Exactly one year ago, when the dementa-ridden Joe Biden was still the presumed favorite in the upcoming presidential election and when some were speculating that tariffs under Trump (if elected) would spark runaway inflation, we said that "The Experts Are All Wrong About Inflation Under A Trump Presidency." The argument was simple: contrary to conventional wisdom, American consumers simply did not have the financial capacity to permanently absorb another round of tariffs, and at worst any inflationary hit would be transitory, one-time at which point aggregate demand would get hit and force companies to cut prices (even Goldman admitted it had been dead wrong on this as described in "Goldman Kills The Right-Tail, No Longer Expects Sustained Tariff Inflation"). Meanwhile, at best, Trump would be right and instead of US consumers or US companies forced to absorb the tariff price increases, the companies hit with the price increases would be foreign producers who - unable to pass through tariffs without losing market share in the US market - would need to slash their prices.
It turns out that Trump was right again, at least for now.
To be sure, the fat lady has yet to sign on just what the long-term impact of tariffs will be on inflation - for that we would need to wait about a year to get the full picture. But with tariffs in the pipeline for 5 months now, we have been able to see what foreign companies are doing in response and some of the observations are stunning.
