How Fast Will Prices Rise With Tariffs? - Econ Lessons

[TexasTowelie]

Hi, my name is Mark, and I am a monetary economist. Here, I explore how quickly prices are likely to rise following the imposition of new tariffs, with a focus on the macroeconomic mechanisms driving inflation and contraction. Drawing from classical and Austrian economic theory, we analyze tariffs as a negative supply-side shock that distorts relative prices, reduces productive efficiency, and triggers downstream effects on household disposable income.

Referencing David Ricardo’s theory of comparative advantage, we examine how trade restrictions misallocate resources and raise production costs, thereby contributing to price increases. This initial inflationary impulse is not offset by monetary easing, as the central bank maintains a policy rate above the natural rate of interest—a disequilibrium condition consistent with Hayek’s business cycle theory. As a result, the burden of higher prices falls disproportionately on households at the margin, reducing consumption and compressing real income.

We further discuss how rising costs, stagnant or tightening credit conditions, and declining real demand may generate a negative multiplier effect across sectors, potentially leading to a full business cycle downturn. This framework challenges the notion that tariffs can be implemented without macroeconomic cost, especially in an environment of tight monetary policy.

This video is intended for viewers who are interested in macroeconomics, international trade theory, and Austrian business cycle analysis but also care about their day-to-day budget and the future.

[calikid]

1. That was great! But kinda not. Thanks for posting nt