How Tariffs Will Lower The Cost Of Living

Authored by Spencer Morrison via American Greatness,

Critics of President Trump’s trade policy – tariffs, tariffs, and more tariffs – cry that tariffs will cause inflation and make Americans poor. This is false.

Although there will be a brief period where the market adjusts to the new normal, tariffs will not cause inflation. In fact, tariffs will lower the cost of living in the long run.

Perhaps the more interesting question to ask is: inflation of what? Consumer goods? Why are these critics not concerned about the inflation of assets like houses or investments that are caused by economic globalism and the trade deficit?  Why are the Democrats and Neocons so preoccupied with keeping the cost of disposable products low, when people cannot afford their rent or mortgages?

Fiddling with the grasshoppers

Contrary to popular belief, tariffs did not raise the cost of goods during President Trump’s first term, and they are not likely to do so the second time around. 

There are a few reasons for this.

First, a tariff is a tax imposed on imports. For example, a 25% tariff on steel would increase the price of steel coming from Canada or South Korea. However, that same tariff would not apply to steel that was made in America. In this way, tariffs are a completely avoidable tax. If you do not want to pay tariffs, buy American. Simple.

Not only do tariffs create an incentive for consumers to buy American, but they also create an incentive for foreign producers to lower their costs. If countries like China or Mexico want access to America’s market—which they certainly will—then they will have to find a way to reduce their costs to balance out the tariff. Ultimately, lower production costs will benefit everyone.

At this stage, critics will argue that even if you buy American, you will still end up paying more. Why? American goods cost more to begin with, and without foreign competition, American businesses will price-gouge.

This may not be true in the short term and is certainly false in the long term. To begin with, America’s manufacturing industry is among the most productive in the world. Given that productivity is what ultimately drives prices, America’s manufactured goods should also be among the cheapest in the world—and it is.

The problem is that prices are skewed by economic externalities, foreign currency manipulation, and predatory trade practices. This results in efficient and cost-effective American factories being closed, while inefficient foreign factories—in places like Italy and Germany, for example—remain open for business. Protecting American markets from abuse will help our domestic free market function more efficiently. This will lower costs as the market adjusts to the new normal.

Further, tariffs will reshore American factories and thereby increase domestic output. Manufacturing is an interesting industry because prices are subject to increasing returns. That is, the more that we manufacture, the lower the price of each unit of production becomes. This is because capital costs are fixed, and the more we make, the more these costs are disbursed. As such, we have good reason to believe that prices of American products will actually decrease if we impose tariffs. This will help offset the expected short-term increases.

Finally, the only way to decrease prices in the long run is to increase productivity—to invent and implement new technology. The best catalyst for this is higher input costs, particularly labor costs. We can expect that companies that reshore their factories from places where labor is plentiful and cheap will be looking to invest in capital and technology that improves productivity. In the long run, this will drive invention and innovation and lower the cost of goods—not just for Americans, but for everyone.

The world prospers when America prospers. Tariffs are an effective tool to rebalance America’s economy away from financial interests—moving money—and into productive investments. Tariffs will realign the economy towards building the future, rather than buying it.

Compared to what?

The media laments that tariffs will increase the price of consumer goods. However, they appear blissfully unaware that the current trade paradigm—massive, chronic trade deficits driven by unfair and asymmetrical trade with the rest of the world—also causes inflation of a different kind.

America imports far more than it exports. This results in a trade deficit, which we need to pay for. How do we do this? By selling assets and debts. As a result, the trade deficit directly contributes to the increase in prices—inflation—of American assets and debts. For example, in 2024, foreigners bought an estimated $42 billion of residential real estate, $8 billion of agricultural land, and $12 billion of commercial real estate. This drives up real estate prices, locking our own young people out of the real estate market and denying them their share of the American Dream.

In addition to real estate, foreigners buy American businesses. As of June 2023, foreign investors own 17% of all American equities. Ownership of our businesses has dire consequences, such as giving foreign governments direct access to our technologies. This perpetuates the massive theft of American intellectual property, which costs hundreds of billions annually, and jeopardizes our national security.

We also trade debt. This is sort of like buying groceries on our credit cards, except is occurring at the national level. For example, foreigners own some $8.67 trillion of U.S. Treasury securities, accounting for 24 percent of the public debt. Further, America’s corporate and household debt has ballooned since 1973 to the highest levels since World War 2.

Debt is especially dangerous because we have to repay the principle and we pay interest. This inflates the cost of buying foreign products in a way that most economists fail to appreciate. Consider that America became a debtor nation in 2006—for the first time since the Great Depression. As a result, we are now paying over $150 billion in interest every year to foreign entities for the privilege of buying the products we should be building.

The elites oppose tariffs because consumer goods—things people want—may rise in price. In comparison, the absence of tariffs inflates the price of housing—something people need. From this, we can see that the elites do not actually care about inflation. Instead, they are using trade policy to inflate the price of assets that they already own, such as real estate and stocks, at the expense of the livelihoods of ordinary Americans.

Tariffs may increase the inflation of consumer goods, but this will be offset by the deflation of assets and debts. 

Not only that but reshoring the factories will drive down prices in the long run by creating fertile ground for invention and innovation. The logical conclusion is inescapable: America needs tariffs to reshore our factories and revive the American Dream.