An easy way to reduce prices
“ The Trump actions with the most significance, I believe, were the tariffs on steel and aluminum because those are intermediate goods — things that we use to make other things.”
Chances are that the bast majority of these tariffs are not going anywhere. They’re politically popular.
But if you want to talk about how they can actually be changed to work better, metals are a great example.
There are several dozen instances of which I’m aware where the tariffs are structured in a way that applies to raw or nearly raw materials but not finished goods. This has prompted a great amount of disinvestment in small areas of manufacturing which were formerly economical to conduct here with Chinese or Korean precursor inputs, because those inputs have risen in price without prices for imported competitors rising.
Two examples are welded wire mesh reinforcement (wire and raw steel taxed, finished mesh not) and light gauge steel sections (sheet and raw steel taxed, shaped sections not).
Merely applying a uniform tax structure across these instances would get people investing in already-extant American production and hammering away at cost increases.
While we're at it lets kill the sugar tariff. I'm tired of Mexican Coke, I want American coke to be as great as it used to be, even when it's not Passover in LA and NY.
I think it's probably true that we could easily reduce inflation over 2021 if we rescinded the Trump tariff (say, by a couple tenths of a percent). But is reducing inflation from 4.0% to 3.7% over the course of 2021 really what we're concerned about? I think what people are really worrying about is that inflation will be persistent, and I'm not sure that a one-time reduction in tariffs will reassure them that we'll be able to curb persistent inflation.
What's missing from this particular article is the extent to which reducing the price of washing machines today will prevent an inflation spiral that causes persistent inflation. To his credit, Matt usually mentions this in his articles about inflation. The basic idea behind an inflation spiral is that when people fear that a big inflation is coming, they buy lots of stuff, pushing up prices, etc. For this inflation spiral to happen, what people need to fear is a broad-based increase in goods prices. I'm not sure if reducing the price of a single class of goods once will assuage these fears if they exist.
Instead, I think that in most modern economies, what shapes people's inflation fears is the perceived credibility of the central bank. People tend to watch the central bank in moments like this one to see how it will react to an uptick in inflation, so it's really the central bank's actions in the face of inflation that influence its credibility. On the other hand, reducing tariffs doesn't necessarily lend to (or detract from) the central bank's credibility.
This is wrongheaded. Yes, of course we should get rid of Trump’s tariffs - and all other tariffs too. Tariffs impoverish the people in the nation that imposes them and that’s reason enough to get rid of them. But this analysis is wrongheaded.
As the essay points out, “a tariff is just a tax.” When a state raises its sales tax rate we don’t call the resulting increase to purchase prices “inflation,” because it’s not inflation. It’s just a tax.
The error here is that the author is reifying the output of a tool used to detect inflation and calling it “inflation.” And there almost certainly is inflation, but the portion of it, as measured, that is caused by the washing machine tariff is not, in reality, inflation. It’s just a tax.
Reducing or eliminating tariffs is a total no-brainer. That said, this administration, despite the massive improvement over the previous one, is politically too cautious to a fault, and I'm personally not optimistic they'll do this.
Hope they prove me wrong!
And steel prices affect more than just new building!
We spend a lot of time talking about protecting domestic steel producers, but much like coal mining, the industry has outsize influence for the relatively small number of people it employs.
On the other hand, the metal fabrication industry alone employs ~1.4 million people and would much prefer lower steel prices: https://www.thefabricator.com/thefabricator/blog/metalsmaterials/whos-looking-out-for-the-metal-fabricators
Matt hasn't really established that it would, in fact, help "a lot." The fact that no one was worried about overall inflation when Trump was doing this points to it not being a big mover of the overall rate.
That said the lumber/housing thing seems like a big enough deal to do it and for it to be politically advantageous.
It's kind of amazing how neoliberal trade policy, and its precepts, have become the consensus on the wonky right and left.
