One thing does tariffs: It raises prices.
Prices don’t require any support to rise right now.
Economic data released Friday by the Bureau of Labor Statistics show that year-over-year inflation hit 6.8 percent in November—the highest level recorded since 1982. While other indicators indicate that the economy has been strong, Americans are still facing high levels of inflation. For the White House resident, inflation has become a significant political problem.
In the short-term, President Joe Biden probably won’t be able to do much about inflation. That ship sailed when he pushed for and signed off on a major economic stimulus bill earlier this year—one that economists warned was too large and could overheat the economy. The other factors that influence inflation are beyond Biden (or any President’s) control, such as the gap between demand and supply, which is largely due to the COVID-19 epidemic.
Biden can do one thing to give consumers relief immediately. Biden could immediately lift the tariffs that were imposed on Trump’s former president.
These tariffs have added roughly 0.5 percent annually to inflation, something Biden was unwilling to do during his first term. Ed Gresser is a former assistant U.S. Commerce Representative and the current vice president, director, trade and global market at the Progressive Policy Institute. This think tank, a center-left thinktank, has reached this conclusion. Gresser writes Trump’s tariffs of washing machines and solar panels as well steel, aluminum, metal, and other Chinese-made items are a “secondary, noticeable contribution” right now to global inflation.
This is in keeping with the warnings that four economists from San Francisco Federal Reserve in February 2019 – shortly after Trump started imposing tariffs on certain goods – said. The economists wrote, “Imports to China constitute an important portion of U.S. total imports of consumer- and investment goods.” These tariffs will have considerable effects on producer, consumer and investment prices.
Biden, unlike other policy options that might slow inflation like increasing interest rates could reduce tariffs, without the need for Congress or Federal Reserve action. Similar to other policies, cutting tariffs wouldn’t come with the same negative tradeoffs as other actions. In addition to making the economy less affordable to borrow, raising interest rates can also harm it. The lifting of tariffs can reduce inflation and offer tax cuts to American businesses. This is a win-win situation.
It is important to remember that tariffs are not intended to raise prices. It is their sole function. The purpose of tariffs is to raise prices. Politicians may want them to do this for several reasons. To protect their domestic industries and to make it easier to choose where to invest in the world. Also, they might be looking to punish unfair trade practices. But all those goals—and tariffs are poor ways of accomplishing most of them—are second-order functions. Tariffs are responsible for raising prices to the point that these events occur.
This basic fact of economic reality is being ignored by Biden, and he will continue to increase inflation.