As we mark just over a year since President Trump introduced his sweeping tariff plan on April 2, 2025—widely dubbed “Liberation Day”—I must admit I was surprised that tariffs haven’t done more harm to the economy. Initially, like many in the “Tariff Terror” camp, I anticipated significant disruptions: sharp spikes in inflation, meaningful job losses, and even recession risks from the highest effective tariff rates in nearly a century.¹ Yet the data one year later tells a different story. A recent analysis from The Budget Lab at Yale concurs with this view, showing that the actual price-level impact has been far milder than initially projected by the Lab itself and many other economists.¹

The Trump administration’s tariffs raised the average effective U.S. tariff rate to roughly 11% pre-substitution (or about 9.6% post-substitution) by early April 2026—the highest since 1943 excluding the peak 2025 period—before some provisions began to roll off.² Early models, including The Budget Lab’s own April 2025 projection, foresaw a 2.3% rise in consumer prices, equivalent to roughly $3,800 annually for the average household under full pass-through assumptions.1 In reality, retrospective estimates now place the price effect at 0.5% to 1.0%, or about $650–$1,340 per household depending on whether temporary Section 122 tariffs expire as scheduled.²

Several factors explain why the impact proved less severe than feared. First, policy volatility and legal challenges scaled back the original scope. The Supreme Court’s ruling on International Emergency Economic Powers Act (IEEPA) tariffs eliminated a broad layer of “reciprocal” duties, materially lowering the overall regime.³ Second, actual pass-through to consumers was far from 100%: empirical studies peg it at 40–76%, with importers, exporters, and retailers absorbing or offsetting a meaningful share through margin compression, supply-chain rerouting, and exemptions.⁴ Third, pre-tariff stockpiling (imports surged 20% above trend in Q1 2025) delayed price pressures, while behavioral responses—such as tariff engineering and shifts to lower-tariff sources—further muted the bite.¹ Even Federal Reserve Governor Stephen Miran noted in February 2026 that the tariffs have proven “quite muted” in their economic effects, with more of the burden falling on foreign firms than initially modeled.⁵

On the macro front, the economy has shown similar resilience. The Budget Lab estimates that tariffs reduce long-run U.S. GDP by a persistent but modest 0.1% (roughly $27 billion annually in 2025 dollars) under the baseline scenario where Section 122 tariffs expire—far from the recessionary scenarios some feared.¹ Manufacturing output has seen a modest 0.7% expansion in certain durable goods, though this has been partially offset by contractions elsewhere (e.g., construction down 2.0%).¹ Broader indicators, including overall employment and GDP growth, have cooled but not collapsed; the labor market has reallocated rather than cratered, and 2026 is already benefiting year-over-year from lower effective tariff rates compared with the 2025 peak.¹ Analysts such as Daniel Drezner have similarly acknowledged that “Trump’s myriad tariffs did not prove to be as economically catastrophic as I expected,” attributing the gap largely to the fact that the final policy package was “only about 50 percent as horrible as the original pronouncement.”⁶

Fiscal effects have also been notable, if not transformative. The current regime is projected to raise approximately $1.1 trillion over the 2026–2035 period on a conventional basis (net dynamic revenue ~$1.0 trillion after growth effects), providing revenue without the deeper output losses once projected.¹

In short, while tariffs are not costless, they have raised prices for certain goods (especially autos, clothing, and furnishings) and created sectoral trade-offs—their overall economic footprint after one year has been considerably less harmful than the dire warnings that dominated early 2025 commentary. Market adaptations, judicial guardrails, and pragmatic policy tweaks all contributed to this outcome.

Outlook

With inflation pressures contained relative to fears and the economy demonstrating adaptability, the tariff experience offers a useful lesson in humility for forecasters and policymakers alike. The economy and capital market’s reaction to a substantial tariff shock has been a testament to adaptability and resiliency.  

Best regards,

Richard Barnett

Chief Investment Officer

Footnotes:

1. The Budget Lab at Yale, “One Year of Tariff Analysis: What We Got Right, What Changed, and What We Learned,” April 2, 2026, https://budgetlab.yale.edu/research/one-year-tariff-analysis-what-we-got-right-what-changed-and-what-we-learned (initial projections and “Tariff Terror” context).

2. The Budget Lab at Yale, “State of U.S. Tariffs: April 2, 2026,” April 2, 2026, https://budgetlab.yale.edu/research/state-us-tariffs-april-2-2026

3. The Budget Lab at Yale, “State of U.S. Tariffs: SCOTUS Ruling Update,” February 20, 2026, https://budgetlab.yale.edu/research/state-us-tariffs-scotus-ruling-update

4. New York Times, “Why Haven’t Trump’s Tariffs Had a Bigger Impact?” January 3, 2026, https://www.nytimes.com/2026/01/03/business/economy/trump-tariffs-prices-impact.html

5. Finance & Commerce, “Fed’s Miran says Trump tariffs hurt foreign firms, not Americans,” February 10, 2026, https://finance-commerce.com/2026/02/fed-governor-miran-trump-tariffs-foreigners-pay

6. Daniel W. Drezner, “About Those Trump Tariffs…,” Substack, April 2026, https://danieldrezner.substack.com/p/about-those-trump-tariffs

Researched and compiled with the assistance of Grok. This newsletter represents our opined general assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future performance or results. The opinions and statements expressed are intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities or investment strategies to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. The opinions expressed are as of April 21, 2026, and are subject to change without notice. Investing involves risks. Past performance is not a reliable indicator of current or future results, and index returns do not account for fees. It is not possible to invest directly in an index.

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