As I write this, much digital ink is being spilled on inflationary pressures from Trump’s latest round of tariffs on Mexico, Canada, and China. These are our three biggest trading partners, representing vast amounts of goods over many industries and sectors, affecting both American consumers and American firms alike. Price concerns are legitimate. But we must differentiate between changes in prices and inflation. Tariffs will cause a one-time increase in prices, but all else held equal, prices will not continue to rise. The 2018 tariffs on washing machines present a good example.
In 2018, President Trump imposed tariffs on washing machines. Prices naturally jumped in 2018, both on the consumer side (as measured by the CPI) and the producer side (as measured by the PPI). The full amount of the tariff was passed along to Americans. After this initial jump, however, prices returned to the long-run trends of generally falling. Tariffs did not cause a long-run increase in prices. Once the tariff was fully capitalized into the price, market forces once again took over and the long-run trend returned. This is exactly what we should expect. A tax shifts the curves, causing a one-time jump in the price, but then once the shock passes, the long-run trend resumes.
This is a chart I created from the Consumer Price Index of Washing Equipment (source: Bureau of Labor Statistics, series ID: CUSR0000SS30021):
Note that, starting in 2013, washing machine prices started falling, a trend that would be uninterrupted until the tariffs were imposed in 2018. The tariff was imposed and prices jumped. Once the tariffs were fully incorporated in prices by the end of 2018, the trend resumed. Then, of course, 2020 hit and, with inflation, the trend was reversed. It’s quite easy to see with this chart that tariffs didn’t reverse the overall trend, but it did shift the trend upward. Consumers still saw washing machine prices fall, but prices were still higher than they otherwise would have been without the tariff.
Fast forward to 2025. We should expect to see these new broad-based tariffs cause a near-term increase in prices. Given the broad nature of these tariffs, the increase in costs to both consumers and producers will likely even show up in inflation figures temporarily. But it would be a mistake to call these tariffs inflationary. The tariffs will be incidental to any inflationary pressures, not causative. The Federal Reserve’s bloated balance sheet will be a primary cause of inflation.
