LETTER: Tariffs and inflation, a primer
The constant discussion about how U.S. tariffs on imported goods will cause higher inflation are not accurate. Let me explain.
Say the United States puts a 10 percent tariff on Chinese (or German, etc.) goods. Chinese distributors do not want them piling up in warehouses, so they agree to eat 1 percent or 1.5 percent. Shippers don’t want them sitting at the dock, so they eat 1 percent to 1.5 percent. U.S. trucking companies don’t want the merchandise sitting on the docks in the ports, so they absorb 1 percent to 1.5 percent. And retailers sure don’t want merchandise sitting in their stockrooms, so they absorb some of the remaining 5.5 percent and add it into other higher margin items.
That leaves around 2.5 percent to 3 percent, which is the normal acceptable inflation rate. Thus the tariffs did not cause any additional inflation than what would normally exist.
That is why a 10 percent tariff on goods isn’t causing inflation. And that applies to every country we’re dealing with.
