How would removing the 2025 tariffs affect inflation and GDP projections in 2026 under major economic models?
Executive summary
Removing the 2025 tariffs would, in most major models, lower headline inflation in 2026 by a few tenths to about one percentage point relative to the path with tariffs, and raise 2026 real GDP growth by roughly 0.2–0.6 percentage points compared with the “tariffs remain” baseline; the magnitude varies importantly by modeling choices, assumptions about retaliation, and whether foregone tariff revenue is replaced or refunded [1] [2] [3]. Forecasters from the CBO, PIIE, Yale’s Budget Lab and private firms present a consistent story: tariffs pushed up price levels while shaving off growth, so their removal would reverse most—but not all—of those effects within 2026 under typical specifications [4] [1] [2] [5].
1. What the major models say about inflation if tariffs are removed
Budget-model and macroeconomic studies place tariff pass-through to consumer prices in the range that would move headline inflation by several tenths to about one full percentage point over 2025–26, so reversing tariffs tends to reduce inflation forecasts for 2026 by a comparable amount in those frameworks [1] [2] [6]. The Congressional Budget Office quantified tariff changes as lifting the PCE price index level by 0.9 percent by 2026 and estimated average inflation about 0.4 percentage points higher over 2025–26 relative to its earlier baseline, implying that removing the tariff shock would lower the 2026 inflation path materially [1]. Private forecasters concur: Morningstar projects tariffs revive inflation toward 2.7 percent in 2026 absent removal, and Goldman Sachs expects core PCE to recede once tariff pass‑through ends in mid‑2026—both consistent with a reduction in inflation if tariffs were undone [3] [7].
2. What the major models say about GDP growth in 2026 if tariffs are removed
Quantitatively, several reputable models show removal adding a few tenths of a percentage point to real GDP growth in 2026: PIIE’s scenario attributes tariffs to a 0.62 percentage‑point drag on U.S. growth in 2026, and Yale’s Budget Lab finds cumulative tariff policy lowers growth by roughly 0.4–0.5 percentage points across 2025–26, indicating that removal would restore growth by a similar order of magnitude [2] [5] [8]. The CBO’s assessments likewise show tariffs offsetting stimulus-driven gains and keeping growth below prior baselines, so eliminating tariffs would raise 2026 growth toward the January 2025 baseline but not fully erase longer‑run productivity and investment losses that some models treat as persistent [4] [1].
3. Mechanisms and timing: why effects show up in 2026
Models converge on two channels: immediate price pass‑through on imported goods and second‑round effects via higher input costs that depress investment and consumption; the direct price channel acts quickly so many forecasters see the bulk of the inflation benefit within months after tariff removal, while output recovers more gradually as trade and supply‑chain responses unwind [2] [3] [1]. Several authors caution that some inflationary effects were delayed in 2025 because firms used pretariff inventories and measurement gaps—meaning a tariff rollback in early 2026 could produce a concentrated drop in sticker prices as remaining pass‑through unwinds [9] [10].
4. Why model estimates differ and how retaliation and fiscal choices matter
Discrepancies across estimates reflect different assumptions about retaliation, the degree of pass‑through to final prices, whether tariff revenue is recycled into the budget, and the speed of supply‑chain adjustment; for example, the IMF‑style scenario of symmetric retaliation yields larger GDP losses than models assuming limited foreign response, and CBO versus Yale differences stem partly from methodological choices about effective tariff rates and compliance [11] [2] [8]. Tax‑foundation and budget‑lab simulations also show that refunding or eliminating tariff receipts changes household income and hence consumption, so the fiscal handling of removed tariffs materially alters 2026 GDP outcomes [12] [8].
5. Bottom line, uncertainties, and policy implications
The best reading of major models and reputable forecasters is that removing the 2025 tariffs would lower inflation in 2026 by a few tenths to roughly one percentage point and boost real GDP growth by on the order of 0.2–0.6 percentage points versus leaving tariffs in place, but exact outcomes hinge on retaliation, fiscal offsets, inventory dynamics and measurement quirks—areas where sources explicitly note sizable uncertainty [1] [2] [5] [3]. Policymakers deciding on tariff rollback face a familiar trade‑off: prompt removal eases inflationary pressure and supports growth in 2026, while partial or delayed unwinding leaves elevated price levels and weaker output lingering into the year [7] [13].