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Trump’s Tariffs Will Not Cause Inflation

On April 2, Liberation Day, President Trump imposed reciprocal tariffs across the board. The President noted that they were “kind” tariffs, since they were only half the rate that American producers are charged. For now, at least.

Critics have lamented that tariffs will raise the cost of goods, as if the Constitution codified the right to buy “cheap” Chinese goods.

While there will be an adjustment period — as with any major policy shift — tariffs will not cause inflation in the long term. In fact, they will likely lower the cost of goods over time.

Asleep at the Wheel

Over the last fifty years, the American people have been subjected to an experiment with economic globalism. This has hollowed out American industries, destroyed millions of jobs, and endangered America’s national security. The one benefit that the public as promised was that goods would be cheap — that the cost of living would go down.

This was a false promise. Compare recent history: President Trump’s tariffs did not raise the cost of goods during his first term. Meanwhile, inflation was rampant during President Biden’s term, despite his walking back most of President Trump’s trade agenda. Further, America had the highest average tariff rates in the world during the nineteenth century, during which time America’s industry flourished and the cost of living decreased year after year.

In addition to the evidence, economic logic reaches the same conclusion. Tariffs are taxes on imports. Accordingly, they can be entirely avoided by buying American. This creates a strong incentive for foreign producers to lower their costs. That is, if countries like China or Mexico want access to America’s market — which they do — then they will have to find a way to reduce their costs to balance out the tariff. Ultimately, lower production costs will benefit everyone.

most productive in the world. Given that productivity is what ultimately drives prices, America’s manufactured goods should also be among the cheapest in the world.

The issue is that prices are skewed by economic externalities, foreign currency manipulation, and predatory trade practices. This results in efficient and cost-effective American factories being closed, while inefficient foreign factories — in places like Italy and Germany — remain open for business. Protecting American markets from abuse will help our domestic free market function more efficiently, rather than pitting American businesses against state-backed foreign rivals. This will lower costs as the market adjusts to the new normal.

Tariffs will also reshore American factories and thereby increase domestic output. Manufacturing is an interesting industry, because prices are subject to the law of increasing returns. That is, the more that we manufacture, the lower the price of each unit of production becomes. This is because capital costs are fixed, and the more we make, the more these costs are disbursed. As such, there is good reason to expect that prices of American products will actually decrease after the market adjusts to tariffs.

What is Seen and What is Unseen

Despite allegedly caring about consumer prices, the media conveniently forget that economic globalism causes inflation of a different kind.

Remember, America imports far more than it exports. This results in a trade deficit which we need to pay for. How? By selling assets and debts. As a result, the trade deficit directly contributes to the increase in prices – inflation — of American assets and debts. For example, in 2024 foreigners bought an estimated $42 billion of residential real estate, $8 billion of agricultural land, and $12 billion commercial real estate. This drives up real-estate prices, locking our own young people out of the real-estate market — denying them their share of the American Dream.

America also trades debt. This is sort of like buying groceries on our credit cards, except is occurring at the national level. For example, foreigners own some $8.67 trillion of U.S. Treasury securities, accounting for 24 percent of the public debt. Further, America’s corporate and household debt has ballooned since 1973 to the highest levels since World War II.

Debt is especially dangerous because we have to repay the principle and we pay interest. This inflates the cost of buying foreign products in a way that most economists fail to appreciate. Consider that America became a debtor nation in 2006 — for the first time since the Great Depression. As a result, we are now paying over $150 billion in interest every year to foreign entities for the privilege of buying the products we should be building.

The elites oppose tariffs because consumer goods — things people want — may rise in price. In comparison, the absence of tariffs inflates the price of housing — something people need. From this, we can see that the elites do not actually care about inflation.

In any case, America is not a market. America is a nation. The primary purpose of government is not to guarantee access to Chinese products. “Free” trade needs to be balanced with other values, like ensuring that America does not depend on Chinese imports for our national security, or providing hardworking American people with jobs so that they can support their families. President Trump’s tariffs do just that, with the added bonus that they will not likely cause inflation.

Image: White House

American Thinker

Jesus Christ is King

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