Here’s a letter of mine that appears in today’s Washington Post:
As The Post reported in the Nov. 30 article “Trump tariff plan risks quick jumps in prices for food, cars and gas,” Treasury Secretary pick Scott Bessent insists that “tariffs can’t be inflationary because if the price of one thing goes up, unless you give people more money, then they have less money to spend on the other thing.”
While Mr. Bessent is correct that inflation results whenever government monetary or fiscal policy creates excess demand, the connection between tariffs and inflation isn’t as easily dismissed as he says. First, tariffs can cause buyers to so dramatically reduce their purchases of protected goods that buyers wind up having more money to spend on other goods — other goods, however, that buyers prefer less than those that tariffs make inordinately expensive. Second, by shifting resources away from industries in which Americans have a comparative advantage and toward industries in which Americans have a comparative disadvantage, U.S. tariffs cause Americans to produce less.
Both effects, even if they don’t change the measured price level, reduce the purchasing power of our incomes, which is a chief evil of inflation.
Donald J. Boudreaux, Fairfax
The writer is the Martha and Nelson Getchell chair for the study of free market capitalism at George Mason University’s Mercatus Center.
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Had space allowed, I’d have gone on to point out that in the long run tariffs are worse than at least one-off inflations. When the monetary authority stops injecting excess money into the economy, all prices and wages will eventually adjust to the new, higher money supply. While all nominal prices and wages will be higher, real purchasing power will be the same as before the inflation. But with tariffs, real purchasing power remains lower because people are denied access to lower-priced imports and more workers and other resources are tied up in industries for which the country has a comparative disadvantage.
