The Inflation Divide

Economist Mark Perry has created a fascinating chart. It shows the increase in prices in several sectors of the economy. In the areas that are subject to foreign competition, prices have collapsed. But in areas protected from foreign competition, prices have soared.

Globalism has created winners and losers. The problem is that it’s hard to see the victories. People come to see goods are correctly priced, not as far below what they would have been in another scenario.

Just as globalization has been a headwind holding back inflation, its unraveling could end up being a tailwind in the years ahead, pushing costs higher as countries and companies retreat from the international marketplace. That would be on top of the one-time effect that Trump’s tariffs will have on prices of selected imports, putting pressure on the Fed to raise interest rates at a faster pace than the gradual path it has currently mapped out.

The president has already imposed import duties on a wide range of products, from steel and aluminum to washing machines and farm equipment. He’s taken particular aim at shipments from China, levying $34 billion in tariffs on goods from that country last week. China, Canada and some of the other nations affected have responded in kind.

Administration officials argue that Trump’s tariffs are designed to convince other countries to dismantle trade barriers, not erect new ones. Yet experts are skeptical, pointing to the president’s focus on getting rid of America’s bilateral deficits and his repeated attacks on the North American Free Trade Agreement, which eliminated many tariffs among the U.S., Canada and Mexico.

Posted by on July 10th, 2018 at 1:03 pm


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