Rethink Trade
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Rethink Trade

China Tariffs Prove Unrelated to Increased Inflation; Corporate Profits Tell the Real Story

I took a look at the actual data underlying various arguments about what can be done to cut inflation — aka rising prices. So, here’s something some economists apparently did not check out before suggesting that cutting U.S. tariffs on China could bring down prices: There’s no correlation between tariffs being imposed and prices rising. As the figure below shows, the inflation rate remained relatively stable during the period of steady tariff increases on Chinese goods between July 2018 and February 2020. Contrast that with the jump in inflation over the past year while no new tariffs have been imposed. Indeed, the U.S. tariff rate on Chinese goods has remained fixed since February 2020, long before the current inflation increase began. Ironically, some tariffs on other countries’ goods were removed during the period of rising inflation.

However, as you can see, during the past year, inflation growth has corresponded directly to the growth of profits for American non-financial corporations. Said profits increased from approximately a trillion dollars each quarter for the past decade to $1.73 trillion in the third quarter of 2021. These swelling margins accrued while many Americans faced COVID-19 health and economic suffering. Instead of taking windfall profits, companies could have absorbed these cost increases. Instead, in a number of industries, concentrated market power and lack of competition allowed firms to continue raising prices. These price spikes did not result from previously stabilized tariffs.

View the interactive version here.

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Taylor Buck

Taylor Buck

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