Since taking office, President Donald Trump has announced numerous plans for changing tariffs, with the latest being a temporary exemption on certain electronics. Even before April, the Trump Administration has often left the rate of tariffs, their duration, the goods subject to them, and the businesses exempt from them open to change. The recent announcement and modification of wide-reaching tariffs within a few days has only increased uncertainty. Beyond the level of the tariffs themselves, this uncertainty imposes economic costs for consumers, businesses, and trade.
Tariffs—taxes on imports—have many costs, including higher prices for consumers and businesses. Previous TPC estimates show that 10 percent global tariffs plus 60 percent tariffs on imports from China would decrease after-tax incomes by an average of nearly two percent, disproportionately affecting the Midwest and South. The tariffs announced on April 2 are estimated to cost Americans $3.3 trillion from 2026 to 2035, plus an additional $190 billion for the remainder of 2025.
When implemented carefully, tariffs can have some benefits, such as protecting strategic or emerging industries from foreign competition. But for those benefits to outweigh the costs, tariffs must be applied transparently and carefully. Predictability, even when policies impose costs on businesses, allows businesses to plan and structure their operations for their best performance, given their current policy environment.
Indeed, predictability is one reason that many business provisions of the 2017 Tax Cuts and Jobs Act, such as a reduced corporate income tax rate, were made permanent (unlike the individual provisions that expire at the end of 2025). Even now, some are arguing that all provisions should be made permanent to “provide businesses the certainty and stability they need.”
But so far, the Trump administration’s tariffs policy has not followed this standard. With proposed tariff rates sometimes changing over the course of a day, it is very difficult for businesses to know how to proceed and invest. One sign: The most recently available value of the trade components of the Economic Policy Uncertainty Index—one of the most-used measures of uncertainty for economists—is more than 125 times higher in March 2025 than it was in January 2024, more than half of that increase in the last month alone (Figure 1). The monthly global economic policy uncertainty index, which reflects more than US-driven tariff implementation, passed its previous May 2020 peak in February.
Much of this reflects a plain reality: Uncertainty is expensive. Businesses may not know whether they will face lower tariffs by moving manufacturing from China to Mexico or whether they should import more now before a future tariff takes effect. They don’t have the information necessary to determine whether to lock in current contracts. The automotive industry, for example, requires confidence that tariffs on imported autos will exist for years before making long-term, expensive investments in domestic manufacturing or changes to supply chains, including importing from countries with lower tariffs.
Businesses cannot make informed decisions with tariff uncertainty, and neither can consumers (for example, those trying to choose whether to buy now or later). Each layer of markets, suppliers, and workers inherits and magnifies that uncertainty—particularly for workers in especially affected sectors. Uncertainty even affects the Federal Reserve. It might need to raise interest rates to curb tariff-related inflation or lower interest rates if tariffs tank the economy. But its decisions depend on which goods are subject to tariffs, at what rates, and when. None of this is certain.
The effects of uncertainty can be severe. As businesses and consumers pause or scale back their spending simply because they do not know what is coming next, the economy begins to slow. Businesses can also reduce hiring, as they need fewer workers to meet reduced demand for their products, compounded by uncertainty about future demand. This is how uncertainty can lead to recession. Especially considering the international nature of trade in tariffs, there can be further spillover effects into global markets.
These effects of uncertainty are preventable. Tariffs, like any tax, necessarily exert a cost on businesses (and the economy in general). Policy uncertainty will compound the effects of uniquely high tariff rates and impose a cost of its own. The tariffs announced on April 2 are no exception. They have been partially paused, causing temporary relief for many. But uncertainty about tariff rates now appears certain.
