Firstly, the value of the dollar decreasing will increase the cost, in dollars, of all imports. The tariffs on top will add to this inflation.
Yes
Printing money doesn’t automatically lead to inflation but in a recession environment where less is being produced, it certainly does. The quantitative easing and money printing workdwide, due covid, led to the crazy inflation we saw. Certainly supply was a problem, but a reduction in trade between 2 giant economies is also going to cause those kinds of bottlenecks.
Disagree on two points. Depending on what the cause of a recession is, printing may or may not produce inflation. If a recession isn’t caused by a shortage of some real resource (e.g. oil) or reduced production capacity (e.g. physical destruction, mass death), printing money while there’s slack in production capacity does not cause inflation, it increases production via increased aggregate demand. The pandemic was a perfect example of having reduced production but no reduction in production capacity. The monetary stimulus kept aggregate demand from collapsing and production rapidly increased close to capacity once we reopened. That leads to the second point of disagreement. A few good analyses I’ve seen on this clocked stimulus overshooting at causing up to a quarter of the inflation we saw while the rest was caused by the significant increase in oil prices and corporate price gauging (record profits and all that). The outlets I’ve seen claiming it was mostly due to spending have typically been ideologically driven. Take that as you will. I won’t change my mind on this as I believe I’ve seen enough information on it. No hard feelings. ☺️
Add loss of faith in the dollar and this multiplies. Trump is destroying the dollars purchasing power which leads to inflation. All the while he’s killing jobs in public sector and private sector at the same time.
More for some items, less for others. It’s going to increase prices of imported goods as you said in your first point. It won’t increase the prices of domestically produced items. Of course many domestically produced items have imported components. Those that have more are going to go up to more than those that have less. And anywhere in-between. It’s probably impossible to accurately gauge the result but inflation is definitely going to occur as a result of the devaluation of the dollar within the US. With that said, and you’re not gonna like this, Trump would be able to offset that by printing money to increase wages to compensate for that. And that likely won’t cause additional inflation because the production capacity would remain unchanged. In fact he’d have to do it to avoid a decrease in the aggregate demand due to the reduction in real wages from the devaluation. Now I highly doubt his people are competent enough to do this and to do it right, as they could easily over or undershoot. 😂 They might even be ideologically opposed to doing it.
But don’t get me wrong, on the whole I think it’s going to be a shit show and they won’t be able to pull off what they’re trying to do and the US is gonna go into a dumpster fire stage. From the horribly targetted tariffs and the other damage unrelated to the trade war they’re doing. If anything I’d be losing more confidence in the US because of the latter, since tariffs can be reversed more easily than say the long term effects of destroying education on their labor force among other things.
The purpose of tariffs is to reduce supply, and allow local producers to increase costs without facing competition. So, supply will be affected, no matter what.
Add money with reduced supply and you get inflation. Already countries are looking to increase trade with each other in lieu of trade with the USA. China on particular has been talking to all the Asian producers to reassure and warn against demaking with the USA. They are now the trustworthy partner.
The recession is going to come from a loss of commodities. From a loss of trade, including the components essential for domestic production. Those prices are going to rise. Jobs will be lost. All the while, all exporters to the USA will increase their prices in response to USD fall on value so that their margins in their currency remain the same.
Sure, the falling dollar, in normal circumstances would make American products more attractive, but all other countries are now imposing tariffs on the USA in response. Some, like the EU, have not done it across the board, but they will ramp up. China and USA have effectively planned to cease trade. America doesn’t have the high tech supply chain they need to compete with Chinese products internationally.
As the recession will lead to job losses, wages will have downward pressure, not up, like in every other recession.
The fact that you remain unwilling to listen and have made up your mind to remain I’ll informed os a poor decision.
The purpose of tariffs is to reduce supply, and allow local producers to increase costs without facing competition. So, supply will be affected, no matter what.
