Why Tariffs Have Not Caused Inflation

Substack ^ | July 18, 2025 | Spencer Morrison

[LibertyFound]

America is the biggest consumer market in the world. In 2024, Americans spent >$19 trillion on consumer goods. Over $4 trillion of this was on imports.

This means, in nominal terms, that Americans bought more than just about any other country on earth produced. America is the world’s forum, the bazaar, the emporium, the supermarket—the shopping mall.

And just like how the biggest store in town can pressure suppliers to cut costs, America’s buying power gives us leverage over prices—leverage that can be translated into profits via tariffs.

Essentially, if foreign producers want to sell their goods to American consumers—which they do—then they must pay the tariffs. However, if they raise prices too high, they will simply be outcompeted by products from countries with lower tariffs, or American producers who pay zero tariffs.

As such, there is tremendous pressure on foreign producers—particularly foreign producers in relatively high tariff, low cost countries—to eat the tariffs. This has been happening. According to recent reports, about two-thirds of manufacturers expect that foreign suppliers will eat the tariffs, rather than passing increases onto American consumers.

[C210N]

Tariffs can only cause prices to rise on a micro level, per product tariffed and for a duration until market forces equalize.

OTOH, inflation is a rise in M2 money supply, which only the FED can do and does do thru its "magical money computers".

[central_va]

This simple economic reality was lost when globalist took over after wwii.

[Tell It Right]

Thanks for posting. As a reminder of how prices work, they are set by supply and demand.

Will tariffs impact demand? I don't see how. Will tariffs impact supply? I guess they could in certain niche markets, lower the supply which would raise prices. But in markets where the tariffs won't lower supply to raise prices, IMHO the tariffs won't raise prices. Why? Because if the good would sell at that raised price, the price would already be at that height anyway. So in the end, the tariffs will be eaten up by the producers and/or the retailers. Again, except for niche markets where the price is barely above production and transportation cost.

[Salman]

Prices on particular goods fluctuate and might go up due to tarriffs.

But only deliberate central bank action causes inflation, though politicians may cause it at one remove.

[Starboard]

if they raise prices too high, they will simply be outcompeted by products from countries with lower tariffs

*************

Very interesting point about inter-country competition. Not something anyone else seems to be talking about.

[Carry_Okie]

There’s supply v. demand, and then there’s indifference and substitution. When a good becomes too expensive, one has a choice between suppliers or some other completely different use of their money.

[BHI2025]

Bookmark

[PGR88]

I agree that Tariffs are not causing inflation, but the author’s analysis is simplistic, too academic, and wrong.

In most imported / tariffed goods, there is NOT a perfect market and buyers can not simply “buy American” or choose a country with a lower rate. Certain electronic items will only come from China. Certain imported foods can only come from certain countries, etc... Tariffs will increase these costs

Moreover, it will take years for American manufacturers to build factories in the USA, to replace China or other sources.

Rather, the reasons we have not seen inflation are:

- Energy prices remain low. Energy is the master-cost, which affects literally every producer and seller. Trump gets this, and is not only unleashing oil production, but is encouraging uranium/nuclear. We must be an energy superpower, because it’s the base of the entire economy.

- Media hype and politics make us believe imports are very large part of the economy, when they in fact are not. That’s not to say China (or others) do not have control over some strategic inputs, which must be remedied, but in economy-wide dollar terms, its not large

- American business’ major costs are domestic costs - labor, health-care, energy, rent/interest, etc...

- A large part of the US economy is service. Again, this is based on people and technology. all domestic inputs.

[posterchild]

Even if tariffs are not economically efficient, they serve other purposes. For example, tariffs are necessary to ensure America’s economy remains self-sufficient. If not, America’s national security is gravely threatened.

Agreed. We are citizens first 'consumers' after.

[Alberta's Child]

OTOH, inflation is a rise in M2 money supply, which only the FED can do and does do thru its "magical money computers".

This is only half true. What is often overlooked in this conversation is the impact of money velocity, not just money supply. I suspect money velocity has declined in recent months simply because people and businesses are dealing with more uncertainty now than they were before.

[rdcbn1]

It was completely obvious that Trumps targeted tariffs would not cause inflation.

It was a pretty obvious that tariffs would not increase prices or ,if they would, the price increases would be be minimal in most cases due to price pressure from domestic competitors.

Have been watching importers who tried to pass the tariff fees on to their consumer base and prices are rapidly dropping back to pre tariff levels - and below in some cases as they are forced to liquidate stagnated inventory that is not moving at the higher prices.

The so called economists who predicted economic doom and gloom due to Trump tariffs are either morons who have no idea of how the economy really works or they agenda driven hacks who were lying - or both.

[Theoria]

We don't have full reciprocal tariff implementation.

Lets have a real analysis wants that has been implemented for several months. We get to see that soon, as of now, companies have been front loading material in preparation of tariffs.

Good luck out there, Aug 01 is the deadline, lets see if the Admin kicks the can down the road again. We had a week of Tariff rates and the market sold off. Tariffs have to be high enough to help spur domestic manufacturing, small tariffs will likely not help our production values.

[central_va]

Completely static snd incorrect thinking. You: if product a is not made in the USA then product a will never be made in the USA. This plain wrong. Ps: two new washing machine factories just opened in SC.

[PGR88]

You: if product a is not made in the USA then product a will never be made in the USA.

Where did I say THAT? Stop making stuff up.

NO. I said there is not a perfect market for imported goods as the article implies. Many things bought abroad at this moment only come from abroad. If you want rare-earth magnets for EVs, then you must go to China. If you want frozen orange juice, you must go to Brazil. Tariffs will cause prices of these inputs to rise, but such imports are not a large part of overall US economy.

These can be made in the USA, but it will take time. Tariffs are an attempt to fix these imbalances.

[reed13k]

actually money velocity over the past 9 months has remained relatively stable:

Quarter Ending M2 Velocity
Mar 2025 1.386
Dec 2024 1.389
Sep 2024 1.387
Jun 2024 1.382

[reed13k]

June numbers aren’t available yet, but April was 1.383

[central_va]

Labor is the main difference in cost. Small tariff is really all that is needed to promote domestic industry.

[Theoria]

The rates have to be high enough to bring in production value here than than having production in other areas. If rates are still low enough for chinese productions, then they will still do it there. That’s part of the reason we’ve been sold out for decades.

[central_va]

No, it only takes a little to change the dynamic. The big difference is labor. Mass produced items labor is a small part of production A few pennies on the dollar is all it takes to repatriate prod. The data says I am correct.