A post on Facebook claimed that productivity growth largely offset higher costs of Trump’s tariffs:
“I posted back when Trump first announced his tariff policies that those saying firms would just raise prices were clearly academics and not those in business. Losing market share is important enough that you will lower prices to a degree to avoid it WHILE looking to cut costs to restore your operating margin.
“And lo and behold that is exactly what research published by the Federal Reserve Bank of Boston this week found. Productivity growth accelerated in those industries most heavily affected by tariffs and that this largely offset the higher costs firms in those industries faced.
“‘Industries in which tariffs induced higher costs in 2025 also experienced greater labor productivity growth, which helped them mitigate those higher costs,’ the Boston based Federal Reserve noted. Sometimes those living in academia are eventually led to the realities of the business world.”
The research mentioned is:
Federal Reserve Bank of Boston. “How Much Did Labor Productivity Gains Offset the Inflationary Impact of the 2025 Tariffs?” Federal Reserve Bank of Boston, 19 Aug. 2026, https://www.bostonfed.org/publications/current-policy-perspectives/2026/how-much-did-labor-productivity-gains-offset-inflation-impacts-2025-tariffs.aspx.
I asked Claude AI: “Does the Boston Fed paper support this argument?”
Short answer: no, not really – and in a few places it actively cuts against that specific claim. Here’s the breakdown:
1. The paper doesn’t measure firm pricing/market-share strategy at all
It’s a sectoral cost-accounting exercise, not a study of firm decision-making. It maps tariff-induced cost changes and productivity changes onto an assumed inflation pass-through model. It never asks “did firms hold prices down to protect market share?” – that’s not a variable in the analysis. So the paper can’t be cited as direct evidence for that mechanism one way or the other.
2. Where it does bear on price behavior, it says the opposite: firms raised prices
Right in the intro, the authors cite their own companion research showing tariff costs were passed through to consumers:
“Barbiero, Silva, and Stein (2026) and Minton, Ray, and Somale (2026) find evidence that this increase in costs, indeed, has been at least partly passed through into consumer prices. Results from a survey of US small and medium-sized businesses presented in Andrade et al. (2025) also indicate that firms have passed through tariff-induced cost increases into prices.”
And their own Table 1 shows tariffs contributed a positive 1.44 percentage points to core PCE inflation (0.75 direct + 0.69 domestic-producer effects). Even after netting out the productivity offset (-0.93 pp), the combined tariff+productivity effect is still +0.5 pp – inflationary, not deflationary. So the data show prices went up because of tariffs, just less than a naive pass-through model would predict. That’s meaningfully different from “firms lowered prices to protect market share.”
3. The “productivity gains” mechanism is about labor cuts, not operational efficiency
This is the part worth flagging most directly, because it’s easy to read “productivity growth” as “businesses got smarter/leaner” – but the paper is explicit that these gains came almost entirely from reduced hours worked while output held flat, not from producing more. That’s labor shedding, not innovation. It’s a real cost-cutting behavior, but it’s a different story than “we’ll eat the margin hit temporarily while we find efficiencies” – it’s closer to “we cut the workforce to hold the line on costs.”
4. The labor-share finding cuts against the “protecting consumers/market share” framing
The authors also find that in the most tariff-exposed sectors, labor’s share of value-added fell – i.e., wage growth didn’t keep pace with the productivity gains. Their own interpretation: this “freed a cost-offsetting force that may have been directed to other factors of production or, possibly, higher markups.” That’s a hint that at least some of the savings went to margins/profits rather than being passed back to consumers as price relief – the opposite of what you’d expect if firms were primarily trying to hold prices down to defend market share.
5. The authors flag their own findings as correlational and offer three competing explanations – none of which is “rational market-share-preserving pricing behavior.” They suggest it could be (a) a pre-existing multiyear productivity/labor-share trend unrelated to tariffs, (b) unproductive, import-dependent firms getting pushed out of the market entirely – which would mean less competition, not more pressure to protect market share, or (c) firms substituting capital/automation for labor. Option (b) in particular is arguably a counter-story to the argument, since reduced competition would let survivors raise markups, not compress them.
Regarding the criticism expressed as “living in academia:”
The instinct behind this argument is a fair one: distrust of people who model the economy from a distance instead of running one. That instinct deserves better data, not less of it. The best evidence available here didn’t come from a theorist’s assumptions — it came from asking thousands of real business owners and executives what they actually did, and they said, repeatedly and in growing numbers, that they raised prices because of the tariffs. That’s not an academic’s guess. That’s businesses telling you themselves.
Bottom line The paper is genuine evidence that businesses respond to cost shocks partly through internal cost-cutting rather than 100% price pass-through – that part of general microeconomic intuition holds up fine, and it’s not really an “academics vs. business” divide. But the specific claim – that firms held prices down to protect market share while cutting costs to restore margin – isn’t what this paper shows. The paper and its own cited literature show tariff costs were passed through to consumer prices (net positive contribution to inflation), the “cost cutting” was mostly reduced labor hours rather than efficiency gains, and there’s a signal that savings may have gone toward margins rather than being passed back to consumers.