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Is there any solid empirical evidence that tariffs cause inflation? They increase prices for some things, but they don't increase the money supply.

fredophile 2y ago
Can you clarify the definitions you're using? How is inflation different from increasing prices?
- bitshiftfaced 2y ago
  In the sense that you can measure it as a whole, such as what governments do with CPI reports. For example, if prices go up for a widget A, then maybe consumers switch to widget B. Prices for something went up, but inflation depends on the whole of things people actually buy.
  - seanmcdirmid 2y ago
    American steel companies just raised prices a week ago in anticipation of tariffs (not even passed tariffs), and the tariffs wouldn't even effect them. Everyone is going to want their share of higher pricing power, so expect domestic producers to follow higher import prices (well, its already happened). If there was a lot of domestic suppliers and (more importantly) a lot of domestic competition, inflation might be avoided. But none of that exists, so expect consumers to pay for the tariffs directly and then more. https://www.cato.org/blog/more-costly-steel-tariffs-horizon https://www.cato.org/blog/more-costly-steel-tariffs-horizon
    - bitshiftfaced 2y ago
      My question was about the evidence. For example, Trump introduced a 25% tariff on steel in early 2018, and yet we didn't see any unusual inflation until after the COVID stimulus.
      - seanmcdirmid 2y ago
        No, I think you remember it wrong. US steel companies raised prices back in 2018 as well. It was just that it was one tariff at the one time, and many companies were able to avoid it by moving production overseas (the tax didn't apply to goods made with steel, just steel itself). This time, there are more tariffs coming at the same time, and the trick of moving production abroad to avoid steel tariffs is no longer viable.
        bitshiftfaced 2y ago
        In this comment chain, I have already clarified that by "inflation," I'm not referring to how an items price goes up after it becomes subject to a tariff. I'm referring to overall inflation in goods and services. You can see the rate of inflation from March of 2018 to the beginning of the COVID stimulus here: https://fred.stlouisfed.org/series/CPIAUCSL https://fred.stlouisfed.org/series/CPIAUCSL
        seanmcdirmid 2y ago
        If you tariff a small section of the economy, you aren't going to see much movement. Producers can adjust by moving production abroad (to avoid raw input tariffs) and by moving production to home (to avoid final assembly tariffs) (often a combination of both). Trump's 2018 tariffs were narrow enough that they were easy to digest. Trump's 2025 tariffs are fairly broad and we won't be able to move production around in multiple places to deal with it, so much of the economy is going to eat the cost directly. So if money supply stays the same, Americans simply reduce their lifestyle to compensate (buy 25% less stuff, eat 25% less food), but I don't think that Trump (as someone who is addicted to excess) will see that as viable, so money is going to be printed and injected into the economy somehow.
      - fredophile 2y ago
        I was able to find an article[0] showing job losses from Trump's first term tariffs but nothing concrete about inflation. Despite not having concrete proof, I think there's a fairly plausible chain of events from tariffs to broader price increases. Trump's tariffs include a 10% tariff on Canadian oil and gas. If you're in a region that relies heavily on these things coming from Canada you're going to see prices go up on your monthly energy bills, fuel for your vehicle, etc. This also affects local businesses and directly increases their costs. Businesses can only absorb so much of an increase before they raise prices. Now you're able to buy even less between your increased monthly expenses and the higher prices in stores. This makes you go to your boss and ask for a raise just so you can keep up with what your purchasing power used to be. If your boss gives you that raise, the business sees their expenses go up again and may need to raise prices as a result. In the scenario I described above, what step do you think won't happen that allows us to prevent higher energy prices from leading to inflation? [0] https://carnegieendowment.org/china-financial-markets/2021/01/how-trumps-tariffs-really-affected-the-us-job-market?lang=en https://carnegieendowment.org/china-financial-markets/2021/0...

fredophile 2y ago

Can you clarify the definitions you're using? How is inflation different from increasing prices?

bitshiftfaced 2y ago
In the sense that you can measure it as a whole, such as what governments do with CPI reports. For example, if prices go up for a widget A, then maybe consumers switch to widget B. Prices for something went up, but inflation depends on the whole of things people actually buy.
- seanmcdirmid 2y ago
  American steel companies just raised prices a week ago in anticipation of tariffs (not even passed tariffs), and the tariffs wouldn't even effect them. Everyone is going to want their share of higher pricing power, so expect domestic producers to follow higher import prices (well, its already happened). If there was a lot of domestic suppliers and (more importantly) a lot of domestic competition, inflation might be avoided. But none of that exists, so expect consumers to pay for the tariffs directly and then more. https://www.cato.org/blog/more-costly-steel-tariffs-horizon https://www.cato.org/blog/more-costly-steel-tariffs-horizon
  - bitshiftfaced 2y ago
    My question was about the evidence. For example, Trump introduced a 25% tariff on steel in early 2018, and yet we didn't see any unusual inflation until after the COVID stimulus.
    - seanmcdirmid 2y ago
      No, I think you remember it wrong. US steel companies raised prices back in 2018 as well. It was just that it was one tariff at the one time, and many companies were able to avoid it by moving production overseas (the tax didn't apply to goods made with steel, just steel itself). This time, there are more tariffs coming at the same time, and the trick of moving production abroad to avoid steel tariffs is no longer viable.
      - bitshiftfaced 2y ago
        In this comment chain, I have already clarified that by "inflation," I'm not referring to how an items price goes up after it becomes subject to a tariff. I'm referring to overall inflation in goods and services. You can see the rate of inflation from March of 2018 to the beginning of the COVID stimulus here: https://fred.stlouisfed.org/series/CPIAUCSL https://fred.stlouisfed.org/series/CPIAUCSL
        seanmcdirmid 2y ago
        If you tariff a small section of the economy, you aren't going to see much movement. Producers can adjust by moving production abroad (to avoid raw input tariffs) and by moving production to home (to avoid final assembly tariffs) (often a combination of both). Trump's 2018 tariffs were narrow enough that they were easy to digest. Trump's 2025 tariffs are fairly broad and we won't be able to move production around in multiple places to deal with it, so much of the economy is going to eat the cost directly. So if money supply stays the same, Americans simply reduce their lifestyle to compensate (buy 25% less stuff, eat 25% less food), but I don't think that Trump (as someone who is addicted to excess) will see that as viable, so money is going to be printed and injected into the economy somehow.
    - fredophile 2y ago
      I was able to find an article[0] showing job losses from Trump's first term tariffs but nothing concrete about inflation. Despite not having concrete proof, I think there's a fairly plausible chain of events from tariffs to broader price increases. Trump's tariffs include a 10% tariff on Canadian oil and gas. If you're in a region that relies heavily on these things coming from Canada you're going to see prices go up on your monthly energy bills, fuel for your vehicle, etc. This also affects local businesses and directly increases their costs. Businesses can only absorb so much of an increase before they raise prices. Now you're able to buy even less between your increased monthly expenses and the higher prices in stores. This makes you go to your boss and ask for a raise just so you can keep up with what your purchasing power used to be. If your boss gives you that raise, the business sees their expenses go up again and may need to raise prices as a result. In the scenario I described above, what step do you think won't happen that allows us to prevent higher energy prices from leading to inflation? [0] https://carnegieendowment.org/china-financial-markets/2021/01/how-trumps-tariffs-really-affected-the-us-job-market?lang=en https://carnegieendowment.org/china-financial-markets/2021/0...