the core level of the personal consumption expenditures price index, the authors found.
The analysts said firms facing strong tariff-related cost increases managed to keep output steady while cutting labor inputs, and “the reduction in hours contributed to greater labor productivity growth.”
The paper noted the amount of upward lift that the tariffs added to price pressures since 2025 means the blame for high inflation may need other culprits.
“Productivity gains thus strongly offset the increase in consumer prices induced by tariffs,” the economists wrote, noting “given labor productivity gains, inflation should have been closer to 2 percent” rather than the levels that prevailed over the last year.
“Other factors, whose effects on inflation may be less transient than those of tariffs, could have been significant contributors to inflation as well,” they wrote.
Other Fed research, however, has contended that tariffs have been passed on strongly to consumers, with recent work from the New York Fed saying more inflation is yet to come from Trump’s trade policy.
INFLATION DRIVERS
Over the last year and a half or so, Trump’s tariffs have played a starring role in the debate over inflation and how the Fed should manage this situation via monetary policy.
After price pressures surged due to COVID-19-related disruptions and expansive government support policies, inflation had been moving back to target as Trump returned to the White House at the start of 2025. His import tax increases became one of the key factors that started a resurgence of inflation, in the view of many Fed officials and private sector economists.
