Historic government spending of more than $1 trillion when the Trump and Biden Covid aid packages are considered together, and the price spikes caused by high demand due to all that free money, coupled with our Asia-centric supply chains in lockdown, unable to move product, is what drove most Americans crazy every time they went grocery shopping and gassed up their car. Most of the big spikes in prices had nothing to do with imported goods, with airline tickets rising 30.15% from 2020-2022 compared to falling prices between 2017 and 2019.
Moreover, transoceanic shipping costs added an average of 11% to global import prices, with some countries worse off than others, according to an UNCTAD report.
Many have argued, for years, that if the U.S. wanted a consumer- friendly economy where prices were perennially low, they were best served by imports. Imports come from low-cost nations, like China. Or Mexico. That was the thinking.
But imports, even from nations where the U.S. has free trade agreements, have not led to lower prices. For example, the single biggest source of milk imports into the U.S. comes from Mexico. Although these numbers from the USDA include all dairy, like butter and different types of milk, dairy volumes were lower in 2022 than they were in 2019. Regardless, between 2017-2019, milk prices fell 0.24%. In the Covid years, milk prices rose 19.7% due in part to more Americans staying home, increasing demand, but also due to dependence on imports.
“The major failing of most mainstream economist models of trade is that they fail to allow domestic production to increase when tariffs or any form of import restriction is imposed,” said Jeff Ferry, CPA’s chief economist. “The U.S. experience since 2019 shows us that tariffs have had a very minimal impact on consumer price inflation. In some sectors, the tariffs have generated considerable increases in domestic production and employment. So they are a net win for the economy.”
Last September, CPA did ran the 10% tariff rate through the standard economic model known as the GTAP model. The model included variables for increases in domestic production to make up for imports.
The simulation found that the tariff change would increase economic growth through new investment and increased capacity at manufacturing plants not firing on all four cylinders due to import penetration. The model suggested real household incomes would increase by 10.4% or nearly $8,000, and real GDP would grow by 3.61%. New federal tax revenue of $460.3 billion a year would be generated by the tariff increase. Policymakers also have the opportunity to use the increased government revenue to reduce income taxes on American families or businesses if they chose, helping to increase spending in the economy that would also, in theory, promote investment in American manufacturing.
For a slideshow presentation of what a 10% tariff might look like, click here.
Gas, Eggs, and Airline Tickets Rose Over 30% During Inflation Spike. Tariffs Had Nothing To Do With It.
When inflation was rampant during the Covid years, few items rose in price more than gasoline, airline tickets and – of all things – eggs. Of course, none of these items were impacted by the tariff regimes imposed by former President Trump and continued under President Biden. In fact, some tariffed items even saw prices below core inflation in the first year of the Section 301 tariffs against China imports.
For example, tools of all types, including hand held wood working tools and power saws, were part of the List 1 $34 billion action list under Section 301. On average, tools, hardware and supplies such as saw blades were 1.89% more expensive in 2019 than they were in 2017, according to government data. That’s one year of tariffs in place. Core CPI rose around 4%. The price of those same goods between 2020 and 2022 rose 15.2%. That wasn’t the China tariffs kicking in all of a sudden, four years later. That was due to government stimulus checks pouring money into the economy, and Asian lockdowns disrupting supply chains.
Chinese seafood imports were tariffed. Overall, fresh seafood prices were 4.6% higher in 2019 than in 2017, a year before tariffs were enacted. But between 2020-2022, seafood prices rose 16.9%, years after any tariff impacts would have been felt.
It’s an election year. “Tariff Man” Trump is back, this time talking about a 10% across the board tariff, worldwide. Some 54% of voters support this idea, according to a Daily Mail poll.
Last month, the progressive group founded by White House staffer John Podesta, Center for American Progress (CAP), wrote a report by two staffers with public policy and political science backgrounds, saying that Trump’s 10%, if enacted, would be the equivalent of an extra $1,500 charge against American consumers.
It’s going to “directly feed inflation”, the broken record says. Even Paul Krugman disagrees.
“The dirty little secret of international trade economics is that moderate tariff rates” don’t have huge price effects, Krugman said on Bloomberg Television’s Wall Street Week with David Westin before the CAP report came out. “To get really big (inflation) numbers, you have to get well beyond 10%,” he said.
In a July 2023 report titled What Caused the US Pandemic-Era Inflation? by Olivier J. Blanchard and former Federal Reserve Chairman Ben S. Bernanke said energy prices, food prices, and price spikes due to shortages were the dominant drivers of inflation.
Historic government spending of more than $1 trillion when the Trump and Biden Covid aid packages are considered together, and the price spikes caused by high demand due to all that free money, coupled with our Asia-centric supply chains in lockdown, unable to move product, is what drove most Americans crazy every time they went grocery shopping and gassed up their car. Most of the big spikes in prices had nothing to do with imported goods, with airline tickets rising 30.15% from 2020-2022 compared to falling prices between 2017 and 2019.
Moreover, transoceanic shipping costs added an average of 11% to global import prices, with some countries worse off than others, according to an UNCTAD report.
Many have argued, for years, that if the U.S. wanted a consumer- friendly economy where prices were perennially low, they were best served by imports. Imports come from low-cost nations, like China. Or Mexico. That was the thinking.
But imports, even from nations where the U.S. has free trade agreements, have not led to lower prices. For example, the single biggest source of milk imports into the U.S. comes from Mexico. Although these numbers from the USDA include all dairy, like butter and different types of milk, dairy volumes were lower in 2022 than they were in 2019. Regardless, between 2017-2019, milk prices fell 0.24%. In the Covid years, milk prices rose 19.7% due in part to more Americans staying home, increasing demand, but also due to dependence on imports.
“The major failing of most mainstream economist models of trade is that they fail to allow domestic production to increase when tariffs or any form of import restriction is imposed,” said Jeff Ferry, CPA’s chief economist. “The U.S. experience since 2019 shows us that tariffs have had a very minimal impact on consumer price inflation. In some sectors, the tariffs have generated considerable increases in domestic production and employment. So they are a net win for the economy.”
Last September, CPA did ran the 10% tariff rate through the standard economic model known as the GTAP model. The model included variables for increases in domestic production to make up for imports.
The simulation found that the tariff change would increase economic growth through new investment and increased capacity at manufacturing plants not firing on all four cylinders due to import penetration. The model suggested real household incomes would increase by 10.4% or nearly $8,000, and real GDP would grow by 3.61%. New federal tax revenue of $460.3 billion a year would be generated by the tariff increase. Policymakers also have the opportunity to use the increased government revenue to reduce income taxes on American families or businesses if they chose, helping to increase spending in the economy that would also, in theory, promote investment in American manufacturing.
For a slideshow presentation of what a 10% tariff might look like, click here.
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