Biden's slowness on reducing tariffs is both annoying and counterproductive. I had hoped Biden left them in place in hopes to use them to negotiate with allies/adversaries, and they would either be reduced or dropped in the coming months. To the best of my knowledge: this has not happened.
You probably could have found no better argument than the eternal war between the American Home Builders Assoc. and the private lumber interests that demand tariffs to increase the value of their holdings. It never ends.
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.
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.
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.
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.
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.
But instead fizzy drink makers use high-fructose corn syrup (HFCS). It was Reagan, close ally of ADM chief Dwayne Andreas, who signed a law placing high quotas on imported sugar, which quickly raised the domestic price of sugar to twice the price on global markets, leading to Coke & Pepsi going HFCS.
Almost right. The US still exports a lot of machinery. If steel is a major input to churning out that stuff then tariffs that raise steel prices are a very bad idea. Why wouldn't Caterpillar locate production offshore to service offshore markets where they can access both lower labor AND lower steel prices. Tariffs on steel basically cut off the US from export markets they might otherwise have access to on the basis of higher labor productivity.
They probably export less physical machinery than you think. Last I checked (~2014), Caterpillar had over 500 global manufacturing locations. Back then they had excess capacity coming off the mining boom - so maybe some have since been closed - but the majority of sales were produced in-region if not in country. Even the single source product lines like the former Bucyrus shovels (Cat 7495) are assembled on-site globally.
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.
That's just wrong, full stop. Inflation is defined as an increase in prices. This is an increase in prices. Therefore it's inflation. There are no separate categories for inflation based on their "root cause" or whether it is caused by a shift in the AD or AS curve. It's just "inflation."
This is all explained pretty clearly in the opening chapters of any of Mankiw's Principles of Macroeconomics textbook.
The most common definitions of inflation look at the price of some selection of goods. So if a tariff on steel leads to cars becoming more expensive, that shows up as inflation in the CPI. Is your claim that the CPI is not a measure of inflation? How do you define inflation? If a freeze wipes out a orange crop in Florida, and the reduced supply of oranges leads to an increase in price, is that "just weather" and not "inflation"?
“The most common definitions of inflation look at the price of some selection of goods.”
No, that’s just a method of revealing and measuring inflation. Inflation is defined as a general increase in price level. Volatility of food prices due to weather is one of the reasons that food is excluded from calculations of core inflation.
So, this is just an argument about semantics? You're using the theoretical definition of inflation as being purely a monetary phenomenon and most other commenters are using the more colloquial definition as changes in prices? I guess that both you and MY are right then. However, I think that "you can lower consumer prices by getting rid of tariffs" is of more practical importance than "tariffs are by definition not part of inflation".
“…I think that ‘you can lower consumer prices by getting rid of tariffs’ is of more practical importance than ‘tariffs are by definition not part of inflation’.”
That’s fine. I think that “tariffs infringe on our freedom” is a more honorable claim than “Biden should remove tariffs because the effect on inflation statistics will make him look good to the electorate.”
Ok, I understand your objection, and I basically agree. Framing this as reducing inflation is silly --- if for no other reason that most of the electorate doesn't pay attention to inflation metrics.
If he wanted to cut tarrifs, he could 1) sell it as a progressive tax cut (since progressives don't like consumption taxes). 2) The people who don't pay attention to political news would have more money in their pockets. 3) The fact that inflation statistics would go down would help quiet the minority that does care about headline inflation statistics.
A triple win. He could even say that tariffs infringed on freedoms to make it a quadruple win...
I used to believe that too, but have come around to the notion that free trade requires reciprocity with our trading partners, which is not the case, particularly with governments like China who deliberately engage in mercantilist policies and practices.
We’ve known for two and a quarter centuries why mercantilist policies are bad for a nation’s economy. It would of course be better if China did not pursue mercantilist policies, but it would be folly for the US to have bad policies just because China does.
