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> Is there any scenario under which tariffs wouldn’t raise consumer prices? Yes, but price levels aren't inflation; inflation is defined as the rate of change.

by roenxi 1y ago

> Is there any scenario under which tariffs wouldn’t raise consumer prices? Yes, but price levels aren't inflation; inflation is defined as the rate of change. That is a component of why it is a bad measure - the long term inflation impact is effectively nothing because it is one off shock then the inflation from tariffs will disappear. The problem is the amount of stuff people can afford will drop and probably stay down which isn't well captured by inflation. In some hypothetical world, the Trump admin could adopt a 0-inflation policy, stop printing money and still cause inflation to disappear completely over their term. It'd be a massive shock to the system, but inflation in the modern era is always a policy choice and will be unrelated to tariffs. The natural state of a market is deflation. It seems like it'd be quite difficult for the Trump tariffs to be inflationary under the generally accepted standards of the last few decades. "Inflationary" in politics generally means that the rate of change changes over a long period of time. Krugman does this himself at the end of the article where he focuses on the inflation rates through half the Biden presidency - he's not considering how the price levels changed but the 3rd derivative of prices over half a term! If you do that to Trump then the effect of the tariffs will probably disappear too. Trump's policies are clearly intended to push manufacturing back to the US and I think pretty much everyone would have to agree that is going to cost US citizens a lot of money. The reason they outsourced all their industrial might to China in the first place was because it was cheaper. It is a fair point, but it is annoying to see an economist trip over their own definitions like that. It is already a definition that isn't really suitable for politics. The focus here needs to be on real income.

orwin 1y ago
Most money is created when making a loan, and is destroyed when the loan is reimbursed. Loan defaults add more money in the system that the Fed print almost every year (except during COVID, but letting companies dies and default would have had a similar inflationary effect anyway). I guarantee that if the US stop printing money, it will change nothing, because it will borrow instead. The only way for the US government to stop adding to inflation is to balance its budget, by cutting spending or increasing taxes, or likely both. (Inflation is not only money creation, it's actually a small part, it also depends on production and consumption btw. Decreasing consumption by raising taxes and lowering social spending would also be inherently deflationary)
bryanlarsen 1y ago
>Trump's policies are clearly intended to push manufacturing back to the US Trump's tariffs are clearly designed to move manufacturing out of the US. If you wanted to increase US manufacturing you would decrease tariffs on raw materials and increase tariffs on finished products. Trump has increased tariffs on raw materials like steel, aluminum, copper & lumber by much higher numbers than it has on finished products. If you want to encourage US manufacturing you would try to lower energy prices. Instead, Trump's war on renewable energy is going to allow other countries to get a sizable energy cost advantage on the US.

by roenxi 1y ago

orwin 1y ago

Most money is created when making a loan, and is destroyed when the loan is reimbursed. Loan defaults add more money in the system that the Fed print almost every year (except during COVID, but letting companies dies and default would have had a similar inflationary effect anyway). I guarantee that if the US stop printing money, it will change nothing, because it will borrow instead. The only way for the US government to stop adding to inflation is to balance its budget, by cutting spending or increasing taxes, or likely both. (Inflation is not only money creation, it's actually a small part, it also depends on production and consumption btw. Decreasing consumption by raising taxes and lowering social spending would also be inherently deflationary)

bryanlarsen 1y ago

>Trump's policies are clearly intended to push manufacturing back to the US Trump's tariffs are clearly designed to move manufacturing out of the US. If you wanted to increase US manufacturing you would decrease tariffs on raw materials and increase tariffs on finished products. Trump has increased tariffs on raw materials like steel, aluminum, copper & lumber by much higher numbers than it has on finished products. If you want to encourage US manufacturing you would try to lower energy prices. Instead, Trump's war on renewable energy is going to allow other countries to get a sizable energy cost advantage on the US.