U.S. President Donald Trump attends a press conference, as he makes an announcement about the Navy's "Golden Fleet" at Mar-a-lago in Palm Beach, Florida, U.S., December 22, 2025. REUTERS/Jessica Koscielniak
Countless polls are showing the economy, especially inflation, to be a major liability for President Donald Trump and the GOP ahead of the 2026 midterms, but so far, his tariffs haven't caused prices to increase as much as many economists were predicting.
In an article published by The Guardian on December 29, however, Jeffrey A. Frankel — an economist at Harvard University in Cambridge, Massachusetts and research associate at the National Bureau of Economic Research — lays out four reasons why the worst may be yet to come when it comes to Trump's tariffs and inflation.
"It is pretty safe to say that the economic damage caused during Trump's first year back in office has been smaller than predicted," Frankel explains. "There are four reasons why his tariffs' biggest effects were limited or delayed in 2025. First, U.S. economic statistics are unusually vulnerable to measurement problems, owing to the government shutdown, which stretched from 1 October to 12 November. Some CPI (Consumer Price Index) information is missing because the Bureau of Labor Statistics could not collect data as usual, particularly for October…. The second reason we have seen less damage from Trump's tariffs than expected is that many of the highest ones are not fully in effect."
Frankel continues, "Trump has postponed some tariffs repeatedly…. There are good reasons to think that many of the adverse effects of Trump's tariffs have simply been delayed, and we should expect them to show up in 2026. This brings us to the third point: as soon as Trump was elected in November 2024, companies began front-loading imports, in order to accumulate stocks of goods — especially gold from Switzerland and weight-loss drugs from Ireland — before the anticipated tariffs were introduced."
The "final and most important point," according to Frankel, is that "importers have continued to absorb much of the cost increase, even after depleting their pre-tariff inventories."
"To be sure," Frankel writes, "the prices importers pay have risen proportionately with tariffs, contrary to Trump's claims that foreign exporters cover the costs of the duties by lowering their prices…. But companies will not let tariffs erode their profit margins indefinitely. Assuming the tariffs remain, the U.S. can look forward to more price increases, and downward pressure on real incomes, in 2026."
Read Jeffrey Frankel's full article for The Guardian at this link.