“It's remarkably arrogant to look at the most sustained and successful economic growth story of the last century, that's lifted a billion-odd people out of poverty, and just write it off entirely as bad policy.”
I've seen an argument that tariffs are necessary in a developing economy to protect their nascent industries so that they can build up the expertise to eventually be competitive on the world stage. It was described in a book, which I did not read, but I did read the review: https://astralcodexten.substack.com/p/book-review-how-asia-works
It’s curious, is it not, that those who want more central control and planning of the economy point to tariffs and industrialization rather than, say, government prohibitions on trade unions and industrialization?
“… just the actual story of every country that industrialized in the 20th and 21st centuries.”
Which of the nations in the successful industrialization stories you tell *did not* do things like send their smartest students overseas to study and prohibit or severely limit trade unions?
This is wrongheaded. When the price of an object rises we call it inflation. That price rise can have many different causes but it is still a price rise. Tariffs are not taxes.
Are policy decisions in the Middle East that raise the price of oil taxes? On the other hand, your argument strongly supports the Liberal position that the inflation controlled by the Federal Reserve is completely unrelated to steel and oil and is instead related to rising wages.
Excluding food and energy is not a principled decision based on the definition of "inflation," its just that it tends to have very large short term fluctuations that would make getting a good read on short term trends very difficult.
It is not just that there are short term fluctuations. It is that even the long term fluctuations are not relevant to the decision making process of the Monetary and Fiscal policy. Government policy affects employment and the "heat" of the economy. On the other hand Energy and Food are affected by conflict in the Middle East and the weather/climate.
But this is true of every area. If you listen to Matt's interview with Skanda Amarnath he gives a lot of cases where public policy has nothing to do with the aggregate price level and in fact the way inflation is calculated seems relatively arbitrary. For example Verizon's decision to offer an unlimited data plan a few years ago drove a large increase in the "quality" of plan according to CPI calculations and therefore meaningfully decreased core inflation.
By contrast there are numerous pipeline/port projects under consideration to transport oil/natural gas. The government decision to approve or not approve these would clearly impact the price of oil and gas and therefore the aggregate price level.
I agree that the way inflation is calculated is fairly arbitrary. Nonetheless it is fairly well agreed upon that Fiscal and Monetary policy can overheat an economy and thus it is useful to have a metric for inflation.
It is useful that it not contain Energy and Food (so that you don't wreck your economy every time you have a bad harvest). It is also useful that it be simple so we don't have to fight over the minutiae of exclusions (and for messaging reasons).
If the Pipeline approval authority would like their own inflation index they are welcome to concoct one.
I dunno... by far the largest expenses in my lifetime have been state, local and federal taxes, largely spent on dumb wars, keeping the elderly from poverty and providing deadbeats with healthcare. The US for its first hundred years largely funded its government with tariffs and did just fine, except cotton-growing slave-owners thought they were being ripped off by tariff-protected Yankees. That said, I'm all for the US adopting a VAT, whether you want to call it a tax or inflation seems like quibbling pedantry. Would save me hours each year finding files and filling out a return, a huge improvement in quality of life, which I'm sure the geniuses who calculate inflation would score as reducing inflation.
“The US for its first hundred years largely funded its government with tariffs and did just fine…”
The cost of shipping at the time of the founding was a couple orders of magnitude higher than it is today. That means that tariffs were a much smaller part of the cost of imported goods than the tariffs imposed today.
You should read Calhoun on the “tariff of abominations.” Southern planters paid materially more for manufactured goods because of the tariff. Also, transport costs from Liverpool to Charleston were not vastly more than Boston to Charleston. Sea transportation of finished luxuries has been cheapish for centuries.
In theory I agree with you. In practice, no country I know of that introduced a VAT did away with income taxes. Less substitution and more just addition.
I’m pleased that you are so amused. But, please, tell me what the “substance of the column” was. While reading it I was under the impression that it was ‘curb inflation by rescinding Trump's tariffs.’
