Tariffs don’t always cause inflation

Watch Tariffs don’t always cause inflation - AlArabiya English on Dailymotion

Transcript

00:00Lots of concerns at the moment on Wall Street, starting the week off with some downward facing

00:08arrows. Concerns about a recession. I just want to ask you, first of all, about the impact

00:13of tariffs and what they might do to the US economy, which has just emerged from a long

00:18inflationary cycle. Could tariffs push inflation back up again?

00:23Almost certainly not. Tariffs are not very well understood. When you have tariffs, there

00:28are three parties to the transaction. It could be more, but there are at least three. There's

00:33an exporter, China, Vietnam, Mexico, as the case may be. Then there's an importer in the US who

00:40is probably a wholesale or a distributor. Then there's the consumer who actually buys the goods,

00:46the supermarket, or it could be an automobile or anything else.

00:50Somebody pays the tariffs, but it's almost certainly not the consumer. Generally speaking,

00:55and economic research shows this, the tariff actually gets pushed back to the producer.

01:00In other words, the producer has got to lower his price so that with the tariff,

01:05it comes out about the same. Or it could be put on the US importer, the distributor,

01:12who would then have to absorb the tariff. Or in the real world, it's probably split between the

01:17two. The point is, the exporter and the importer reduce their margins and reduce their profits,

01:23and the price to the consumer is about the same.