Inflation Data Once Again Crushes Tariffmageddon Fearmongering

WILBUR-ROSS Campbell Soup
CNBS
JOHN CARNEY

President Donald Trump announced tariffs on steel and aluminum thirteen months ago. They have not raised consumer prices.

The Department of Labor said Wednesday that its consumer price index was up just 1.9 percent compared with a year ago, indicating that prices are not rising particularly quickly. The Federal Reserve says it targets 2 percent inflation, although it uses a different measure of prices.

Prices have consistently defied the critics of Trump’s tariffs who predicted they would strain consumer budgets.

“Trump’s trade war may soon hit consumers’ wallets and paychecks,” NBC News declared in a headline last year.

“Tariffs will surely lead to higher prices for imported goods and, to a lesser extent, prices for non-imported goods that use imported materials,” the University of Pennsylvania’s business school Wharton reported.

“Tariffs are about to hit consumers, and it won’t be pretty,” CNBC claimed.

“Trade restrictions, by their nature, result in price increases for the goods in question. If the price of steel and aluminum goes up, manufacturers will be forced to pass those costs onto American consumers,” wrote Tori K. Whiting, the Jay Van Andel Trade Economist at the Heritage Foundation’s Roe Institute for Economic Policy Studies.

Commerce Secretary Wilbur Ross, however, said all of these predictions of higher prices were wrong.  To the contrary, Ross argued tariffs would have little to no effect on U.S. consumers. He held up cans of Campbell’s soup and Budweiser beer to illustrate his point that the metals input into most consumer prices was very low and unlikely to rise.

When prices did not rise as predicted, the critics did not back off their claims. Many just moved the time frame, arguing that the forecast price increases were just taking time to move through the economy. But now that a year has passed, that an increasingly absurd position.

Soup, Beer, Veggies, and Trucks

Take the prices of soup and beer, Secretary Ross’s examples. The price of soup is up 0.8 percent compared with a year ago, which means that its price has climbed slower than prices in the overall economy. The price of beer consumer at home is up just 1.8 percent, also lower than broader inflation.

Of course, not all soup is canned. Beer is sold in bottles. The government doesn’t track canned beer and canned soup separately. So it is possible that canned variations have seen more price inflation, offset by price declines in bottled beer and soup in cardboard containers. But that’s largely irrelevant from the consumers perspective since shoppers can easily just switch to the cheaper category.

Prices of canned fruits and vegetables, another category of consumer goods that was widely predicted to see prices rise because of increased aluminum costs, are up by 6 percent, a hefty increase. But very little of this is due to the price of aluminum. Instead, it’s what’s in the cans that is driving the price higher. Fresh vegetable prices are up 7.7 percent. Lettuce prices are up 18 percent.

So what’s pushing vegetable prices up so much? Mother nature. Floods in the Midwest and California hit farmers hard. They came at a particularly bad time for California’s vegetable crop, hitting the supply of lettuces, greens, broccoli, cauliflower, celery and strawberries. Prices are expected to return to normal by summer.

The upward pricing pressure on beer consumed in bars and restaurants, which is notable because the price of beer kegs has reportedly gone up because of the aluminum tariffs, is no longer showing up. Beer consumed outside of the home is up just 2.2 percent compared with a year ago.

Car and truck prices are perhaps the most important consumer item that tariff opponents claimed would be pushed up by the metals tariffs. But these have hardly moved. Compared with a year ago, car prices are up just 1 percent. The price of new trucks rose 0.6 percent.

Televisions, Computers, and Appliances

Many of the categories of consumer goods that are largely manufactured abroad also saw steep declines, defying predictions that the China tariffs implemented last year would weigh on consumers.

Tools and hardware were often cited by those promoting the “tariffs are taxes on consumers” narrative. But prices on these are up just 1 percent compared with a year ago.

The prices of televisions have crashed.  In March alone, television prices fell 4.3 percent. This is the eighth consecutive monthly decline for televisions. Compared with a year ago, television prices are off 19.3 percent. This steep decline may reflect foreign manufacturers competing with each other for market share by dumping televisions on the U.S. market. (There are no real domestic manufacturers for anti-dumping regulations to protect so it is unlikely the Commerce Department will take any action here.)

The price of computers, digital homes assistants, and phones were predicted to see upward pressure from tariffs on China. But computers and related hardware prices are down 3.3 percent compared with last year. Phone prices fell again, for at least the seventh consecutive month, and are now down 14.9 percent compared with a year ago. Note that mobile phones were excluded from the first two rounds of China tariffs.

We’re now a year into the anti-dumping tariffs imposed in January of last year on washing machines. These were intended to drive up the price from artificially depressed levels and accomplished that goal last year. Those washing machine price gains, however, have faded. Laundry equipment is now up just 8.8 percent.

The broader “major appliance” category, which was pushed up by the sharp rise in washing machines, saw a monthly decline of 1.2 percent. Compared with a year ago, prices are up 8.8 percent, a deceleration from February’s 11.1 percent gain. This likely reflects increased consumer demand due to rising wages, low unemployment, and rising home sales but may also reflect some tariff pressure.

Made in China 2018

The tariffs on Chinese-made goods also do not seem to have had much of an effect on consumer prices. Initially, these applied to $50 billion of imports from China and were largely focused on technology goods. In late September, however, the China tariffs were broadened to cover an addition $2o0 billion and a wider array of consumer goods.

The prices of furniture and bedding, one of the largest categories of China-made imports, and are up 3.3 percent annually. This is actually an astonishingly low level of price inflation given the acceleration of home sales, which are up more than 10 percent compared with last year.

Toys, another big China import category, saw prices fall by a staggering 7.1 percent. Sports equipment prices are down 3.5 percent. Clothing prices are down 2.2 percent compared with a year ago. Auto parts prices are up just 1.8 percent compared with a year ago.

Once again, the consumer price data has largely demolished the notion that tariffs are squeezing consumers. Prices pressures remain muted, with increases on heavily imported and newly tariffed goods only showing up in major appliances, largely washing machines. Meanwhile, phones, computers, and especially televisions have plummeted in price. Beer, soup, and cars show no tariff pressure at all. Baseball mitts and other sports equipment are cheaper. Cars and trucks sell for just about what they did before tariffs were imposed. This suggests that if tariffs are having any effect at all it is not to raise prices for households generally but to shift prices between items, so that major appliances rise while televisions and computer fall.

That does not mean that prices will remain low or tariffs will never push prices up. But it demonstrates that even after several months of tariffs, prices on consumers are not rising.

The low prices may indicate that the burdens of tariffs are falling on foreign producers and on intermediate goods producers. This can happen when export prices fall in reaction to tariffs, either because manufacturers seek to maintain market share but discounting their goods or because foreign currencies decline against the dollar.

Those who predicted tariffmageddon for consumers probably owe Secretary Ross an apology.

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