The left wing media keeps blasting Trump’s universal import tariff idea as inflationary.
Let’s not forget 3-4 years ago those same media outlets swore up and down that printing trillions of dollars to put in people’s pockets as stimulus was not inflationary and printing money is not inflationary. Afterwards those same people said inflation is transitory. Then they said universal forgiveness of student loans does not cause inflation. They’ve lost credibility a long time ago to dictate what is / is not inflationary.
The definition of what drives inflation is too many dollars chasing too few goods, or more generally speaking the imbalance of the supply of goods vs the supply of dollars chasing those goods.
So, we know that printing money by definition is inflationary. How is an import tariff inflationary if effectively it’s no different from a sales tax on imports? It’s slightly reducing the supply of goods but at the same time reduces the supply of money in the form of money being taken out of the economy from the tarriff on the import.
Also, isn’t re-shoring of US jobs and goods manufacturing something that we’ve wanted to do and this is a way to incentivize that? Why is this a bad thing? It’s an odd idea for sure but it seems the media is immediately shooting down the idea without any debate.
So, I think this is just more left wing gas lighting. Agree or disagree?
This is a good topic but your allegations are not accurate. The left wing media had no idea whether inflation would be transitory or not. The term transitory originated from people like Jerome Powell and Janet Yellin
You put 10% tariffs on imports. The companies pass this along to the purchasers. Imported things now cost 10% more. Similarly, there is no direct connection between tariffs on imported goods and re-shoring jobs to America. Companies just pass on the higher expenses to the consumer.
Domestic companies see this and think to themselves “shit we can get away with charging 10% more” or maybe 8%-9% to keep a delta between the two. Now all you’ve accomplished is you’ve raised the price of everything.
Who does this impact the most? Poor people. If you’re posting on a Wall Street forum, it probably doesn’t matter to you if basic things are 10% more expensive, but it certainly matters to the majority of Americans who are already suffering from inflation. The majority of Americans don’t give a shit what the economic definition of inflation is or isn’t - but they certainly care if things are 10% more expensive than an already high water mark.
It doesn’t make everything more expensive. It makes imported goods more expensive. Thats the point. Similar to a tax on cigarettes or alcohol.
Idea being that making imported goods more expensive relative to domestically produced goods will decrease imports and increase products manufactured here since the imported goods are by definition less competitive. And provide an incentive for companies to manufacture here, or in another country that doesn’t have the tarrifs.
The problem is most things are made in China and we (USA) literally don’t have the ability to manufacture most products. We lack the tech and infrastructure.
At the end of the day whether it works or not depends on the elastity of demand on the imported goods, and whether it is possible in the short or long term to move manufacturing. These things play out in decades, not annually.
Re-read my post. It does ultimately make everything more expensive.
Domestic companies don’t look at a 10% tariff on imported good and think “Yes, we’re going to keep our prices the same and win more customers!” - they look at it and either say “Looks like the market can tolerate an across the board 10% price increase!” or “If we only raise our prices 9%, we’re still at a discount!”
Thinking otherwise is pure fantasy.
I suppose if there were tariffs on everything, then yes, that would be the case.
But that’s not how equilibrium works, and there aren’t universal tariffs.
If there’s a 10% tariff on burgers from Burger King, sure, McDonald’s might raise their prices rather than try to get volume and market share. But that doesn’t mean dominoes will. Or Applebees.
Trump quite literally proposed a 10% universal tariff on all imports and a 60% tariff on China.
Again, it seems like a point is being missed here.
Of course a 10% tariff on everything + a 60% tariff on China would be inflationary. That's not debatable. Tariffs or taxes or whatever you want to call it raises the cost of producers and therefore raises end prices. If we are talking whether that's a good idea or not and how much exactly it would raise end prices, it's up for discussion. But a debate on how tariffs or taxes work on a mechanical level is not really arguable.
Raising the cost of production on imported goods is the point of tariffs. The opposite can be said for subsidies.
The goal is to increase prices on imported goods (specificlaly from China), to make domestically produced goods (or goods produced not in China) relatively more attractive, because the cost of production is lower.
Whether this is a good policy decision would depend on what is trying to be done. But if the goal is to make domestically produced goods more attractive and to reduce reliance on China, tarrifs of some sort do make sense. The exact same would be the case if instead of doing a tariff on imported goods, you just did a 10% subsidy on all domestically produced goods. Opposite mechanism, similar effect.
