Key Points

  • The Federal Reserve said U.S. businesses should expect Trump administration tariffs to raise trade compliance costs to between 1.4% and 2.5% of the value of goods, highlighting the additional burden imposed by import duties.
  • Federal Reserve researchers said U.S. import tariffs at their highest levels since the 1930s could raise total annual compliance costs for manufacturers to between$39 billion and $71 billion.
  • The researchers said: "The additional compliance costs arising from increasingly complex trade regulations could have significant economic effects, and therefore, when formulating trade policy, these costs should be explicitly considered and weighed against their expected benefits."

In-Depth Analysis

Shortly after taking office in January, President Donald Trump fulfilled a campaign promise by ordering that for every new federal regulation implemented, ten existing regulations must be revoked, in order toderegulate U.S. industries。

According to a mid-year study by the American Action Forum, in the first six months of Trump's presidency, the administration reduced total regulatory costs by $86 billion and cut paperwork burden by 52.2 million hours.

However, the forum noted that all deregulatory savings stemmed from the Financial Crimes Enforcement Network's elimination of the "beneficial ownership information reporting requirement." Had that requirement not been eliminated,regulatory costs under Trump would have increased by $1.1 billionand paperwork burden would have increased by 3.3 million hours.

Forum President Douglas Holtz-Eakin said in a Friday blog post that Trump's deregulatory push could advance further in the coming months. Federal agencies have proposed rules expected to deliver net cost reductions of $6.3 billion and reduce paperwork by 11.8 million hours.

Holtz-Eakin said: "While it is impossible to provide an ironclad numerical basis for this deregulatory effort, there is still a great deal of deregulatory work underway beneath the surface."

Federal Reserve researchers noted that the additional compliance and reporting costs imposed on businesses by Trump's tariffs largely stem from the increased complexity of determining rules of origin, i.e., the national source of a product.

The researchers said that in addition to calculating rules of origin, automakers seeking preferential tariff treatment for imported goods also need to obtain certifications for steel and aluminum, as well as proof of the value of labor involved in production.

The central bank researchers said: "Stricter rules of origin imply higher compliance costs, stemming from higher content requirements and the administrative costs of obtaining and submitting relevant documents."

Automakers have already reported adverse effects from tariffs. During General Motors' second-quarter earnings call, Chief Financial Officer Paul Jacobson said the company paidmore than $1.1 billion in tariffs in the second quarter。

He said tariff "mitigation measures will take time to take effect, thus limiting their impact on the second quarter."

Jacobson added: "However, we still plan to offset at least 30% of the $4 billion to $5 billion tariff impact for the full year 2025 through strategic actions such as manufacturing adjustments, targeted cost initiatives, and ongoing pricing."

Stellantis, the maker of Jeep and pickup trucks, said on July 21 thatimport tariffs cost it $350 million in the first half of 2025。

The central bank researchers said the Federal Reserve's study may underestimate the costs imposed by Trump's import tariffs.

They noted: "We believe our estimate is a lower bound because, in addition to higher content and reporting requirements, U.S. importers must now also contend with the increasing complexity in the tariff schedule."

The researchers said: "The increased complexity not only adds to the administrative burden but may also increase the risk of errors and related penalties, thereby further raising the actual compliance costs for U.S. importers."