It’s unclear why you believe I did not read the column. Did you? If so did you notice that he offered two schools of thought on what the driving factors of inflation are? Surely he knows there is another school of thought on the topic. Do you?
Why not also mention another school of thought? Maybe he wanted to keep it brief or maybe its because it would not only undermine his view of inflation but also reveal that it’s unwise to pursue the policies that he wants?
Yes, exactly. It’s an ugly thing, but there it is.
You know, I’ve been reading most of these daily missives for months now and when writing about economic policy I am still unsure whether the author actually believes that the policies he advocates are truly the most beneficial ones available, or whether he advocates for these policies solely because he believes they will benefit the Democratic Party.
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.
I agree-- my personal assessment about the current situation is basically the same, and I think we should get rid of pointless distortionary tariffs that hurt consumers. The only point that I was trying to make is that I'm not sure repealing the tariffs would assuage the people who are really worked up about inflation right now.
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.”
Biden's slowness on reducing tariffs is both annoying and counterproductive. I had hoped Biden left them in place in hopes to use them to negotiate with allies/adversaries, and they would either be reduced or dropped in the coming months. To the best of my knowledge: this has not happened.
You probably could have found no better argument than the eternal war between the American Home Builders Assoc. and the private lumber interests that demand tariffs to increase the value of their holdings. It never ends.
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.
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
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.
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.
Nothing wrong with domestic sugar beet sugar, other than sugar beet farmers being one of the more greedy and litigious special interests around....
But instead fizzy drink makers use high-fructose corn syrup (HFCS). It was Reagan, close ally of ADM chief Dwayne Andreas, who signed a law placing high quotas on imported sugar, which quickly raised the domestic price of sugar to twice the price on global markets, leading to Coke & Pepsi going HFCS.
"Inflation" stories feel like they're mostly driven by "but we'll have to pay the fry cooks $15 an hour!" stories.
Almost right. The US still exports a lot of machinery. If steel is a major input to churning out that stuff then tariffs that raise steel prices are a very bad idea. Why wouldn't Caterpillar locate production offshore to service offshore markets where they can access both lower labor AND lower steel prices. Tariffs on steel basically cut off the US from export markets they might otherwise have access to on the basis of higher labor productivity.
They probably export less physical machinery than you think. Last I checked (~2014), Caterpillar had over 500 global manufacturing locations. Back then they had excess capacity coming off the mining boom - so maybe some have since been closed - but the majority of sales were produced in-region if not in country. Even the single source product lines like the former Bucyrus shovels (Cat 7495) are assembled on-site globally.
Cutting tariffs is good policy but won’t offset the consequences of printing money to cover bloated government spending.
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.
Ken in MIA:
That's just wrong, full stop. Inflation is defined as an increase in prices. This is an increase in prices. Therefore it's inflation. There are no separate categories for inflation based on their "root cause" or whether it is caused by a shift in the AD or AS curve. It's just "inflation."
This is all explained pretty clearly in the opening chapters of any of Mankiw's Principles of Macroeconomics textbook.
the textbook I use to teach my principles of macroeconomics courses
The most common definitions of inflation look at the price of some selection of goods. So if a tariff on steel leads to cars becoming more expensive, that shows up as inflation in the CPI. Is your claim that the CPI is not a measure of inflation? How do you define inflation? If a freeze wipes out a orange crop in Florida, and the reduced supply of oranges leads to an increase in price, is that "just weather" and not "inflation"?
“The most common definitions of inflation look at the price of some selection of goods.”
No, that’s just a method of revealing and measuring inflation. Inflation is defined as a general increase in price level. Volatility of food prices due to weather is one of the reasons that food is excluded from calculations of core inflation.
So, this is just an argument about semantics? You're using the theoretical definition of inflation as being purely a monetary phenomenon and most other commenters are using the more colloquial definition as changes in prices? I guess that both you and MY are right then. However, I think that "you can lower consumer prices by getting rid of tariffs" is of more practical importance than "tariffs are by definition not part of inflation".