Debating that is literally the entire point of this thread. You are making unrelated or tangentially related good points, but you are also having a side conversation with yourself in the corner while everyone else is addressing the topic.
I’m sticking to ham from now on.
You have to think about it in light of the alternative. The alternative is to let the TCJA expire (or some portion of it) and thus to raise the corporate income tax. That is essentially equal to a "tariff" on our own goods, no?
To quote Back to the Future, you're not thinking fourth dimensionally. This isn't how things work in the real world. Companies that are seeking access to giant markets like the United States are likely to lower their prices when an import tariff is levied against their products in order to maintain their competitiveness. The income tax rate has two rates that produce 0 revenue--100% and 0%, with the ideal tax rate for revenue production somewhere between those two rates. There is a similar principal with import tariffs. For large markets like the United States, there is an optimal rate that increases revenue from the import but does not increase prices. And that "optimal rate" will likely be different for different industries, etc.
Seems like this argument is missing a few points. We all (should) know supply / demand curves, and a theoretically an increase in price should dampen demand. Yes, there are consumer staples that everyone needs to consistently buy, but it’s impossible to argue that America doesn’t conspicuously consume endless cheap plastic bullshit and other goods. If that spending goes down then okay, I think we’ll be fine. Obviously there’s some equilibrium here.
Two, I’m not sure tariffs are inflationary by the exact definition. Yes, theoretically it’s a one-time price shock, a sales tax, but this doesn’t continue YoY like inflation does. It’s semantics, but it’s also important for capturing long-term consumer outlook and sentiment.
Third, there’s some talk of lowering income taxes on those making under $[150]k with some of the revenue generation. Idk if this is going to happen (low probability IMO), but in this case it would transfer tariffs impact from middle-income to higher-income, counter to your point. Lower-income doesn’t pay taxes anyways, and they’re generally net recipients of government largesse across the board, but they are also not particularly crucial for the economy and spending.
The fact that you dismiss widely accept economic theories that are backed by empirical evidence and complex models on cost push inflation (which is not a difficult concept) as "left wing gaslighting" tells me everything I need to know about someone like you.
If you don't understand economics because you are a business major, why don't you just say that? Not everything is a conspiracy or fake news or whatever.
You people make everything into a debate. From a virus that killed people, to climate change, to this now. Where do you get off?
Bruh that would involve this person having to read. Why do your own research when you can just rage...
That is the issue with you people- you look at each decision in a vacuum, not as a decision between alternatives. You mention the virus and climate change- addressing these has to be done in light of the ALTERNATIVES.
For covid we thought "welp, let's shut things down and print 30% more dollars". How many lives did "flattening the curve" save? Did we save three years of life expectancy for 80-something year olds (maybe), only to cause massive inflation and lower the quality of life for everyone else (definitely)? Was that a good tradeoff?
For climate change- Deloitte says it will cost the global economy $178T over the next 50 years (link). But the global GDP is $100T per year, today. So the cost of climate change is.... 4% of global GDP? What level of expenditure is worth avoiding a 4% problem? And that is not even addressing the concerns about "the science", which seriously- after covid, anyone paying attention should have concerns about scientists and experts bravely coming out and saying exactly what their funders, the media, and the government want them to say 🙄
If you're a Chinese manufacturer of widgets competing for market share in the United States and your chief rival is a Norwegian company, what do you do if you get a 15% import tariff levied against you because you're a Chinese company? Do you increase prices 15% to make up for the cost increase? Or, do you cut prices 15% to maintain your competitive position with your rival company? Or do you change locations and start manufacturing out of Vietnam where there is no import tariff and labor costs are lower? How product costs move with tariffs is not as straightforward as you make it out.
This is another reason not to vote for Trump. He talks out of his ass and knows almost nothing about policy. Economists are in agreement that US import tariffs were a contributing factor in turning a recession into a depression in around 1930.
Economists were also in agreement that inflation was transitory and that outsourcing our industrial base to China was a great idea. For better or worse, people are now well within their rights to question professional economists.
It’s a tricky discipline because it feels like such a hard science given all the numbers and charts, but economics isn’t chemistry. The smartest guys in the room have failed to anticipate countless developments that seemed obvious in hindsight.
So let’s have a conversation about tariffs. I’m usually in agreement with economists, but I’m at a point of wanting to reexamine the sacred cow of the Smooth-Hawley Great Depression example and see whether that case study is convincing enough to be canonical. In particular, is it an apples-to-apples comparison to the global economic environment we operate in currently? Should we be as worried about trading partners retaliating against tariffs when our largest trading partner (China) has been cheating and gaming the system for decades already?
