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How inflationary are tariffs, really?
Nov 26, 2024
Chris Giles, the FT's economics commentator and author of the Central Bank's newsletter, joins the conversation about the impact of recently imposed tariffs by President-elect Trump. They scrutinize whether these tariffs will genuinely drive inflation or merely adjust prices. The discussion also dives into the historical influence of tariffs on washing machine prices and examines market reactions to new political appointments. Additionally, they reflect on the cultural significance of London's Smithfield meat market and its uncertain future.
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Quick takeaways
- Tariffs can lead to short-term price increases, but whether they cause lasting inflation depends on various economic factors and market responses.
- The impact of tariffs varies significantly between economies, with open economies experiencing more pronounced effects compared to relatively closed economies like the U.S.
Deep dives
The Impact of Tariffs on Price Levels
Tariffs are essentially taxes on imports and can lead to an increase in consumer prices, potentially raising inflation in the short term. The discussion revolves around whether the inflationary effect of tariffs is merely a temporary spike in price levels or if it can drive ongoing inflation within the economy. Factors such as the degree to which these costs are absorbed by importers versus passed on to consumers play a crucial role in determining the actual inflationary implications. Ultimately, the long-term effects depend on various dynamics, including wage adjustments and market responses to sustained tariff measures.
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