As far as tariffs (taxes) go, reducing gasoline taxes would have a much bigger and more immediate effect IMO, if the goal is controlling inflation. That's not to say I'm in love with Trump's tariffs (I have a free trade bias), but I tend to think they are small potatoes. Matt's essay here doesn't even attempt to quantify or WAG how much ending these tariffs would actually curb inflation.
On inflation, I worry most about housing and construction generally. Just look in the rapid rise of median home prices (https://fred.stlouisfed.org/series/MSPUS) and rents are rising too..
Another thing to consider is supply-chain disruption, which has been ongoing for well over a year now. The federal government ought to look at policies that will minimize future disruptions, particularly for items vital to national security as well as for vital industries.
Nope we should be raising tarrifs even more on China. They are building more blastic nuclear missiles, oppressing Hong Kong, have concentration camps, oh and keep stealing our technology.
We need to decouple our economy from theirs.
Tariffs are bad because they raise taxes and are like a sales tax, right?
But I sure am having trouble finding the impact of those tariffs on the US. Take aluminum. Trump imposed tariffs on it in early and mid 2018. There was a blip upward in the US spot market price in 2018 (but no higher than 2011) and then by 2019, prices had fallen back to normal (and were *really* low in 2020): https://www.statista.com/statistics/209336/price-of-aluminum-on-the-us-market/
The worldwide price of aluminum fell steadily from 2017 until 2020 and then went up spectacularly in 2021 -- obviously not because of the 2018 Trump tariff: https://tradingeconomics.com/commodity/aluminum
You can argue that we can fight inflation by removing those tariffs, but it seems to me that they either had minor effects or just got lost in the noise of all the factors that drive international and internal markets.
I wonder if inflation is now an issue that Modern Monetary Theory people are thinking about. It seems like a lot of MMT got spun up when concerns about inflation were practically non existent.
If we're going to have an industrial policy of propping up domestic washing machine manufacturers like this, isn't that something Congress should vote on and ratify?
The President personally does not have any greater expertise or insight on the technocratic considerations of a policy like this than the average members of Congress, so why should a decision like this be delegated to the President?
“If you do want to see wages rise for the working class but don’t want to see those gains all eaten away by rising prices, then you need to worry about efficiency and productivity.“
Not quite. One can also look at the distribution of value created between labor and capital and between different sectors of labor. Nor should one ignore social effects of different kinds of work.
People are nostalgic about manufacturing jobs for s reason. They are more stable. They encourage a kind of steadiness that construction jobs, which are often temporary or seasonal, do not. It’s easier to maintain a stable family life if you have steady work. If you make enough, steadiness is less important, you can more easily cover slack periods without hardship, though there’s still an important psychological difference between being a salaryman and a proprietor.
MY is too blasse about manufacturing jobs. They are good. They are worth a 12% tax on foreign washers. Total tariffs are about $80 billion a year, or 0.4% of GDP. Is that too high a price to pay for a vibrant manufacturing sector.
Cutting tariffs is good policy but won’t offset the consequences of printing money to cover bloated government spending.
Getting rid of bad tariffs is good policy. If there is a belief that tariffs cause inflation, and if that belief can make it easier to convince the powers that be to eliminate tariffs, then that is a good thing even if in truth tariffs play little role in the rate of inflation, which is mainly governed by aggregate supply and demand as shaped by monetary and fiscal policy.
I see an analogy with the deregulation of trucking, railroads, and airlines back in the Carter and Reagan years. Regulations and regulatory capture by rent-seeking transportation companies and their unions raised the relative prices of transportation services, but they were not in any meaningful sense the cause of the rapid inflation of the 1960s and 1970s. However, it was good policy to deregulate, and framing the fight against regulation as part of a fight against inflation turned out to be good politics. If the same thing will work for tariffs, I say, go for it.
Semi-related but the recent request for OPEC to increase production following the shutdown the the Keystone XL pipeline is embarrassingly hypocritical.
“President Biden has made clear that he wants Americans to have access to affordable and reliable energy, including at the pump,” the White House said in a statement. OPEC’s current plan to increase production slowly “is simply not enough.”