His plans increase the deficit, which is inflationary.
Large and broad tariffs are inflationary.
A massive crackdown on illegal immigration will also be inflationary as without cheap labor, making products will be more expensive or won’t happen here at all–particularly agricultural goods and housing.
Trump wants to end the independence of the Federal Reserve. Trump has been in favor of lower interest rates, which will increase inflation.
“Start with that $30 toaster made overseas. Now, slap a 10 percent tariff on it, so that consumers must pay $33 to buy it. That means the Treasury Department collects $3 in new revenue, but it also means that domestic toaster-makers can sell their wares for $32 and undercut the imported models.
If tariffs cause consumers to switch to those domestic-made toasters, Cass acknowledges that consumers are out two bucks. This is what economists call a “deadweight loss” and it’s one of the major reasons why tariffs harm the economy.
Cass, the head of American Compass and a prominent proponent of the conservative moment’s shift toward central planning, wants to focus on the benefits of those higher prices. “The share of the $32 purchase price that would once have gone to a Chinese factory and its workers now goes to an American firm and its workers instead,” he argues. “It pays American taxes and supports American families in American communities.”
All of that for just $2 more. Wow, what a great deal!
Unfortunately, Cass is wrong about the math and wrong about the underlying economics.
Tariffs can, of course, be used to make foreign-produced goods (like toasters) more expensive. That doesn’t mean that manufacturing firms will radically redesign their supply chains to produce more toasters in the United States. And if they did do that, those new toasters wouldn’t cost a mere $2 more than the ones available at Home Depot now. Cass is making several wild logical leaps here, and offers no evidence to substantiate this claim of a hypothetical $32 American-made toaster.
How much would that toaster actually cost? More than $250.
That’s the figure offered by Ed Gresser, the former assistant U.S. Trade representative who is currently the director of trade and global markets for the Progressive Policy Institute (PPI). Unlike Cass, Gresser understands how tariffs and trade work.
More importantly, he also shows his work. Because there are no kitchen appliance manufacturers making toasters in the United States right now, he examined the prices of toasters made in other wealthy, western countries like Italy, Japan, and the United Kingdom. At the lowest end, those toasters cost the equivalent of $250, and some would be significantly pricier.
“In sum, ‘developed’ high-income countries do make home toasters. But they are profitable at prices about ten times those you’d find in mainstream U.S. retail outlets.,” writes Gresser. “So to achieve Vance’s apparent goal, mainstream toaster prices would probably have to rise to Neiman Marcus levels, say $300 each.””
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“there would be far more toaster-buying consumers than toaster-making workers—and the consumers would be far worse off. Indeed, the workers would be worse off too, since they become consumers as soon as they clock out for the day.
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“Now, imagine what would happen if you told them that the price of jeans would have to increase tenfold, as would be the case with toasters. I suspect that Cass—and Sen. J.D. Vance (R–Ohio), who is making a version of this same argument on the campaign trail—is relying on faulty math and bad economics because he’s aware that the real numbers would be unpalatable to just about everyone.”
“The most generic definition of a commodity is something of value that’s bought and sold. A not insignificant segment of the left uses this generic definition when they say we should “decommodify” housing—it should not be something that’s bought and sold like a normal product.
Hear Rep. Alexandria Ocasio-Cortez (D–N.Y.) decry the “privatization” of real estate development at a recent event promoting her Homes Act. That bill, jointly authored with Sen. Tina Smith (D–Minn.), would get the federal government back into the business of building and operating public housing units.
Their debate remarks notwithstanding, there’s no indication that Vance and Walz want to go so far as to completely end private housing markets.
Rather, they want to stop certain types of people from buying and selling housing—corporate speculators in Walz’s case, illegal immigrants in Vance’s. (In past remarks, Vance has also said we should squeeze corporate investors out of the housing market.) Once we get rid of the demand of Wall Street and illegal immigrants for housing, there’ll be more left for normal, decent Americans, the thinking goes.
As I wrote on Tuesday, that’s a mistaken attitude. There’s plenty of evidence that corporate investors and immigrants lower the cost of housing. The former provides the capital, the latter the labor, to get needed housing built.
There’s also no reason to think that a free market would transmute rising demand into ever higher prices. There’s not some fixed number of housing units. Increased demand might raise prices in the short run. But higher prices also encourage more homebuilding. That brings prices back down.
If it was profitable for developers to sell homes at $300,000 a unit and then more immigrants or speculators swoop in and buy houses, pushing the price up to $400,000, developers will respond by building more housing until the price falls back down to $300,000. If they were making money producing homes at that price, there’s no reason they’d suddenly stop just because demand increased.