I find it so ridiculous when these midwits say something like “all economists agree.” As you said, the economists have been so consistently off base the last 25 years (not always, but often enough), that’s it’s completely fair to take their “agreement” with a grain of salt and question the consensus.
Read - New Deal Policies and the Persistence of the Great Depression
by Cole and Ohanian. FDR monetary and regulatory policies caused and extended the Great Depression.
Trump's tariffs are surgical and not remotely protectionist. He's righting a wrong and rebalancing trade imbalances.
Using vacuous economic rationale to make a political point, while popular with some, exposes bias.
So you didn't read it. Thus shall you remain vacuous.
Generally inflationary, it’s a tax on goods you may have to buy. That being said, deregulating markets, using them for negotiating better trade deals and simply producing more oil could help combat inflation. However, a broad shot 10% tariff with no other meaningful change would not be a good idea.
You have to consider both in light of the alternative- if the alternative is to get rid of the Trump tax cuts, then that is money out of everyone's pocket as well, unless they keep some portion of those tax cuts. Let's look at both scenarios:
Tariffs: 10% tariff placed on all imports. Foreign companies try to pass this along to the consumer, and likely succeed in the short term. In the longer term, the added 10% cost makes domestic production more competitive, and they start producing goods at a few percentage points cheaper. Net result is likely high single digits cost increase on the (previously imported) goods, but more jobs (and income tax) and domestic production (corporate income tax). Those tax revenues will not make up for the higher cost to the consumer, but they will mitigate it.
Do away with Trump tax cuts: Higher corporate income tax, higher individual income tax at whatever threshold they choose (above 400k is what Biden says). Companies have less cash for capex, investment, share repurchase, etc. Companies are re-incentivized to incorporate abroad (Ireland?). American goods become less competitive domestically and abroad since they have a greater cost hurdle. Some number of jobs are lost.
You have to think of a higher corporate income tax as a tariff on our own goods. Companies will try to offset it with price if they are able (though unlikely considering everyone has passed as much price through as possible).
Personally, I used to be a by-the-book capitalist, which would lead to the belief that all tariffs are negative and cause more harm than good. My views have evolved- the fact of the matter is that when we offshore more and more goods, we're competing with people who are at a much lower standard of living- sharing rooms in smaller homes, walking vs driving, etc. We're left with two options- either we try to compete with that (we can't), or we transition our manufacturing class to more skilled work (which happens for some, but not all). Look at what has happened to middle America- all of the small manufacturing towns have been gutted. Textile towns in New Hampshire, machine manufacturing towns in Oklahoma. Your boomer grandpa could buy a cheap house because he was living in Bumfuck, KS. You think that entitles you to a cheap house (in a safe area) in Boston. It doesn't. When you get rid of manufacturing and force low-skill workers to compete with those who pack 15 people in a 3 bedroom house, the only hope for a better life is to move to the city, which in turn leads to more dollars chasing the same homes. Talk about inflation.
The government should work to maximize quality of life per person, and that can't happen when you export jobs and import people who are willing to live at a lower quality of life.
Yes, a country is more than “muh GDP!” To many wannabe libertarians who are morphing into “got mine, fuck you!” zombies. Absolute boomer-tier bullshit from the millennials and Gen Z who claim to despise the boomers.
Cost-push inflation vs Demand-pull inflation
Fugit illo facere veritatis alias. Ipsa sint doloremque eos hic autem. Aut laboriosam dolores aut nobis ad sunt quas. Inventore possimus qui in officia. Aut eum quaerat aut perspiciatis cupiditate.
Dolorem consequatur impedit laborum distinctio itaque perspiciatis harum qui. Saepe voluptas harum perspiciatis qui voluptate velit velit. Beatae harum quam et. Beatae reiciendis sed quam. Odit et ut qui reiciendis qui repudiandae ut. Totam ea corrupti corrupti.
Nemo quia a amet recusandae. Fuga nostrum debitis distinctio facilis numquam suscipit. Sequi ipsum aut error laudantium. Ex distinctio ipsa similique sint earum praesentium facere expedita. Tempore accusantium sint voluptas quo dolore voluptas ducimus et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Veritatis excepturi quo tempore eum blanditiis pariatur. Exercitationem dolores in voluptas qui. Aut tempora ad iusto et cum consequatur. Quos tenetur quidem magnam.