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The Tariff- Inflation Link: A Closer Look Beyondthe Headlines

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  Published in Business and Finance on Wednesday, August 20th 2025 at 17:18 GMT by Seeking Alpha
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The narrative that tariffs are a primary driver of inflation has become deeply entrenched in economic discourse. While acknowledging some price increases following the imposition of U.S. tariffs on imported goods, a recent Seeking Alpha article by Michael Ashton ("Tariffs Causing Inflation – Not So Fast") argues that the connection is far more nuanced and often overstated. This analysis delves into the complexities of this relationship, examining the actual impact of tariffs, alternative inflationary pressures at play, and why attributing inflation solely to trade policy paints an incomplete picture.

The core argument against a straightforward tariff-inflation link rests on understanding how tariffs work. When the U.S. imposes tariffs on imported goods, it effectively raises their price within the domestic market. This increased cost is then theoretically passed on to consumers in the form of higher prices – hence, inflation. However, Ashton points out that this simplistic model ignores several crucial factors.

Firstly, businesses don't always pass on the full cost of tariffs to consumers. They may absorb some of the costs through reduced profit margins or operational efficiencies. This is particularly true for companies operating in competitive markets where passing on price increases risks losing market share. The article highlights that data on tariff absorption rates are often opaque and vary significantly across industries, making it difficult to accurately quantify the consumer impact.

Secondly, the “substitution effect” – where domestic producers increase production to replace imported goods facing tariffs – can mitigate inflationary pressures. While this substitution isn't always seamless or immediate, it does introduce a degree of price competition that counteracts the upward pressure from tariffs. The article references studies suggesting that while some sectors experienced price increases due to tariffs, others saw prices remain stable or even decrease as domestic producers stepped up production.

Furthermore, Ashton emphasizes that inflation is rarely caused by a single factor. In recent years, global supply chain disruptions (exacerbated by the COVID-19 pandemic), rising energy costs, and expansionary monetary policies have all contributed significantly to inflationary pressures. Attributing inflation solely or primarily to tariffs ignores these other powerful forces at play. The article points out that many countries experiencing inflation haven't implemented significant trade barriers, further undermining the argument for a direct tariff-inflation link.

The analysis also addresses the issue of "retaliatory" tariffs. When the U.S. imposes tariffs on imports from another country, that country often responds with its own tariffs on U.S. exports. This creates a tit-for-tat trade war scenario where prices for both exporters and consumers increase. However, Ashton argues that even in these situations, attributing inflation solely to retaliatory tariffs is misleading. The initial imposition of the first set of tariffs, regardless of retaliation, contributes to price distortions, but the subsequent back-and-forth escalates the complexity and makes isolating the impact of any single tariff difficult.

The article also challenges the common assertion that tariffs protect American jobs. While some industries may see a temporary boost in production due to reduced import competition, this often comes at the expense of other sectors reliant on imported inputs or exporting goods facing retaliatory tariffs. Consumers ultimately bear the cost through higher prices and reduced purchasing power. The long-term economic consequences of trade wars are generally negative, hindering growth and innovation.

Finally, Ashton highlights the importance of considering the broader macroeconomic context when assessing the impact of tariffs. Factors such as overall demand, wage growth, and government spending all influence inflation rates. Isolating the specific contribution of tariffs requires sophisticated econometric modeling and careful consideration of these other variables – a task that is often simplified in popular narratives.

In conclusion, while tariffs undoubtedly have an effect on prices, the claim that they are the primary driver of inflation is an oversimplification. A complex interplay of global supply chain issues, monetary policy, energy costs, and retaliatory trade measures all contribute to inflationary pressures. Attributing inflation solely to tariffs ignores these other critical factors and risks misdirecting economic policy responses. A more nuanced understanding of the multifaceted nature of inflation requires a broader perspective that acknowledges the limitations of attributing blame to any single factor, particularly in a globally interconnected economy. The article serves as a valuable reminder to critically evaluate claims about the impact of trade policies and to consider the full range of factors influencing macroeconomic trends.