Trump’s Trade Regime: How Tariffs Are Increasing US Taxes
- This report from UBS paints a concerning picture of the US economy, heavily influenced by the impact of rising tariffs.
- * Current tariffs represent a weighted-average rate of 13.6%, a massive increase from 2.5% at the start of the year.
- * Tariffs are actively contributing to persistent inflation.
Summary of the UBS Report on US economy, Tariffs, and Inflation (2026-2028)
This report from UBS paints a concerning picture of the US economy, heavily influenced by the impact of rising tariffs. Here’s a breakdown of the key findings:
1.Tariffs as a Significant Tax Increase:
* Current tariffs represent a weighted-average rate of 13.6%, a massive increase from 2.5% at the start of the year.
* This equates to a tax of 1.2% of GDP.
* UBS explicitly states: “The tariffs are a big tax increase.”
2. Inflationary Impact:
* Tariffs are actively contributing to persistent inflation.
* They are expected to add 0.8 percentage points to core PCE inflation in 2026, possibly keeping inflation around 3.5% even with easing pressures in other areas.
* Cumulative impact through 2028 could be 1.4-1.9 percentage points on core PCE, accounting for nearly two-thirds of the gap between current inflation and the Fed’s 2% target.
3. Impact on households:
* rising prices are eroding real income gains for American households.
* Wage growth (3.5% annualized) and payroll income growth (3.25% annualized) are being outpaced by inflation (expected 3-4% in the next two quarters).
* Lower-income households are particularly vulnerable due to historically low liquid assets.
* Consumer perceptions of future prospects are declining due to rising costs and a slowing labor market.
4. Precarious Economic Expansion:
* The US economic expansion is described as “narrowly driven” and “precarious.”
* Growth is heavily reliant on AI-driven investment in software and computers, and consumption by upper-income households benefiting from equity market wealth.
* Significant parts of the economy (residential investment, non-residential construction) are already in recession or declining.
5.Trump’s “Tariff Dividend” Proposal:
* President Trump is proposing a “tariff dividend” of at least $2,000 per person (excluding high-income earners) based on increased tariff revenue.
the report suggests a challenging economic outlook where tariffs are a major drag on growth, fueling inflation and disproportionately impacting lower-income households. The economy is heavily reliant on a narrow segment of growth, making it vulnerable to shocks.