I appreciate this response, and I'll try to find that paper and read it this weekend. I don't understand intuitively how tariffs could not be inflationary, but I'm not anything resembling an economist and I'm happy to be educated about it.
1. I would not recommend reading that paper. I did so you wouldn't have to. Or get someone to summarize it. It is not well written; it is disorganized; and it goes on Trump-fluffing derailments from time to time.
2. Remember that, at bottom, inflation is a reduction in the purchasing power of a dollar. Which is to say that, if all else remains equal, it could be expressed in different ways. One is through higher prices. But it could also come from the same number of bucks but less bang. For instance, suppose Trump put in universal 1000% tariffs. All foreign trade would stop. It wouldn't necessarily be inflationary in the US, but it would reduce our purchasing power because we have a much more limited set of choices. One way or another we would lose wealth.
3. There is an edge case where we might see something different. Let's say that all trade is like Bosch dishwashers. Now, Bosch is a premium brand in a field that isn't particularly competitive. It might be possible that, in a specialized sub-market, Bosch has tremendous market power. 20 years ago, you wouldn't think of building a high rise apartment building in New York without Bosch appliances where possible. No idea if that's true today, but this is just an illustration.
So in other words, Bosch has pricing power due to a semi-monopolistic position in a niche market. If it does, that means last year it was charging a price higher than in a competitive market -- and also that its price strategy is to maximize revenues at a low enough price so as to not encourage entry. So it has slack. Tariffs come in, and Bosch wants to preserve its market so it lowers prices -- which is can do, because it was charging elevated prices in the first place due to market power.
Thus, if all imports were like Bosch appliances, then tariffs could be non-inflationary, basically forcing niche-dominant foreign producers to eat lower price markups.
4. So are foreign goods like Bosch appliances? You would not think so for Chinese products that get sold at Wal-Mart. If nothing else, there would be competition between Chinese producers that will have already forced the price down. BUT we also get stories about how US firms can't get parts except from China -- e.g. windmills, rare earths, chip fabrication, etc. So presumably some Chinese firms had niche-market dominance. What % of Far East trade is like that? I would think very little, but who knows.
It's definitely not the case for places like Vietnam or Bangladesh. Nor, I would imagine, for Canada and Mexico.
5. If the economy is slowing -- as it sure seems to be, even per the weird jobs report that looks more like statistical artefacts than anything real -- then you wouldn't expect to see inflation. You'd expect disinflation. So if there are tariffs slowing the economy, they would cause disinflation; but they aren't, because they are also causing inflation.
Again, inflation is the result of a decline in welfare. If that decline is realized through some other channel -- i.e. a smaller economy -- then the inflation isn't necessary. It just means we get a recession instead of stagflation.
