Posted on 03/21/2025 7:41:57 AM PDT by Miami Rebel
There was an oft-repeated message in Federal Reserve chair Jerome Powell’s press conference on Wednesday: Tariffs will raise consumer prices.
The U.S. central bank raised its inflation forecast for 2025, as have many economists, due to the expected impact of a trade war initiated by the Trump administration.
“A good part of it is coming from tariffs,” Powell said of the Fed’s elevated inflation estimate.
“I do think with the arrival of the tariff inflation, further progress may be delayed,” Powell said.
His statement comes at a time when pandemic-era inflation has gradually declined but hasn’t yet been fully tamed to the Fed’s goal of a 2% annual inflation rate.
“Tariffs are simply inflationary, despite what [President] Donald Trump may tell people,” said Bradley Saunders, a North America economist at Capital Economics.
Tariffs are a tax on imports. U.S.-based importers — say, clothing retailers or supermarkets — pay the tax so goods can clear customs and enter the country.
Tariffs raise prices for consumers in a few ways, economists said.
For one, tariffs add costs for U.S. businesses, which may charge higher prices at the store rather than take a hit on profits, Saunders said.
Tariffs are a protectionist economic policy, meaning they seek to protect U.S. businesses from international competition by making foreign products more expensive.
Consumers may switch to a U.S. product rather than pay a higher price for the foreign counterpart. However, that logic may not pan out. The U.S. substitute was likely more expensive than the foreign product to start, Saunders said — otherwise, why wouldn’t consumers buy the U.S.-produced good to begin with?
So tariffs may still leave the consumer paying more, whichever products they choose to buy, he said.
Tariffs on Canada, China and Mexico, for example, would cost the typical U.S. household about $1,200 a year, according to a February analysis by economists at the Peterson Institute for International Economics. (This analysis modeled the direct costs of a 25% tariff on Canada and Mexico, and 10% additional tariff on China.)
The president’s economic agenda, including tariffs, will create new jobs, White House spokesperson Kush Desai said in response to a request for comment from CNBC about the inflationary impact of tariffs.
Trump has imposed a slew of tariffs since taking office in January.
The Trump administration raised levies on imports from China and on many products from Canada and Mexico — the three biggest trade partners of the U.S. It put 25% tariffs on steel and aluminum and plans to put reciprocal tariffs on all U.S. trade partners in April. The White House also signaled duties on copper and lumber are forthcoming.
During his first term, President Trump imposed tariffs on about $380 billion of imports, in 2018 and 2019, according to the Tax Foundation. The Biden administration kept most of them intact.
This time around, the tariffs are much broader. They currently impact more than $1 trillion, the Tax Foundation said. The sum will increase to $1.4 trillion if temporary exemptions for some Canadian and Mexican products lapse in early April, it said.
It was largely a “U.S.-China” trade war during Trump’s first term, Saunders said. “Now it’s a “U.S.-everyone trade war,” he said.
There are indirect consumer impacts from tariffs, too, economists said.
To that point, many U.S. companies use products subject to tariffs to manufacture their goods.
Take steel, for example: Automakers, construction firms, farm-equipment manufacturers and many other businesses use steel as a production input.
Tariffs may raise auto prices by $4,000 to as much as $12,500, depending on different factors like vehicle type, according to an estimate by consulting firm Anderson Economic Group.
Builders estimate that recent tariffs will add $9,200 to the cost of a typical home, according to the National Association of Home Builders.
Economic studies suggest that, while tariffs may create jobs in certain protected U.S. industries, they ultimately cost U.S. jobs on a net basis, after accounting for retaliation and higher production costs for other industries.
“By trying to protect certain industries, you can actually make other industries more vulnerable,” Lydia Cox, an assistant professor of economics at the University of Wisconsin-Madison who studies international trade, said during a recent webinar.
Trump has said the administration’s tariff policy may cause short-term “pain” for Americans.
Economists stress that there’s ample uncertainty, and that a bump in inflation may be temporary rather than something that raises prices consistently over the long term.
Treasury Secretary Scott Bessent alluded to this outcome during a recent CNBC interview.
“Tariffs are a one-time price adjustment,” Bessent said. He also the Trump administration was “not getting much credit” for falling costs of oil and mortgages rates.
The Federal Reserve raised its 2025 inflation forecast by 0.3 percentage points to 2.8% in its summary of economic projections issued Wednesday, up from its 2.5% estimate in December. (This projection is for the “core” Personal Consumption Expenditures Price Index. PCE is the Fed’s preferred inflation gauge, and core prices strip out the volatile food and energy categories.)
Similarly, Goldman Sachs Research expects core PCE to “reaccelerate” to 3% in 2025, up about half a percentage point from its prior forecast.
“It’s really hard to know how this is going to work out,” Fed chair Powell said.
But, we win the war of attrition and the tariffs go away and we have truly fair trade.
And, the inflation from the tariffs will be more than offset by drill, baby, drill and eliminate of billions of dollars of useless regulations.
Liberals can only think in static terms. They cannot think in dynamic terms.
Hence, liberals cannot understand that due to tariffs an American company will be incentivized to produce something here that is cheaper.
If something costs more to buy from China people won’t buy it.
Maybe in short term prices go up, but once the free market takes over prices come down
Dumbass article
If something costs more to buy from China people won’t buy it.
Maybe in short term prices go up, but once the free market takes over prices come down
Dumbass article
If something costs more to buy from China people won’t buy it.
Maybe in short term prices go up, but once the free market takes over prices come down
Dumbass article
It isn’t tariff’s that cause inflation, it is the Federal Reserve that causes inflation. The funny money enables government overspending.