I think you’re mistaking change in price with its potential effect. And I think that hides some insight. Tariffs do nothing to supply. They increase the prices of the imported goods. As a result of the increased prices, you expect people to buy less. I think you call this effect reduced supply. That’s not a change in the supply though. It’s a change in the demand for the good. The supply is unchanged. The supply chain was able to produce and import 10 (or more) units prior to the tariffs, and the US consumer bought 10. Today the consumer can afford only 5, but the supply chain can still produce and import 10. Price rises decrease demand when the demand is elastic. Now you could just shortcut that and say tariffs decrease the availability of a good in the economy since less is purchased but that’s not the same as tariffs reducing supply. And that’s important for the following reason. If on one hand tariffs increase prices and on the other the government cuts taxes (increases the money supply) by an equivalent amount, people would be able to afford the new, higher price of the tariffed good and again buy the 10 units that can be supplied, effectively nullifying the tariff effect. In such a scenario, the amount of tariffed imported goods in the economy would remain unchanged compared to untariffed state.
The way we’d express this scenario in terms of inflation is that there would be short term inflation (increase in prices with the application of the tariffs) and then “wages would have caught up” (in my example by leaving higher disposable income after lower taxes). A process similar to the one economists are talking about post-COVID inflation. The inflation rate has decreased in most places but the price levels are higher and people are poorer. People began demanding higher wages to cover for the higher prices - which is the wages catching up part.
Now this kind of thing would be largely pointless for local manufacturers since the effective prices of the competing imports haven’t increased. It would achieve lowering the value of the dollar though, which would theoretically make American exports cheaper and therefore reduce trade balance. Again, I don’t think they’ll manage to do this, especially since they’re only talking about the tariff part of the scheme, and since there’s nothing currently preventing trade partners from moving away from the dollar… Also they could’ve just subsidized the industries they want to grow… And maybe tariff only their competitors once there’s enough production capacity in the US…
Sorry, I
Should have specified. These tariffs are designed to reduce supply. Tariffs of 125% are designed to get foreign sellers to abandon the market. That is what has happened reducing supply.
They are also triggering boycotts overseas, reducing demand.
You’re thinking it’s a zero sim game in terms of production and pricing, when elastic. When prices rise, outside of their control, producers seek other markets or produce different products.
Yeah over some period that could (likely would) occur and increasing the aggregate domestic demand wouldn’t necessarily restore the amount available imported goods in the economy, and it could indeed result in additional inflation. That makes sense but it’s gonna take a bit for supply chains to reshuffle. I think you’re right that it’s already beginning to happen.
Yes
Disagree on two points. Depending on what the cause of a recession is, printing may or may not produce inflation. If a recession isn’t caused by a shortage of some real resource (e.g. oil) or reduced production capacity (e.g. physical destruction, mass death), printing money while there’s slack in production capacity does not cause inflation, it increases production via increased aggregate demand. The pandemic was a perfect example of having reduced production but no reduction in production capacity. The monetary stimulus kept aggregate demand from collapsing and production rapidly increased close to capacity once we reopened. That leads to the second point of disagreement. A few good analyses I’ve seen on this clocked stimulus overshooting at causing up to a quarter of the inflation we saw while the rest was caused by the significant increase in oil prices and corporate price gauging (record profits and all that). The outlets I’ve seen claiming it was mostly due to spending have typically been ideologically driven. Take that as you will. I won’t change my mind on this as I believe I’ve seen enough information on it. No hard feelings. ☺️
More for some items, less for others. It’s going to increase prices of imported goods as you said in your first point. It won’t increase the prices of domestically produced items. Of course many domestically produced items have imported components. Those that have more are going to go up to more than those that have less. And anywhere in-between. It’s probably impossible to accurately gauge the result but inflation is definitely going to occur as a result of the devaluation of the dollar within the US. With that said, and you’re not gonna like this, Trump would be able to offset that by printing money to increase wages to compensate for that. And that likely won’t cause additional inflation because the production capacity would remain unchanged. In fact he’d have to do it to avoid a decrease in the aggregate demand due to the reduction in real wages from the devaluation. Now I highly doubt his people are competent enough to do this and to do it right, as they could easily over or undershoot. 😂 They might even be ideologically opposed to doing it.
