A Background on Tariff Policy 2

Tariffs, Capital Goods, and the Cost of Capital 2

How Tariffs Affect the Cost of Capital 3

How Investment Responds to Changes in the Cost of Capital 4

The Impact of Trump’s Tariffs on the Price of Capital Assets 5

The Impact of Trump’s Tariffs on the Economy-Wide Effective Tax Burden on Capital Assets 8

Tariffs’ Impact by Industry and Legal Form of Organization 10

Alternative Tariff Policies 12

Tariffs and the OBBBA 13

Discussion 13

  Tariffs and Tax Reform 13

  The Impact of the OBBBA and the Tax Cuts and Jobs Act on Investment 14

  Trade Balance 15

  Distributional Consequences 16

  Other Issues and Caveats 17

  Conclusion 18

Appendix A 19

  Estimating the Price Effect of Tariffs 19

  The Cost of Capital and the Effective Tax Rate on Investment 19

Appendix B 23