As regards bringing back manufacturing, what industries do you see as most likely to repatriate jobs?
We were able to fund the deficits at zero interest rates ( there were even taking about negative interest rates before Trump took office) because China was buying our Treasury Bonds with money derived from flooding American markets with low price products dumped onto the United States markets
This artificial demand for US treasury bonds allowed the government to borrow massive sums of money to fund huge deficit spending while keeping interest rates artificially low because the Chinese were recycling the money they were making dumping cheap products onto the US markets by buying near zero interest rate US Treasury Bonds.
The low prices from Chinese dumping put a lid on inflation because price pressure from cheap Chinese imports put a lid on price hikes so domestic manufacturers could not raise prices due to competition from overseas , mainly Chinese producers.
The inability of American manufactures to raise prices also prevented them raising the wages of American workers so this put a lid on Wage Price inflationary spiral and resulted in zero to negative wage growth for American workers.
In reality, American manufacturers responded in several way - some went out of business due to the foreign competition, some sold out to often foreign competitors, some ran their businesses as non reinvestment grade business and either shut down or plan to shut down when they can no longer sustain operations and the rest followed the herd and off shored their production.
It has also become difficult to intitate a conventional Wage - Price inflationary spiral because off shoring to artificially low cost producers overseas has also killed off enough of our manufacturing labor base is so beat down it does not have the economic clout to dominate the economy like it did in the 1950s and 1960s.
The destruction of America's industrial base has been the cost of the Fed's monetary policies that have that have enabled our government to go on deficit spending spree and generate a 35 billion dollar deficits.
Biden broke the system because he amped up the deficit spending to insane levels during covid.
Well, we saw large gains in strategic steel and aluminum during Trump 1 and it's not an overstatement to say that he saved those industries. That should re start under Trump's plan.
Expansion of oils and gas exploration, drilling and production were huge under Trump before being destroyed under Biden. See some gains there.
Chip making was coming back to America under Trump and that process is accelerating as foreign chip makers invest big money in new, US based fabs.
Apple has announced that they are going to be investing billions in bringing back computer, phone and consumer electronics manufacturing and other will probably follow suit.
Our auto makers will see gains under Trump.
I expect significant gains from Trump's commitment to lead the AI revolution and make sure critical investments int he tech are made in the US.
In just the first two months of the Trump Administration foreign and domestic investment groups have announced that they will be investing over a trillion dollars in US operations in the last few months. Not sure what they are going to be spending it on but a trillion dollars buys a lot of stuff. We will certainly see more of this trend towards investment in America as time goes on if Trump's economic polices continue. .
The synergistic effects of increased demand for steel, aluminum, plastics and other industrial raw materials in the petroleum, auto manufacturing and other heavy industries combined with low cost oil and natural gas and reduced regulatory burdens will spur the re shoring of the broad based chemical, pharmaceutical, plastics and fertilizers that have been hurt by Chinese dumping.
Our farmers should see gains as Trump fair trade policies reduces insane tariff barriers to their products in foreign countries and their production costs go down due to Trumps policies on low cost oil and gas production reduce their production costs across the board.
I expect expansion and perhaps even salvation for existing American domestic producers who have been hard hit by foreign competition and have seen their business become non re investment grade operations.
That's a decent start.
Now the press is suddenly concerned that government monetary and other policies are inflationary. Little late in the game, aren’t they.
I wonder if this ‘economist’ got his economics degree from the same bastion of ‘edumacation’ that the ‘Airhead Of Congress’ did? Inflation is caused by increasing the money supply (aka printing money) without a concomitant increase in GDP. Higher prices can be a symptom of inflation but aren’t the cause. Someone else who never learned correlation isn’t causation. JMO.
I think you’re misremembering recent interest rate history.
The 10-year Treasury paid 2.45% when the 2017 Inauguration took place. It tapped 3.3% by October, 2018. COVID later made it crash briefly to 60 basis points, but that was a multi-decade low that was over in the blink of an eye.
My point is that rates have never been flat, much less negative.
Your description of US manufacturing misses the mark too, I think, If, as you say, foreign competition stemmed wage inflation, that would NOT be a contributing factor to US companies shutting down factories or selling out to foreign concerns. It would in fact forestall those developments. (By the way, foreign purchases of US companies is immaterial in terms of domestic wages and productivity. US workers are paid in dollars whether their employer is based in Cleveland, Frankfurt, or Yokohama.)
As to saving the steel industry, I’ve owned steel shares for decades and I tend to follow the business closely. Steel payrolls have been in steady, slow decline for twenty years, from mid-90,000 workers to low-80,000 workers. A lot of that contraction is the result of that terrific job-killer, automation. No major steel company has been on the ropes since Wheeling-Pittsburgh declared bankruptcy in 1985, (It later re-organized.) Today, US Steel, while profitable, doesn’t have the balance sheet to modernize and expand. Biden’s Justice Department told Nippon Steel to bugger off when it announced its intent to buy it. I hope that that decision is reversed.
Only in Japan.
The other means of restricting trade are included in what Trump seeks to redress through the threat of tariffs. Look at all he has said about them being unfair to American businesses. That is exactly what all this is about.
Bob Lighthizer is Trump’s US Trade Representative.
If you watch his interview with Tucker Carlson you’ll find out that options other than tariffs are being considered.
The goal is balanced trade and an end to trade deficits with other countries. Tariffs may be replaced other means of achieving this.
“Bob Lighthizer: Why Trump’s Tariffs are the Only Way to Save the Middle Class”
https://www.youtube.com/watch?v=p0IUh8kNSqY
That's a bingo!
+1👍🇺🇸
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.