“…I think that ‘you can lower consumer prices by getting rid of tariffs’ is of more practical importance than ‘tariffs are by definition not part of inflation’.”
That’s fine. I think that “tariffs infringe on our freedom” is a more honorable claim than “Biden should remove tariffs because the effect on inflation statistics will make him look good to the electorate.”
But, apparently, that’s just me.
Ok, I understand your objection, and I basically agree. Framing this as reducing inflation is silly --- if for no other reason that most of the electorate doesn't pay attention to inflation metrics.
If he wanted to cut tarrifs, he could 1) sell it as a progressive tax cut (since progressives don't like consumption taxes). 2) The people who don't pay attention to political news would have more money in their pockets. 3) The fact that inflation statistics would go down would help quiet the minority that does care about headline inflation statistics.
A triple win. He could even say that tariffs infringed on freedoms to make it a quadruple win...
I used to believe that too, but have come around to the notion that free trade requires reciprocity with our trading partners, which is not the case, particularly with governments like China who deliberately engage in mercantilist policies and practices.
We’ve known for two and a quarter centuries why mercantilist policies are bad for a nation’s economy. It would of course be better if China did not pursue mercantilist policies, but it would be folly for the US to have bad policies just because China does.
“It's remarkably arrogant to look at the most sustained and successful economic growth story of the last century, that's lifted a billion-odd people out of poverty, and just write it off entirely as bad policy.”
And I would not do such a thing.
Would China have risen to be an industrial powerhouse without tariffs and other import restrictions?
I've seen an argument that tariffs are necessary in a developing economy to protect their nascent industries so that they can build up the expertise to eventually be competitive on the world stage. It was described in a book, which I did not read, but I did read the review: https://astralcodexten.substack.com/p/book-review-how-asia-works
It’s curious, is it not, that those who want more central control and planning of the economy point to tariffs and industrialization rather than, say, government prohibitions on trade unions and industrialization?
I don’t see why not.
Other than no country has followed that path successfully.
I don’t know if that’s true, but even if it were it is not evidence that it is impossible to industrialize without tariffs.
“… just the actual story of every country that industrialized in the 20th and 21st centuries.”
Which of the nations in the successful industrialization stories you tell *did not* do things like send their smartest students overseas to study and prohibit or severely limit trade unions?
You see trolling because you cannot offer a response.
This is wrongheaded. When the price of an object rises we call it inflation. That price rise can have many different causes but it is still a price rise. Tariffs are not taxes.
Are policy decisions in the Middle East that raise the price of oil taxes? On the other hand, your argument strongly supports the Liberal position that the inflation controlled by the Federal Reserve is completely unrelated to steel and oil and is instead related to rising wages.
“When the price of an object rises we call it inflation.”
Inflation is a monetary phenomenon. It is not true that *any* price increase is due to inflation.
“Are policy decisions in the Middle East that raise the price of oil taxes?”
Energy is not considered when calculating core inflation.
It's not that any price increase is *due to* inflation, but rather that any price increase is *part of what constitutes* inflation.
Inflation is properly understood as a phenomenon of the money supply. Price increases not due to the money supply are not inflation.
Excluding food and energy is not a principled decision based on the definition of "inflation," its just that it tends to have very large short term fluctuations that would make getting a good read on short term trends very difficult.
It is not just that there are short term fluctuations. It is that even the long term fluctuations are not relevant to the decision making process of the Monetary and Fiscal policy. Government policy affects employment and the "heat" of the economy. On the other hand Energy and Food are affected by conflict in the Middle East and the weather/climate.
But this is true of every area. If you listen to Matt's interview with Skanda Amarnath he gives a lot of cases where public policy has nothing to do with the aggregate price level and in fact the way inflation is calculated seems relatively arbitrary. For example Verizon's decision to offer an unlimited data plan a few years ago drove a large increase in the "quality" of plan according to CPI calculations and therefore meaningfully decreased core inflation.
