De Nederlandsche Bank examines how import tariffs affect inflation and growth and advises caution in monetary policy responses

De Nederlandsche Bank published an analysis on the economic effects of import tariffs, explaining how duties can raise prices and disrupt trade while weighing on growth, and setting out how central banks should interpret tariff-driven inflation shocks. The analysis notes that tariffs raise the cost of imported goods and inputs, with firms often passing at least part of these costs on to customers. It highlights knock-on effects through cross-border production chains, weaker productivity and slower growth, compounded by trade-policy uncertainty that can delay investment and hiring. For countries targeted by tariffs, falling demand can reduce export revenues, profits and employment, with firms sometimes absorbing part of the tariff through smaller price increases at the cost of profitability. In practice, outcomes can be less clear-cut because firms adjust by building inventories ahead of measures and trade flows can shift toward regions facing lower tariffs; for the European Union, inflation effects are described as mixed because supply-chain disruption can push inflation up while a stronger euro and potential diversion of exports to Europe can depress prices. On monetary policy, the paper argues that central banks should generally respond cautiously to tariff-related price shocks because they often represent a one-off, temporary increase in inflation alongside a weakening economy. It adds that a more forceful response may be warranted if tariffs become embedded in prolonged geopolitical tensions that create structurally higher costs and more persistent inflation, requiring action to prevent inflation expectations from rising.