A new study that examined 150 years of tariffs in the U.S. and abroad found they disrupt the economy and financial markets so much that the result is lower inflation. A working paper published on Thursday from San Francisco Fed researchers Regis Barnichon and Aayush Singh concluded that higher tariffs lead to reduced economic activity, higher unemployment and lower inflation in the short term.

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“The inflation response goes against the predictions of standard models, whereby CPI inflation should go up in response to higher tariffs,” they wrote. “Instead, tariff shocks appear to act as aggregate demand shocks–moving inflation and unemployment in the same directions.” The researchers suggested tariffs create uncertainty that hits consumer and investor confidence, depressing activity, or they could trigger a drop in asset prices that weighs on demand.

“We find evidence in support of both channels: in response to higher tariffs, stock prices decline and stock market volatility increases,” Barnichon and Singh wrote. Before World War II, they found a permanent 4-percentage-point increase in the tariff rate reduced inflation by 2 percentage points and raised unemployment by about 1 percentage point. Post-war estimates, while more uncertain, still point to tariff hikes reducing inflation and worsening unemployment.

The study’s findings are relevant as President Donald Trump’s tariffs have stirred a growing backlash among Americans angry about higher food, utility and insurance costs. Administration officials have long maintained that the tariffs are not stoking inflation. On Friday, President Trump announced he is scrapping tariffs on beef, coffee, and a range of other commodities, following voter anger about affordability that delivered losses to Republicans in off-year elections this month.

Meanwhile, Federal Reserve Chairman Jerome Powell and other policymakers believe tariffs will likely produce a one-time boost to inflation, which will eventually resume its cooling trajectory.

Source: IndexBox Market Intelligence Platform