Trump Tariffs: Not Inflationary, Says Former Trump Economist

In a surprising turn of events, a former Trump economist has argued that the Trump tariffs are not inflationary, challenging the widely held consensus that tariffs increase prices and contribute to inflation. This stance has sparked debate among economists and policymakers, as the potential impact of Trump's tariffs on the U.S. economy and global trade remains a contentious issue.



The former Trump economist, Larry Summers, and his team have presented an alternative perspective on the relationship between tariffs and inflation. They argue that the official US inflation numbers may not accurately reflect the actual cost-of-living increase felt by the average consumer. By including interest costs to consumers in the inflation index, Summers and his team contend that the true inflation rate is significantly higher than the official numbers suggest. This alternative measure of inflation peaked at around 18% in June 2022, rather than the official 9.1% reported. This higher inflation rate supports the argument that policies that increase demand while restricting supply, such as Trump's tariffs, can lead to higher inflation.

However, the former Trump economist's argument differs from the consensus view in several ways. The consensus view is that tariffs increase prices for consumers, with companies typically passing on the extra costs to consumers in the form of higher prices. This is evident in the examples given, such as a 20% tariff on imported goods leading to a 20% increase in prices for those goods. The former Trump economist, however, argues that tariffs do not necessarily lead to higher prices for consumers. Additionally, the consensus view is that tariffs can lead to job losses in other sectors, while the former Trump economist suggests that companies may not pass on these costs to consumers, implying that prices would remain unchanged.

The former Trump economist's perspective on tariffs and inflation aligns with historical data and economic theory in several ways. For instance, the economist warns that increased tariffs could lead to higher prices for consumers, adding inflationary pressure. This aligns with historical data and economic theory, such as the 2018 tariffs on washing machines leading to a significant price hike for U.S. consumers. Additionally, the economist highlights the risk of persistent costs and limited consumer choices once tariffs are enacted, which aligns with historical data, such as the "Chicken War" tariffs of the 1960s, which led to higher prices for American consumers and proved difficult to repeal.

In conclusion, the former Trump economist's argument that Trump tariffs are not inflationary differs from the consensus view by suggesting that tariffs do not lead to higher prices for consumers, do not cause companies to pass on costs, and do not contribute to inflationary pressure. However, this argument is not supported by specific examples or data, while the consensus view is backed by historical evidence and economic theory. The economist's perspective aligns with historical data and economic theory in several ways, but ultimately, the impact of Trump tariffs on inflation remains a contentious issue, with both sides presenting valid arguments.