Fed research models the impact of a 20 pp increase in trade costs for all Chinese imports.
Inflation rises by 0.5 pp over the first year. The increase in final goods prices is largely unwound after a year, but inflation remains persistently higher after that (by 0.1 pp) because higher costs of intermediate goods.
"Our analysis finds that disruptions affecting trade in intermediate goods—a key component of global trade flows—are likely to have particularly persistent effects on inflation, as these disruptions lead to a decline in production efficiency and a sustained increase in marginal costs."
