Why US Trariffs may not be Inflationary

Why US Trariffs may not be Inflationary

Conventionally trained economists have been be warning that Tariffs are inflationary, or at least a bad idea when it comes to trade and efficient allocation of resources, as videos like the ones below show,.

However, there are reasons why this conventional viewpoint is incorrect, and that tariffs may not be inflationary, and that there may be other benefits as well.

  • As tariffs have been announced, the USD has strengthened, against all currencies, but particularly against the country with the tariffs, offsetting part of the tariffs.
  • This means that the workers in the target country, are paying at least part of the tariff, which has been the pattern of mercantilist/authoritarian countries, and part of why the trade relationships are so imbalanced.
  • Target countries like China may also subsidies production further to keep exports competitive, this takes money from other parts of their economy to pay for tariffs.
  • Many of the goods that are imported, are goods that have actually had deflationary prices over the past several decades, meaning that that tariffs may be anti disinflationary rather than inflationary.
  • Some of the goods (like electric cars) were possibly going to be very deflationary, if there was about to be product dumping of goods at prices below current market prices. This means that adding a tariff is not going to cause prices to increase, but like the previous point is going to just stop countries exporting their deflation to the US, hurting existing jobs.
  • Similarly, if China was going to have to devalue is currency anyway to deal with it’s local debt problems in housing and local governments, those goods were actually going to get cheaper, so tariffs would not cause further inflation.
  • As the USD has been increasing, it’s purchasing power in global commodities such as food, energy and raw materials hasmalso increased. These represent the segments of the CPI that has increase over the past several decades, as well as representing a large proportion of lower income earnings, meaning in may help dampen inflation.
  • There is the additional point that the purpose of tariffs is to bring jobs and critical supply chains, as well as a tool for other non-trade related foreign policy (such as immigration and drug imports) which may have additional benefits beyond prices.