The Federal Reserve’s latest research shows that rising trade costs, especially for intermediate goods, can drive higher and persistent inflation. Using a large cross‑country panel, the study estimates that a 10‑percentage‑point increase in trade costs for intermediate goods raises consumer price inflation by about 0.3 percentage point in the first year, while a similar shock to final goods raises it by 0.5 percentage point. A general‑equilibrium model that simulates the 2018‑19 U.S.–China tariff escalation finds that U.S. inflation would rise roughly 0.5 percentage point and remain elevated because higher input costs reduce production efficiency. The same trade‑cost shock would also slow U.S. GDP growth and produce a modest boost in non‑China emerging‑market trade.
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https://www.federalreserve.gov/econres/notes/feds-notes/how-do-trade-disruptions-affect-inflation-20250228.html
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