Many posts have dealt with tariffs and trade.
Since 2025, the second Trump administration has imposed significant levies on most imports. Although tariffs are routinely discussed as a consumption tax, 36 percent of all imports are capital assets used to produce goods and services. As a result, tariffs place a meaningful burden on new investment in the United States.
We estimate that Trump’s tariffs (before the Supreme Court’s decision) raised the cost of capital by as much as 2.7 percent. This is equivalent to raising the METR [marginal effective tax rate] on new investment by 4.2 percentage points. The burden varies significantly by asset, industry, and legal form of organization, placing the largest burden on equipment. A 4.2 percentage point increase in the METR roughly offsets the OBBBA’s tax cut on investment. The burden that tariffs place on investment is an underappreciated effect of these taxes that has important implications for tax reform, the macroeconomy, and the distribution of the tax burden.
