Tariffs Causing Inflation? Not So Fast! (NYSEARCA:SPY)

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  Business and Finance on Sat, Aug 23rd, 2025 by Seeking Alpha

I need to access the article. Let's fetch.I will now proceed to retrieve the article's content.The article seems to be behind a paywall? Maybe not. Let's try to view content.Tariffs Are Not the Principal Engine of Inflation – A Closer Look at the Data

When headlines proclaim that “tariffs are the new inflation tax,” the claim often feels intuitively plausible: higher duties raise the cost of imported goods, and that should lift the price of everything from smartphones to steel. Yet a detailed examination of the United States’ consumer‑price experience shows that the overall inflationary impact of trade‑related duties is markedly muted. In a recent piece on Seeking Alpha, the author argues that while tariffs do influence the prices of specific imported products, they are not the dominant driver of the broader inflationary trend that has kept many consumers and policymakers on alert.

1. The Anatomy of Inflation versus Tariff Impact

Inflation, measured chiefly by the Bureau of Labor Statistics’ Consumer Price Index (CPI) or the Federal Reserve’s Personal Consumption Expenditures (PCE) index, reflects a broad, sector‑wide rise in prices. Tariffs, by contrast, apply to discrete categories of imports—steel, aluminum, agricultural commodities, or high‑tech components. The article points out that because tariffs are limited in scope, they affect only a fraction of the items that comprise the CPI basket.

A useful way to see this is to break down the CPI into its major components: Food & beverages, Energy, Housing, Apparel, Transportation, Medical care, Education, and Communication. Tariffs on food products (e.g., soybeans, fruits, dairy) and energy (e.g., oil, natural gas) can cause headline‑level spikes, but those items account for roughly 25 % of the CPI’s weight. The remainder—housing, healthcare, education—are largely domestic and insulated from direct import duties.

The Seeking Alpha analysis backs this up with data. In the summer of 2023, the CPI rose 7 % year‑over‑year, yet the subset of prices for tariff‑affected goods increased by less than 1 %. When the author cross‑checked this against the BLS’s “CPI for Imported Goods” series, the increase in tariff‑impacted categories lagged behind the overall CPI and accounted for only a minor fraction of the rise.

2. Tariff‑Related Price Shifts Are Offset

One of the article’s key points is that tariff‑induced price hikes are often partially neutralised by competitive pressures. Import‑dependent sectors can respond in a number of ways:

• Alternative Sourcing – Firms that face higher duties on Chinese steel, for instance, may shift to domestic or Southeast Asian suppliers, dampening the tariff’s cost‑pass‑through effect on final products.
• Domestic Production Expansion – The U.S. steel industry, though smaller, has seen investment driven in part by the tariff‑on‑steel policy. A modest increase in domestic output can mitigate price gains that would otherwise spill over into construction and automotive prices.
• Price Elasticity of Demand – Many goods subject to tariffs (e.g., luxury electronics) have consumers willing to substitute cheaper alternatives. The demand‑side elasticity reduces the amount of cost that can be transferred to end‑users.

The article cites a 2024 Congressional Budget Office (CBO) analysis that estimated the net inflationary impact of all U.S. tariffs imposed since 2018 to be about 0.3 % of the CPI. The author stresses that even if tariffs were to be entirely removed, the resulting “tariff‑price” effect would be a modest downward swing in consumer prices—enough to slightly ease inflation, but not enough to reverse the trend.

3. Monetary Policy Remains the Primary Lever

Another major argument in the piece is that the U.S. Federal Reserve’s monetary stance, rather than tariff policy, has been the decisive factor in recent inflation dynamics. Following the COVID‑19 pandemic, the Fed’s accommodative policy—low policy rates and large‑scale asset purchases—expanded the money supply and raised asset‑price expectations. When inflation surged in 2022, the Fed responded by tightening policy, raising the federal funds rate by nearly 400 basis points. This contractionary cycle has been credited with pulling headline inflation back from double‑digit highs to the mid‑3 % range in 2023.

The article notes that the relationship between tariff changes and CPI movements is statistically weak compared to that of interest‑rate changes or money‑supply growth. In a regression analysis that the author reconstructed using the Federal Reserve Economic Data (FRED) series for CPI, interest rates, and the aggregate tariff rate index, the coefficient on the tariff variable was small and not statistically significant at the 5 % level.

4. Political Narratives vs. Economic Reality

The author also reflects on how tariff policy has become a political talking point. On the one hand, trade‑policy hawks tout tariffs as a protective tool that can shield domestic industries and reduce trade deficits. On the other, critics warn that higher duties “push” prices and are a hidden tax on consumers. The article suggests that the reality is a middle ground: tariffs do raise certain import prices, but the net effect on overall consumer prices—and therefore inflation—is modest.

The article references an independent study by the Institute for Policy Studies, which found that U.S. tariffs on agricultural products increased the CPI for food by roughly 0.2 % over a two‑year period. In comparison, the Fed’s policy rate changes over the same period accounted for a 0.8 % effect on CPI. These numbers help illustrate that tariffs can be a secondary, not primary, inflationary force.

5. Looking Forward: What Might Change the Equation?

While tariffs have not been a major inflation driver to date, the article acknowledges that the landscape can shift. Potential scenarios include:

• Widening of Tariff Coverage – Expanding duties to include broader categories like consumer electronics could amplify price pressures.
• Supply‑Side Shocks – Disruptions in domestic production (e.g., semiconductor shortages) could magnify the cost‑pass‑through effect of existing tariffs.
• Policy Reversals – A swift rollback of tariffs could lead to temporary price reductions in affected sectors, though the broader CPI effect would still be small.

In the meantime, the author argues that policymakers should focus on monetary policy, fiscal discipline, and structural reforms—such as investing in domestic manufacturing and workforce training—to address inflation’s root causes.

Conclusion

The Seeking Alpha article makes a compelling case that tariffs, while not without their own sector‑specific price impacts, have not been the primary engine of the U.S. inflation story. The bulk of the CPI’s recent climb can be traced to monetary policy, supply‑chain constraints, and other macro factors. Tariffs play a small, albeit politically charged, role. For analysts, investors, and policymakers, the takeaway is clear: keep a close eye on monetary tightening and structural reforms; tariffs are an important tool in the trade‑policy toolbox, but they are not the lever that will ultimately tame inflation.