Tariffs Causing Inflation Not So Fast NYSEARCASP Y

Published in Business and Finance on Wednesday, August 13th 2025 at 2:37 GMT by Seeking Alpha
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July CPI reveals rising inflation, driven by durable goods & services. Read why I remain cautious about a September Fed rate cut.

Extensive Summary of "Tariffs Causing Inflation? Not So Fast"

The article challenges the widespread notion that tariffs directly cause inflation, arguing that this perspective oversimplifies economic dynamics and ignores broader contexts. It begins by acknowledging the common criticism leveled against tariffs, particularly in the wake of recent political discussions where figures like Donald Trump have proposed broad tariffs on imports. Critics, including economists and media outlets, often claim that such measures would drive up consumer prices, exacerbating inflation. However, the author contends that this view is not only incomplete but potentially misleading, as it fails to account for the multifaceted ways tariffs interact with supply chains, domestic production, and global trade balances.

At its core, the piece explains the mechanics of tariffs. Tariffs are essentially taxes imposed on imported goods, designed to make foreign products more expensive relative to domestic alternatives. The immediate assumption is that importers pass these costs onto consumers, leading to higher prices across the board. Yet, the author argues this isn't always the case. For instance, foreign exporters might absorb some of the tariff costs to maintain market share, especially if they face competition from other countries or if demand for their goods is elastic. Alternatively, businesses could shift sourcing to non-tariffed countries, mitigating price hikes. The article uses real-world examples to illustrate this, such as the U.S. steel tariffs implemented in 2018. While steel prices did rise initially, the overall inflationary impact was muted because industries adapted by finding alternative suppliers or negotiating better deals.

A key point emphasized is the distinction between short-term price adjustments and sustained inflation. Inflation, as defined economically, refers to a general and persistent increase in the price level across the economy, often driven by factors like excessive money supply growth or demand-pull pressures. Tariffs, the author notes, typically cause targeted price increases in specific sectors rather than broad-based inflation. They can even have deflationary effects in the long run by encouraging domestic investment and production. For example, if tariffs protect nascent industries, they might lead to increased local manufacturing, which boosts supply and eventually lowers prices through economies of scale. The article draws on historical precedents, like the Smoot-Hawley Tariff Act of 1930, which is often blamed for worsening the Great Depression. However, the author counters that this act's role in inflation was overstated; the real issues stemmed from retaliatory tariffs and a global economic downturn, not the tariffs themselves causing rampant price rises.

Furthermore, the discussion delves into the role of tariffs in addressing trade imbalances and unfair practices. The author posits that without tariffs, countries like China could continue dumping subsidized goods into the U.S. market, undercutting domestic producers and leading to job losses and reduced economic output. This, in turn, could contribute to stagflation—a scenario of stagnant growth paired with inflation—far more damaging than temporary tariff-induced price bumps. The piece highlights how tariffs can serve as a tool for rebalancing trade, potentially strengthening the dollar and reducing reliance on foreign debt, which indirectly combats inflationary pressures from currency devaluation.

The article also critiques the media's portrayal of tariffs as inflationary boogeymen, suggesting that such narratives often stem from ideological biases rather than empirical evidence. It references studies and economic models showing that the pass-through rate of tariffs to consumer prices is often less than 100%, sometimes as low as 20-30% depending on the industry. For consumer electronics or apparel, where global supply chains are flexible, the impact might be negligible. In contrast, for commodities like agricultural products, the effects could be more pronounced but still not lead to overall inflation if offset by other factors, such as technological advancements or productivity gains.

Another layer of analysis explores the interplay between tariffs and monetary policy. The author argues that true inflation drivers are more likely rooted in Federal Reserve actions, such as quantitative easing or low interest rates that flood the economy with money. Tariffs, by comparison, are a fiscal tool that can actually help curb inflation by protecting domestic industries from cheap imports that might otherwise suppress wages and economic activity. The piece warns against conflating correlation with causation; just because prices rose during periods of tariff implementation doesn't mean tariffs were the culprit. External shocks, like the COVID-19 pandemic or supply chain disruptions, have been far more significant in recent inflationary episodes.

In addressing counterarguments, the article concedes that poorly designed tariffs could indeed contribute to higher costs if they provoke widespread retaliation or disrupt essential supply lines. However, it advocates for strategic, targeted tariffs that focus on sectors where the U.S. has competitive advantages or where foreign practices are predatory. This approach, the author suggests, could foster innovation and self-sufficiency, ultimately leading to lower long-term prices. The discussion extends to global implications, noting how tariffs might encourage multilateral negotiations to reform trade rules, reducing the need for such measures in the future.

Ultimately, the article calls for a nuanced understanding of tariffs beyond simplistic inflation scares. It urges readers to consider the full economic picture, including benefits like job creation, technological advancement, and national security. By reframing tariffs as a potential stabilizer rather than an inflationary force, the piece encourages a reevaluation of protectionist policies in an era of geopolitical tensions and uneven global recovery. The author concludes that dismissing tariffs outright ignores their potential to address deeper structural issues in the economy, and that the real path to controlling inflation lies in comprehensive policy reforms, not knee-jerk reactions to trade tools.

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