Artificial intelligence—or at least corporate enthusiasm for it—is doing us some good. In Staff Report 686 from the Federal Reserve Bank of Minneapolis, four Federal Reserve economists find, among other things, that AI-driven investment boom saved us from tariff-induced stagflation:
We find that tariff increases alone would have generated stagflationary effects — reducing GDP by about 0.7 percent while raising inflation by 0.7 percentage points. What separates that counterfactual from the growth actually observed in 2025 and 2026 is the investment boom and the sequence of positive MEI shocks behind it. As with trade, the model implies the investment boom was strong enough to support growth in the U.S. economy despite a large drag coming from tariffs, while adding modestly to the increase in prices [Francesco Ferrante, Andrea Prestipino, Andrea Raffo, and Michael E. Waugh, “Tariffs, Investment, and the Missing Trade Collapse,” Federal Reserve Bank of Minneapolis: Staff Report No. 686, August 2026, p. 3].
Spending on artificial intelligence was able to prop up GDP in part because the madman in the White House didn’t subject chatbot tech to the same tariffs as many other goods. One of the authors of the above paper finds in a separate investigation that amidst the Trump trade war, tariff rates on AI-related goods have been about a third of the rates on other goods:
…In 2024, the gap between the two was modest: 1.8 percent for high-relevance products versus 2.7 percent for low-relevance products. By 2025, with the broad increase in U.S. tariffs, both rates had risen, but the gap had widened substantially. High-relevance products faced an effective rate of 4.5 percent, compared with 12.1 percent for low-relevance products.
Why are tariffs lower on AI-related products? The answer is exemptions. Several executive orders in 2025–2026 created product-level tariff exemptions that disproportionately cover AI inputs [Michael E. Waugh, “Trade in AI-Related Products,” Federal Reserve Bank of Minneapolis: Quarterly Review Vol. 46 No. 1, 2026.06.01, p. 12].
Spending on artificial intelligence has been saving the American economy from the deleterious effects of tariffs, and that salvation has come in part because we didn’t subject computer hardware, copper cathodes, and specialty metals to the same tariffs that we slapped on so many other goods produced by our trade partners.