Trump’s tariffs might be increasing your taxes, but according to the SF Fed, they could also help lower inflation.

How Tariffs Impact Consumers and the Economy

Tariffs essentially act as a tax on consumers. While these charges are initially imposed on businesses, the added costs are often transferred to shoppers through higher prices. In 2025, growing frustration over the rising cost of living led to significant political changes, including the election of Democrats like New York City’s new Mayor Zohran Mamdani. President Trump, in response, dismissed concerns about affordability as political rhetoric, insisting that inflation had been brought under control during his administration.

Could Tariffs Actually Lower Inflation?

Traditionally, the “cost-push” theory suggests that tariffs increase the price of imported goods, which in turn raises production costs for domestic companies. This scenario is expected to slow economic growth and push inflation higher in the short term. However, a recent report from the San Francisco Federal Reserve, titled What Can History Tell Us About Tariff Shocks?, challenges this long-standing view. The analysis argues that higher tariffs could actually reduce inflation, though they may also lead to increased unemployment.

Authors Regis Barnichon and Aayush Singh explain, “Our review of historical data suggests that the significant tariff hikes of 2025 might drive up joblessness, but could also help bring inflation down.”

Many experts have predicted negative economic consequences following President Trump’s decision to raise the average U.S. tariff rate to 15%—a level unseen since 1935, according to the Yale Budget Lab. If the San Francisco Fed’s findings hold true, there may be less reason to fear that tariffs will necessarily fuel inflation.

The Role of Uncertainty in Economic Outcomes

The central argument of the report is that tariff increases create economic uncertainty, which can have a deflationary effect. The authors point out that the common belief—tariffs always push inflation higher—overlooks the impact of uncertainty on the economy.

They write, “Tariff shocks often coincide with periods of heightened uncertainty, which tends to dampen both consumer and investor confidence, reducing economic activity and putting downward pressure on inflation.”

The report also suggests that tariffs can trigger declines in asset values, which further weakens demand, raises unemployment, and contributes to lower inflation.

Historical Evidence of Deflationary Effects

Barnichon and Singh examined economic data from 1870 to 1913 and the years between World War I and World War II—periods marked by significant tariff changes. Their research uncovered a strong inverse relationship between tariff increases and inflation rates. Specifically, they found that a one percentage point rise in tariffs was linked to a 0.6 percentage point drop in inflation.

Modern Differences and Economic Context

However, the authors caution that the U.S. economy has changed dramatically since the early 20th century. “Today, imported inputs make up a larger share of production, which could mean that tariff hikes are more likely to drive inflation higher than in the past,” they note.

For context, U.S. imports in 2024—prior to the new tariffs—totaled roughly $3.2 trillion. In contrast, imports in 1929, just before the Smoot-Hawley Tariff Act raised tariffs to about 20%, were only $4.4 billion.

“Given how much the economy has evolved over the past century, historical patterns may not fully predict what will happen today,” Barnichon and Singh add. The last time tariffs were this high was during the Great Depression, when unemployment soared to 25% and GDP plummeted by nearly 30%.

This article was first published on Fortune.com.