David Lightman | (TNS) McClatchy Washington Bureau
WASHINGTON — Will Donald Trump’s plans to impose steep taxes on foreign goods and services mean more inflation? It sure looks that way.
Though inflation has slowed considerably, polls consistently show voters are frustrated about high prices. The cost of living increased at its highest rate in 40 years during 2022.
Trump keeps hammering away at the Biden administration — and Democratic presidential nominee Kamala Harris — saying their policies helped elevate cost of living. They’re the reason, he says, that people are paying $5 a gallon for gasoline, the $4 a carton for a dozen eggs and so on.
Prior to the holiday weekend, the campaign sent an email saying, “As Americans hit the road this Labor Day weekend, they have Kamala Harris to thank for sky-high prices.” A Trump ad in battleground states charges “two-thirds of Americans are struggling to make ends meet.”
Higher tariffs, higher prices?
Trump’s plans for the economy include higher tariffs, or taxes on foreign imports. He’s suggested a 10% tariff on imports from other countries, with tariffs reaching 60% tariff on all imports from China.
Independent analysts see those ideas as inflationary. For years, they’ve found companies tend to pass the higher tax on to consumers, and the price of getting materials to produce goods also goes up.
Kimberly Clausing and Mary Lovely, senior fellows at the nonpartisan Peterson Institute for International Economics, said in a policy brief this spring that Trump tariffs are likely to cost a middle income household about $1,700 in higher taxes each year.
“I would say that these tariffs would cause a one-time increase in the price level alongside supply shocks. Whether it causes persistent ongoing inflation would depend on a number of factors, including how the Fed responds,” Clausing later told The Bee.
At the independent Tax Policy Center, senior fellow Howard Gleckman had a similar view.
“He’s proposed cutting income taxes, raising tariffs, deporting immigrants, and curbing the independence of the Federal Reserve. Each would worsen inflation,” he said of Trump.
And, said the conservative-leaning Tax Foundation, “ Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.”
Until the past few years, Washington generally resisted high tariffs, concerned that making less expensive foreign goods more difficult to obtain would send prices higher. Republican and Democratic administrations encouraged free trade.
Those attitudes have changed in recent years as domestic manufacturers and service providers argued inexpensive goods were hurting their companies and workers.
The Biden administration continued many tariffs imposed during Trump’s presidency and this spring slapped new tariffs on a variety of Chinese products, including electric vehicles. Harris, though, has called Trump’s boost in tariffs an effective national sales tax.
Trump sees stable prices
The Trump campaign cites its success keeping prices stable and the economy growing during most of his term in office from 2017 to 2021. Its policies worked then and will again, Trump spokeswoman Karoline Leavitt told The Bee.
“President Trump successfully imposed tariffs on China in his first term AND cut taxes for hard working Americans here at home — and he will do it again in his second term,” she said.
“President Trump’s plan will result in millions of jobs and hundreds of billions of dollars returning home from China to America. Comrade Kamala Harris wants low taxes on China, while imposing the highest taxes in the world on America,” Leavitt said.
U.S. taxes are “low relative to those in other high-income countries,” the Organisation for Economic Co-operation and Development found in 2021. The OECD is an international organization that advises governments on policy.
Some economists thought the Trump tariff plan would not be an automatic inflation trigger.
Mark Schniepp, director of the Santa Barbara-based California Economic Forecast, said, “a tax on some goods is not going to meaningfully raise the general price level of all goods and services, which is what inflation is based on.”
Tariffs “won’t meaningfully impact the general price level unless tariffs were quite pervasive across all countries and many goods. And we know that won’t be the case,” he said.
Trump has argued that restricting foreign goods and services will spur more American manufacturing and thus more competition among domestic companies, competition that will keep prices stable.
Schniepp recalled that while president, Trump imposed tariffs on certain steel, automotive and agricultural imports, and those domestic industries did well. Unemployment and inflation were low.
“Substitution plays a big role in whether there will be inflation or not,” he said. “So it largely depends on what goods tariffs are imposed on.”
During the Trump presidency, prices were up 2.4% in 2018 and 1.8% in 2019, the economy grew at a healthy pace, and unemployment was 4% or less monthly during that period. Some experts argue that tariffs’ influence on inflation was minimal at the time because the taxes were more targeted toward certain industries and generally lower than what Trump now seeks.
But the worry among many economists is more centered on the tariffs.
“Trump’s tariffs would significantly raise prices of imported goods since they’d mostly be passed on to consumers,” Gleckman said.
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