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Posted on 12/18/2025 6:44:28 AM PST by dangus
Inflation is only at 2.6% year-over-year. This means that nearly 100% of the cost of tariffs has been eaten by the foreign manufacturers and importers. Which is exactly what I’ve been arguing would happen. Let me explain what is happening:
The notion that tariffs would be passed onto customers has always been laughable on its face, once you understand that manufacturing is only 20% to 40% of the price of an item for sale. The rest includes advertising, warehousing, transportation and sales markup. (Importers have high transportation costs to get the product to America, but that’s all part of replacing the cost of manufacturing with the cost of importing.) So, from the start, tariffs offer $2.50 to $5 of revenue for every $1 incurred by Americans, even if importers and foreign manufacturers pass on every penny of increased cost.
But even that is ignoring the fact that Chinese imports’ prices aren’t being driven by the cost of attaining the product; they are driven by the cost of replacing the product with a domestic product. To put it simply, if an American can provide a product for $100, and it can be imported from China for $60, the Chinese aren’t going to offer at close to $60 to be charitable to U.S. consumers; they’re going to sell it for close to $100 (probably slightly less because there is some perceived less value just because it’s Chinese.) So when their costs rise to $90, they can either eat the rise in cost, and continue selling it for close to $100, or they can decide not to sell it. Either way, they’re not going to sell it for over $100. (There’s an exception, but hold on for one moment.)
We should therefore not be surprised that inflation is far closer to the otherwise expected inflation rate of 2% to 2.5%, than to the inflation rate that one would expect if the one-third of the retail sales market that is represented by imports raised their prices by 20%, which is very roughly the average tariff. (I’m a little non-committal to the actual average tariff rate because the rates have been changing so fast, and import rates have been adapting to them.) If retailers raised their prices proportional to tariffs, we would expect a 9% inflation rate.
We got a 2.6% inflation rate. Depending whether you would have expected a 2% or a 2.5% inflation rate, that 2.6% rate means that corporations (mostly foreign) ate 90% to 99% of the tariff increases.
Now, back to that exception: Remember that imported good that the Chinese had been importing for $60 and supplying for close to $100? Suppose that the American corporation could manufacture it for $100, but can’t ramp up production instantly. Now, consumers will bid up the price, and it shoots to well above $100… temporarily. The Chinese firm is unlikely to do this because the price increase will end up simply funding American capacity expansion, and then they lose the market. But this has probably happened in a limited number of instances.
This suggests that even the tiny increase in prices may be only temporary.
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Dpetty is somewhere crying today😂
Dont worry though….. “soon” the US consumer will feel the pain of tariffs.
1) It’s almost impossible for the PCE reported last week to diverge from today’s CPI to this extent.
2) It need have nothing to do with tariffs.
Excellent post, great comments, love this…
President Trump is placing America’s economic future back into the hands of the private sector, and proving the anti tariff advocates were wrong all along.
A beautiful thing to watch play out ….
“Yes, inflation is ~100% tied to money printing.”
Uncle Miltie agrees 100%.
They are strangling American production in order to enlarge the profit from overseas labor. Worse, they are expecting Americans to supply the blood and treasure to guarantee safe delivery. That CANNOT go on forever, as they'll eventually kill that goose. Hence, the practice is NOT entirely rational. It is simple thievery whilst selling the rope to hang themselves.
Tariffs are a tax and they take money out of the system. Therefore they’re principally deflationary. Some prices for items or services may go up, but they’ll be offset by other prices going down.
Inflation is only at 2.6% year-over-year. This means that nearly 100% of the cost of tariffs has been eaten by the foreign manufacturers and importers.
Your wrong, but not ‘off base’. Tariffs don’t cause inflation by themselves, IMHO and in the Opinion of research by the Federal Reserve. However, I think inflation has slowed because one the biggest drivers of inflation was the cost of energy. Specifically, the cost of food is related to oil for fertilizer, fuel, packaging (plastic) and transport. Plus, government deficit spending reduction, prevents devaluation of currency, which has an enormous impact on inflation. Traitor Joe and his Puppeteer Obama, drove up the price of oil, and created huge deficit spending resulting in the inflation. Trump has done an incredible job to curb most of this in 10 months.
So I won’t say that foreign manufactures ended up with the cost of the Tariffs completely, but I will say that what Trump has done has positively impacted the inflation rate.
It turns out the exporters have calculated that maintaining access to the US market is worth the cost. I believe I read that only 5% is passed on to the consumer.
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