Weekly Economic Trends and Indicators
In this first of a two-part series summarizing the economic news of 2025, we look at what was probably the most significant event of the year—the large increase in tariffs across a variety of countries and goods.
Talk of tariffs began during the 2024 presidential campaign, so the change in policy was not unexpected. What was a surprise to market participants was the sheer size of the tariff increases as they were initially announced. The April 2nd announcement sent shock waves through the market and caused many to speculate on the possibility of an inflation spike, a recession, or both.
However, readers of this blog will remember that while we acknowledged the risks, the most dire outcomes were not a foregone conclusion. The tariffs announced in April were, in many cases, the opening round of negotiations that continue even now. While substantial tariffs remain, many of them have been delayed or lowered after new deals were negotiated. Businesses are also very resourceful and have been able to gradually offset the effects of tariffs, first by importing ahead of the effective date of the tariffs, then by sourcing products domestically or from countries with lower tariffs. Some prices have increased, and this has contributed to the stubbornness of inflation in some sectors. Nevertheless, there has not been a large spike in prices across the board.
How does this affect the Quad Cities economy? Our regional economy is more reliant on global trade the most metro areas across the country. Some companies will benefit from the protection from foreign competition. However, we also have many companies which depend on the ability to import intermediate goods and sell finished goods to the rest of the world. Thus, there will be both gains and losses. As we found in our latest Business Outlook Survey, about one-third of businesses responding reported altering their business decisions as a result of tariffs this year. We also saw that more companies reported a negative impact than a positive one. Overall, the macro impact is likely to be slightly negative, but with vastly different impacts (from slightly positive to very negative) across firms.
Has enough time passed since the tariff announcements to be able to make a final assessment on the impact of tariffs nationally and locally? Not yet, but we have learned a few things over the last several months.
First, estimates of federal government revenue for FY25 (which ended on September 30) are now available. Tariffs accounted for about 3.6% of revenue (about $190 billion—right on track with what we predicted on this blog in April). This is roughly double the previous level which hovered between 1% and 2% of revenue for many years. FY26 tariff revenue is already on track to approach $300 billion this year, and assuming tariff rates remain at current levels (not guaranteed due to continued negotiations) this could put tariff revenue at around 5% of federal revenue. That would still be one of the smallest categories of revenue—well below individual income taxes which account for about 50% of revenue.
Additionally, the fact that many firms have started to adjust to the new environment (for better or for worse, depending on the goods they sell) suggests that the most disruptive effects of the tariff announcements are behind us. There most likely will be a price to pay in terms of lost efficiency which may take a few tenths of a percent off GDP growth over a period of time. Had the initially announced tariffs stood, the short-term macro effects could have been more serious. The economy in 2025 was strong enough to weather the additional headwind. However, the initial disruptions stand as a warning that a change to the structure of tariffs that would actually close the trade deficit or replace other forms of taxes as a revenue stream would have significant consequences. As it stands now, 2026 will likely be a year of continued adjustment to the new conditions.
Next week: 2025 in review (part 2: the labor market)
