Tariffs are an intervention into an extremely complex economic ecosystem involving moves and countermoves, each with side effects. Often, we don’t know what the precise responses will be to imposing tariffs. For example, will Canada, Mexico, and China retaliate with their own tariffs, escalating the situation into a full-blown trade war? (The early signs indicate that yes, they all will.) Also, will the Federal Reserve Bank, which sets its interest rates as a means to control inflation, tighten its lending policy in an attempt to counteract the consumer price increases that we would see as a result of new tariffs? That might be difficult, given how much pressure they are under at the moment to lower interest rates.
Yale’s Budget Lab builds models that allow it to explore these and many other assumptions to predict what might happen if the tariffs do go into effect. They use the personal consumption expenditures (PCE) data compiled by the Bureau of Economic Analysis, which tracks what consumers buy, how much, and what they pay — as well as how consumers’ spending patterns change as prices fluctuate.