Boston Fed Study Finds Tariff-Hit Industries Boost Productivity, Dampening Inflation
A Boston Federal Reserve Bank paper shows that sectors most exposed to recent tariffs recorded the strongest productivity gains, which largely offset higher costs and limited inflationary pressure.
Researchers at the Federal Reserve Bank of Boston published a paper indicating that the industries most affected by tariff-induced cost increases in 2025 also recorded the strongest gains in labor productivity. Their model, which assumes firms fully pass higher input costs to buyers, still finds that tariffs added only about 1.4 percentage points to core personal consumption expenditure inflation, because productivity growth cut production costs by roughly 1.3 % and offset 0.9 percentage point of the inflationary pressure.
Across 63 sectors, productivity rose in 37, reducing overall cost pressures. The authors caution that the study does not claim tariffs caused the efficiency gains, but suggest that firms responded to price competition by investing in equipment, reorganizing, or exiting less efficient players. A related San Francisco Fed analysis of 150 years of tariff policy found similar patterns of lower inflation and higher unemployment driven by productivity gains. The findings challenge earlier warnings that tariffs would substantially revive inflation and hinder the Federal Reserve’s price-stability goals.
Why it matters
It shows how firms can offset tariff costs through productivity, limiting inflationary risks for consumers.
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