R/ECON is preparing to release its next economic forecast in mid-summer, with another update planned for the fall. The organization has been closely monitoring tariff developments, Federal Reserve actions, and financial market fluctuations as they gather data for their analysis. Although tariffs are not directly included in R/ECON’s state economic model, their effects are considered through national indicators from Moody’s national forecast.
Tariffs can influence consumer and business decisions even before they are implemented. This was evident in the first quarter of this year when national GDP fell by 0.2%. “This decline was primarily due to a surge in imports,” as businesses stocked up on inventory ahead of potential tariffs, and consumers rushed to buy cars before new tariffs on foreign auto imports took effect.
Once enacted, tariffs have complex effects on the economy. They can lead to increased employment through domestic production while causing job losses in industries dependent on imported goods. Tariffs may also result in higher prices but could boost employment and wages by reducing foreign competition. Additionally, economy-wide inflation may occur, influencing Federal Reserve policy.
Macroeconomic models attempt to capture these market behaviors despite challenges posed by policy uncertainty. Forecasts rely on assumptions about fiscal and monetary policy directions. Baseline forecasts represent a middle ground among various assumptions, with additional scenarios exploring optimistic or pessimistic outcomes.
The challenge of forecasting arises from determining baseline scenario assumptions amid ongoing tariff changes. Recently, the U.S. Court of International Trade blocked most reciprocal tariffs imposed by the Trump administration—a decision now under appeal—which adds further uncertainty to policy direction.
Earlier this month, R/ECON conducted a simulation of tariff impacts for New Jersey using Moody’s baseline national forecast from April. The simulation revealed significant implications for the state economy under certain conditions related to tariff expectations during Trump’s presidency.
Moody’s May forecast indicated an increase in baseline tariff assumptions: a 10% base rate globally and a 40% rate for China. Peak effective rates range from 22.8% in baseline scenarios (decreasing by 2026) to as high as 35.5% without rollback until after 2028.
R/ECON’s upcoming state forecast will incorporate updated New Jersey data alongside Moody’s latest national assumptions; however, pending court case outcomes could render current simulations obsolete.
