Investment Rating - The report indicates a negative long-term impact on US real income due to higher tariffs, estimating a decline of 1.5-2% if current tariff policies become permanent [2][73]. Core Insights - The effective tariff rate in the US is expected to rise by approximately 13 percentage points (pp) this year, reaching its highest level since the 1930s, with elevated tariffs likely to persist in the foreseeable future [2][5]. - A 13pp increase in tariffs is projected to reduce US real income by around 1% in the long run, with additional long-term effects potentially leading to a total income loss of 1.5-2% [2][73]. - The report highlights that higher tariffs may discourage investment, raise equipment costs, and negatively impact innovation, leading to a drag on GDP over time [2][51][74]. Summary by Sections Tariff Impact on Economy - The anticipated increase in tariffs will likely shift resources away from successful firms engaged in international trade, resulting in efficiency losses [2][17]. - Reshoring production back to the US is deemed unlikely due to lower production costs in alternative supplier countries [2][33]. Long-Term Economic Effects - Higher tariffs are expected to raise equipment costs, discourage investment, and lower the capital stock, contributing to a long-term GDP drag of approximately 0.75 percentage points [51][57]. - The report suggests that tariffs could lead to slower productivity growth and innovation due to reduced access to export markets and increased input costs [60][61]. Historical Context and Comparisons - The report draws parallels with the economic impacts observed in the UK post-Brexit and countries that liberalized trade in the 1990s, suggesting similar long-term output effects from increased trade barriers [68][72].