Kyle Pomerleau leads an American Enterprise Institute team assessing tariffs’ impact on the cost of capital.
Before the February 2026 Supreme Court ruling in Learning Resources v. Trump, Trump’s tariffs increased the economy-wide cost of capital by as much as 2.7 percent and the [marginal effective tax rate] on new investment by 4.2 percentage points. While the METR varies across assets, legal forms of organization, and industries, this increase in the economy-wide METR on investment is enough to offset the aggregate reduction in the METR that the One Big Beautiful Bill Act provided. …
… Since January 2025, the second Trump administration has enacted new tariffs on nearly all US imports. Tariffs, like other taxes, have important economic implications. Their impact on taxpayer behavior and the broader economy, however, depends on which goods tariffs apply to. Like other taxes on investment goods, tariffs can raise the cost of investment, reducing the overall incentive to invest and distorting the relative price of different types of investments. Tariffs currently apply to a broad array of imported intermediate inputs used to produce capital goods domestically. …
… [W]e estimate the burden that current tariff policies place on investment goods that are put in service in the United States. We develop a framework for analyzing how tariffs affect the cost of capital and raise the overall effective tax burden on new investment. We find that the tariff regime before the Supreme Court decision in Learning Resources v. Trump on February 20, 2026, raised the overall cost of capital by as much as 2.7 percent, with the cost increase varying significantly by asset type.
We estimate that this increase in the cost of capital is equivalent to a 4.2 percentage point increase in the economy-wide marginal effective tax rate (METR) on investment, rising by as much as 26.1 percentage points on equipment. The burden tariffs place on investment affects all legal forms of organization and industries. We also estimate that a tariff-induced tax increase on investment this large would offset the tax cut that the One Big Beautiful Bill Act (OBBBA) provided for investment.
The post Assessing another negative economic impact of tariffs appeared first on John Locke Foundation.