Over time, capitalist innovation will lower production costs such that more and more housing is available at a lower price. This is what it actually means to make something into a “commodity” and we see examples of it everywhere in the economy.
There are more people and more demand than ever. Yet, somehow the price of common commodities and mass-produced consumer products keeps falling.
Real prices falling in the face of ever-rising demand is what it actually means to “commodify” something.”
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“With zoning codes limiting how much new housing can be built at one time, the size of home-building firms has fallen, reducing economies of scale and construction productivity. Building codes dictating how homes have to be built has further helped to close off innovative construction methods.
Those regulatory restrictions on new supply never went away, with the result being that the price of housing has risen in tandem with rising demand. Additionally, new technology that promised to automate construction tasks has repeatedly failed to take off.
Rather than becoming a commodity, home-building has stayed a cottage industry (no pun intended). Real prices continue to rise and housing affordability has become an issue of national concern debated by candidates for federal office.
In this context, Walz and Vance have decided to double down on the zero-sum nature of the housing market. They say we need to decommodify housing by preventing the wrong people from buying a fixed stock of housing.
This is exactly backwards. Housing supply is fixed by regulation, not nature. If we stripped away regulations on homebuilding, supply would rise and prices would fall.
We’ve failed to make housing a commodity and that’s exactly the problem.”
“The Republican presidential nominee’s threat to impose new tariffs on nearly all imports into the United States would make video game consoles 40 percent more expensive, according to an analysis published this month by the Consumer Technology Association (CTA), an industry group best known for its annual Las Vegas conference showcasing the latest tech for home and personal use.
The report assumes that Trump can carry out his threat to hit all imports from China with a 60 percent tariff, along with a baseline tariff of 10 percent or 20 percent on all other imports. (Trump has been unclear about which level he’d prefer, and recently suggested a “thousand percent tariff.”)
If that happens, the retail price of video game consoles will increase by nearly $250, according to the CTA. Retail price would also grow for laptops (up $357), tablets (up $201), smartphones (up $213), and televisions (up $48).”
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“The theory behind Trump’s push for more tariffs is that making imports more expensive will spur more domestic manufacturing. Instead of importing Xboxes and PlayStations from China, those products would be made in the United States, his supporters claim.
But hold on. If Trump’s tariffs are sufficient to drive consumer technology manufacturing out of China, those jobs won’t all shift to the United States—they’ll go to other countries instead. If that happens, consumers in the U.S. will still bear the cost of the universal tariffs on their game consoles and smartphones.
CTA does project a 31 percent increase in domestic production of video game consoles—but that would not be enough to offset the other consequences. Ultimately, the group comcludes, the economy would shrink by an estimated $4.9 billion, due to the combination of higher costs and lower consumer spending power.
The vastly increased availability and affordability of tech like TVs and video game systems shows what free trade can achieve. Americans should be cautious about taking it for granted.”
“The U.S. government has limited influence over those global prices, which are shaped by market and geopolitical factors. Gas prices dropped during the early months of the pandemic, for example, because millions of people stayed home and dramatically reduced their gas consumption. But as the Bureau of Labor Statistics documented, prices surged as society reopened and the economy started to rebound.
While energy prices have consistently been higher under Biden than they were during Trump’s first term, they have dropped from their heights in 2022, when Russia’s invasion of Ukraine sent global prices soaring. As the Agriculture Department noted in February, fuel and oil costs saw significant declines in 2023 and are expected to decline again in 2024, thanks to drops in global energy prices. U.S. oil prices in the past few days have dropped to their lowest level in two years as OPEC+ says it will increase its own oil production later this year and fuel demand in China looks weaker.
And it’s not clear green-lighting more domestic drilling would have much impact on energy costs. For one thing, the U.S. is already producing record amounts of oil and gas, not to mention renewable energy like solar, wind and hydropower. The Biden administration has also approved more permits to drill for oil on federal land than many of its predecessors, even as it moves to restrict how much federal land is available for drilling.
Several economists also told POLITICO that while energy costs are a factor in every part of the food supply chain, they’re just one of many inputs companies consider when setting prices.”
“Unfortunately, the poll also suggests that Americans—just like their elected officials—may be a bit confused on the subject.
Seventy-five percent of respondents indicated being “very concerned” or “somewhat concerned” “about rising prices of things you buy because of trade tariffs.” But a majority would also support imposing tariffs on certain products, under certain conditions, if they felt it would help American businesses. For example, 62 percent said they would support “adding a tariff to blue jeans sold in the US that are manufactured in other countries to boost production and jobs in the American blue jean industry”—though, notably, 66 percent would oppose a tariff if it raised the price of a pair of jeans by $10.
