Tariffs Are Inflationary

Hundred dollar car note
Two hundred rent
I get a check on Friday
But it's already spent
--Huey Lewis & The News

Several factors have kept measured price inflation, as manipulated as it is, at bay even though central banks have been on a decades-long money printing campaign. Much of the new money has been confined to the financial system which, while predictably driving financial security prices higher, has had limited effect on consumer prices to this point.

Technological advancements, particularly those related to info tech, have positively affected productivity. Higher productivity drives prices lower over time.

Greater global trade has also tempered domestic prices. When producers from various countries around the world trade with each other, then the gains from specialization, including price lowering efficiency improvements, are distributed widely. Trading with efficient producers located in China and elsewhere has permitted the US to, in effect, import lower prices.

As measured price inflation continues to perk up, rest assured that more attention will be paid to the negative effects of tariffs and other trade barriers currently being considered under the auspices of 'fair trade' and 'protecting jobs' in the US. Less trade with producers elsewhere is inherently inflationary as gains from specialization are lost in the name of becoming more self-sufficient.

The less we trade with others, the more we pay for goods and services at home.