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2024-11-07 14:16 by Karl Denninger
in 47 , 693 references Ignore this thread
Facts On Tariffs *
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One common refrain: They're inflationary.

That's a lie and any economist who says that knows he or she is lying.

This is math, not politics.

Let's definite this: A tariff is a tax on an imported good or service.  It thus does indeed raise the price of said good or service by the amount of the tariff.  This is easily understood and weaponized by the liars in the media and economic profession.  The media may not know the facts but all economists do.

In fact a tariff is exactly neutral to inflation as a whole.

Why?

Let's take an example.

There is a thing that has a price of $1,000 at the dock coming into the US.  The US Government slaps a $1,000 tariff (100%) on it, so now the cost at the dock is $2,000.  Assuming the business passes that through and neither attempts to profit from or absorb it, that is, they take no deliberate action to attempt to exploit it or be damaged by it, the entire $1,000 shows up on the shelf price.

That sounds inflationary.

It isn't.

Why not?

Because all inflation is caused by the emission of credit, and the US Government is running a fiscal deficit -- that is, emitting credit.  This is the infamous (and true) Milton Friedman statement: "Inflation is always and everywhere a monetary phenomena."

So where does the $1,000 go?

It goes directly to the Federal Government and reduces inflation generated by the federal government's deficit spending by the exact same amount the price increase at the consumer increases it.

Right as I write this CNBC is lying to you -- and the Press is about to do it too with their "questions" for Powell.

Again: Tariffs are a zero when it comes to inflation -- they neither help or hurt it as a function of imposing and collecting them because there is exact balance, to the penny, of both inflationary and deflationary forces.

HOWEVER, to the extent a tariff incentivizes jobs and production to come back to the United States they are deflationary and benefit consumers by lowering inflation pressure in that producing a good or service in the United States instead of overseas means all of the tax revenue generated by the activity happens here in the United States and tax revenue of course decreases the deficit and thus drives inflation down.