By contrast there are numerous pipeline/port projects under consideration to transport oil/natural gas. The government decision to approve or not approve these would clearly impact the price of oil and gas and therefore the aggregate price level.
I agree that the way inflation is calculated is fairly arbitrary. Nonetheless it is fairly well agreed upon that Fiscal and Monetary policy can overheat an economy and thus it is useful to have a metric for inflation.
It is useful that it not contain Energy and Food (so that you don't wreck your economy every time you have a bad harvest). It is also useful that it be simple so we don't have to fight over the minutiae of exclusions (and for messaging reasons).
If the Pipeline approval authority would like their own inflation index they are welcome to concoct one.
Impressive tap-dancing.
https://www.imf.org/external/pubs/ft/fandd/basics/30-inflation.htm
You may note that tariffs and taxes are not mentioned.
I dunno... by far the largest expenses in my lifetime have been state, local and federal taxes, largely spent on dumb wars, keeping the elderly from poverty and providing deadbeats with healthcare. The US for its first hundred years largely funded its government with tariffs and did just fine, except cotton-growing slave-owners thought they were being ripped off by tariff-protected Yankees. That said, I'm all for the US adopting a VAT, whether you want to call it a tax or inflation seems like quibbling pedantry. Would save me hours each year finding files and filling out a return, a huge improvement in quality of life, which I'm sure the geniuses who calculate inflation would score as reducing inflation.
Yep, I've long supported something like the Fair Tax
“The US for its first hundred years largely funded its government with tariffs and did just fine…”
The cost of shipping at the time of the founding was a couple orders of magnitude higher than it is today. That means that tariffs were a much smaller part of the cost of imported goods than the tariffs imposed today.
You should read Calhoun on the “tariff of abominations.” Southern planters paid materially more for manufactured goods because of the tariff. Also, transport costs from Liverpool to Charleston were not vastly more than Boston to Charleston. Sea transportation of finished luxuries has been cheapish for centuries.
In theory I agree with you. In practice, no country I know of that introduced a VAT did away with income taxes. Less substitution and more just addition.
That's ok with me too if it pays the bills.
I’m pleased that you are so amused. But, please, tell me what the “substance of the column” was. While reading it I was under the impression that it was ‘curb inflation by rescinding Trump's tariffs.’
It’s unclear why you believe I did not read the column. Did you? If so did you notice that he offered two schools of thought on what the driving factors of inflation are? Surely he knows there is another school of thought on the topic. Do you?
Why not also mention another school of thought? Maybe he wanted to keep it brief or maybe its because it would not only undermine his view of inflation but also reveal that it’s unwise to pursue the policies that he wants?
Yes, exactly. It’s an ugly thing, but there it is.
You know, I’ve been reading most of these daily missives for months now and when writing about economic policy I am still unsure whether the author actually believes that the policies he advocates are truly the most beneficial ones available, or whether he advocates for these policies solely because he believes they will benefit the Democratic Party.
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.
I don’t think we’re in a situation where we need to worry much about the spiral. But nonetheless people like lower prices and higher real wages.
I agree-- my personal assessment about the current situation is basically the same, and I think we should get rid of pointless distortionary tariffs that hurt consumers. The only point that I was trying to make is that I'm not sure repealing the tariffs would assuage the people who are really worked up about inflation right now.
Probably useful to give up on tariffs, but why do so for “nothing?” What might we want in exchange from China or others?
"Now, in this case, U.S. metal production has in fact risen which according to my reporting makes Team Biden think this Trump policy has worked. "
I'm going with Team Biden on this one. Way to go, Ron!
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.”
https://www.bloomberg.com/news/articles/2021-08-11/biden-s-opec-plea-shows-how-cheap-fuel-fixation-imperils-climate