Further, when asked, “From what you’ve read and heard, who primarily is responsible for paying for the cost of a U.S. tariff,” only 47 percent answered that it was American consumers. The next highest answer was “Not sure” at 20 percent, followed by 15 percent who said the U.S. government pays, 12 percent who said foreign companies pay, and 5 percent who said foreign governments pay the tariffs.
Despite Trump’s claims that exporting countries pay tariffs, it is indeed consumers who pay in the form of higher prices. On the campaign trail in 2019, Biden claimed—accurately—that “Trump doesn’t get the basics. He thinks his tariffs are being paid by China. Any freshman econ student could tell you that the American people are paying his tariffs.” And yet as recently as last month, Biden was proposing 25 percent tariffs on imports from Mexico that use Chinese steel.
While not entirely consistent on the subject, the survey suggests that Americans largely recognize the positive effects of international free trade. It’s a shame, then, that our politicians don’t.”
“Economists understand that tariffs ultimately raise the prices of goods they are applied to. Tariffs are a tax on imported goods. This tax is paid by consumers. Americans must shoulder the additional cost for the same imported goods or pay higher prices for domestically made substitutes (whose quality might also deteriorate because their producers are shielded from foreign competition).”
“The merely dumb, or at least more respectable, version says that the American economy has become more monopolistic over time, and that is why businesses have been able to raise prices more. Consumers are the victims of a lack of competition. Harris nodded toward this explanation in her speech announcing the new policy, perhaps in response to early criticisms from economists.
Of course, it is absurd to believe that monopolies have developed so rapidly in the last three years that this caused the surge in inflation.
Putting that aside, while few economists would endorse price controls as a solution to insufficient competition—except for true natural monopolies—some would endorse blocking mergers through antitrust policy. The epicenter of the new optimism about antitrust is probably the Stigler Center at the University of Chicago. “The fact that you have prominent people at Chicago calling for antitrust enforcement is changing the game,” says law professor and The New York Times writer Tim Wu.
There aren’t many good case studies of successful antitrust enforcement. Indeed, mergers often create more competition, as when the recent T-Mobile/Sprint merger created a successful wireless network to compete with AT&T and Verizon. Evidence shows the merger raised wireless speeds and expanded 5G availability. Fortunately, the Obama administration did not block the merger (although they did delay it).
But one stylized fact seems to have taken hold of newly pro-antitrust economists: rising markups in the U.S. economy. Markups are the difference between the marginal cost to produce a good or service and the price at which it’s sold. A search for “markups” on the Stigler Center’s ProMarket blog yields dozens of hits. “Markups have increased because firms became better at creating product differentiation and erecting barriers to entry,” Chicago economist Luigi Zingales hypothesized in 2016.
Sounds plausible. But two new papers show that the rise in markups has nothing to do with diminishing competition. The first, a working paper published by the Federal Reserve Bank of St. Louis, finds that markups are higher in the service sector, and consumers are shifting their consumption from manufactured goods to services. Therefore, the average markup in the economy is increasing.
The second, a working paper published by the National Bureau of Economic Research, finds that markups have increased because consumers have become less price-sensitive, a mechanism also explored in the first paper. In other words, consumers have been shopping around less to find lower prices, so markups have risen. But it hasn’t happened because firms have taken advantage of inattentive consumers to raise prices; it’s just that costs have fallen faster than prices, resulting in higher markups.
The two papers have discovered complementary explanations for the rise in U.S. markups. Wealthier households consume proportionately fewer manufactured goods and more services and are also less price-sensitive. As Americans in general have become wealthier, we have all consumed more services and have become less price-sensitive.
This makes sense. As we become wealthier, the cost of our time rises. We’re more likely to quickly buy what we need without comparing prices at multiple locations. We’re also more likely to buy higher-quality versions of the same item. When it comes to food, this is definitely happening; just stroll down the grocery aisles and look at the plethora of “fair-trade,” “humane,” and organic certifications.
These results should hearten us that the U.S. economy isn’t rigged against the consumer.
Indeed, where we do see market power, it’s usually not created by really big companies. A rural hardware store has market power if the next hardware store is a long drive away. Public services like public schools and water and sewer systems have immense market power.
Moreover, big business isn’t necessarily bad. For example, Walmart, Costco, and Amazon have driven down retail prices by competing with each other.”