But don’t get me wrong, on the whole I think it’s going to be a shit show and they won’t be able to pull off what they’re trying to do and the US is gonna go into a dumpster fire stage. From the horribly targetted tariffs and the other damage unrelated to the trade war they’re doing. If anything I’d be losing more confidence in the US because of the latter, since tariffs can be reversed more easily than say the long term effects of destroying education on their labor force among other things.
The purpose of tariffs is to reduce supply, and allow local producers to increase costs without facing competition. So, supply will be affected, no matter what.
Add money with reduced supply and you get inflation. Already countries are looking to increase trade with each other in lieu of trade with the USA. China on particular has been talking to all the Asian producers to reassure and warn against demaking with the USA. They are now the trustworthy partner.
The recession is going to come from a loss of commodities. From a loss of trade, including the components essential for domestic production. Those prices are going to rise. Jobs will be lost. All the while, all exporters to the USA will increase their prices in response to USD fall on value so that their margins in their currency remain the same.
Sure, the falling dollar, in normal circumstances would make American products more attractive, but all other countries are now imposing tariffs on the USA in response. Some, like the EU, have not done it across the board, but they will ramp up. China and USA have effectively planned to cease trade. America doesn’t have the high tech supply chain they need to compete with Chinese products internationally.
As the recession will lead to job losses, wages will have downward pressure, not up, like in every other recession.
The fact that you remain unwilling to listen and have made up your mind to remain I’ll informed os a poor decision.
I think you’re mistaking change in price with its potential effect. And I think that hides some insight. Tariffs do nothing to supply. They increase the prices of the imported goods. As a result of the increased prices, you expect people to buy less. I think you call this effect reduced supply. That’s not a change in the supply though. It’s a change in the demand for the good. The supply is unchanged. The supply chain was able to produce and import 10 (or more) units prior to the tariffs, and the US consumer bought 10. Today the consumer can afford only 5, but the supply chain can still produce and import 10. Price rises decrease demand when the demand is elastic. Now you could just shortcut that and say tariffs decrease the availability of a good in the economy since less is purchased but that’s not the same as tariffs reducing supply. And that’s important for the following reason. If on one hand tariffs increase prices and on the other the government cuts taxes (increases the money supply) by an equivalent amount, people would be able to afford the new, higher price of the tariffed good and again buy the 10 units that can be supplied, effectively nullifying the tariff effect. In such a scenario, the amount of tariffed imported goods in the economy would remain unchanged compared to untariffed state.
The way we’d express this scenario in terms of inflation is that there would be short term inflation (increase in prices with the application of the tariffs) and then “wages would have caught up” (in my example by leaving higher disposable income after lower taxes). A process similar to the one economists are talking about post-COVID inflation. The inflation rate has decreased in most places but the price levels are higher and people are poorer. People began demanding higher wages to cover for the higher prices - which is the wages catching up part.
Now this kind of thing would be largely pointless for local manufacturers since the effective prices of the competing imports haven’t increased. It would achieve lowering the value of the dollar though, which would theoretically make American exports cheaper and therefore reduce trade balance. Again, I don’t think they’ll manage to do this, especially since they’re only talking about the tariff part of the scheme, and since there’s nothing currently preventing trade partners from moving away from the dollar… Also they could’ve just subsidized the industries they want to grow… And maybe tariff only their competitors once there’s enough production capacity in the US…
Sorry, I
Should have specified. These tariffs are designed to reduce supply. Tariffs of 125% are designed to get foreign sellers to abandon the market. That is what has happened reducing supply.
They are also triggering boycotts overseas, reducing demand.
You’re thinking it’s a zero sim game in terms of production and pricing, when elastic. When prices rise, outside of their control, producers seek other markets or produce different products.
Yeah over some period that could (likely would) occur and increasing the aggregate domestic demand wouldn’t necessarily restore the amount available imported goods in the economy, and it could indeed result in additional inflation. That makes sense but it’s gonna take a bit for supply chains to reshuffle. I think you’re right that it’s already beginning to happen.