WASHINGTON – Economists and policymakers are questioning whether stimulus spending and easy monetary policy are fueling inflation. Many companies say there is another culprit that should share the blame: import tariffs.
The Trump administration has put tariffs in place on products such as lumber, steel and semiconductors to protect American companies from a glut of cheap imported goods from China and other countries.
Tariffs have long been contested by American companies that import goods and pay taxes. They are pushing the Biden administration to lift them, on the grounds that tariffs are contributing to the price hikes and product shortages that accompany the post-pandemic recovery.
“I have had 15 price increases from my main steel supplier since September,” said Scott Buehrer, president of B. Walter & Co., a metal products manufacturer from Wabash, Indonesia. “What is the justification for these tariffs when steel prices are exorbitant?”
Some economists argue that the tariffs have had only moderate effects on prices and that removing them will do little to ease the pressure on prices.
Mr Buehrer’s company was among more than 300 manufacturers who wrote to Mr Biden on May 6 asking him to immediately remove the 25% tariffs on steel and the 10% levy on aluminum. The Biden administration said it was reviewing pricing policy but did not intend to lift tariffs immediately.
Manufacturers say tariffs make their businesses less competitive at a time when U.S. buyers, facing searing domestic demand, are paying 40% more for certain steel products than their European peers.
Mr Buehrer said he cut his payroll by 10% to cut costs as rolled steel prices nearly tripled since last fall. But unions and the steel industry are urging Biden to keep tariffs on metals in place, saying in a May 19 letter that the policy has allowed the industry to “restart inactive factories, rehire laid-off workers and invest in the future. “
“The tariffs have been in place since 2018 and there has been no inflationary pressure since then,” said Roy Houseman, legislative director at United Steelworkers. “The United States has invested billions of stimulus dollars into the economy. This will create some inflationary pressure. “
Another industry struggling with soaring prices is home building.
Lumber futures contracts in May hit over $ 1,600 per thousand board feet, a record that is more than four times the usual price at this time of year. The National Home Builders Association estimates that higher lumber prices have added $ 36,000 to the price of a typical single-family home.
“It doesn’t make economic sense to tax things when you don’t have enough domestic supply,” said Robert Dietz, NAHB chief economist. “Appliances, washing machines, literally the nuts and bolts that go into making a house – screws and nails – are subject to some of the tariffs on metals.”
Home builders and lawmakers have urged Biden to eliminate tariffs imposed in 2017 on Canadian lumber, amid a decades-long disagreement between US and Canadian lumber producers.
Instead of removing the duty, the Commerce Department issued a preliminary ruling on May 21 to double the levy to 18%, concluding that Canadian imports are heavily subsidized. Tariffs will remain at the current 9% until a final decision on the proposed increase is made before November, a Commerce Department official said.
To ease Trump-era tariffs on a wider range of Chinese imports, a bipartisan group of 40 U.S. senators in April asked the Biden administration to restart a process to grant exclusions to importers for more. 2000 items ranging from pillows to auto parts. The exclusion process, introduced by the Trump administration, expired in December but was not renewed.
When the Trump administration’s tariffs first went into effect, some economists warned they could boost inflation. But there seems to be a consensus that the impact has been mitigated.
“Since the tariffs didn’t have a big impact on consumer prices in the first place, I probably wouldn’t expect their removal to cause significant downward pressure either,” Andrew said. Hunter, economist for Capital Economics, a research firm.
The moderate impact is partly explained by the fact that tariffs only affect imports, which generally represent a relatively small share of the domestic market. For steel, imports account for about a third of total US demand. And the share of taxed imports is even smaller since the largest exporters to the United States – Canada, Brazil and Mexico – are exempt.
SHARE YOUR THOUGHTS
Do you think rising commodity prices are a sign of inflation? Join the conversation below.
Import prices of goods subject to customs duties initially increased. But many importers absorbed much of the increases, rather than passing the entire increase on to consumers. During this time, the prices of many products not subject to tariffs were falling, which kept the headline inflation rate low.
David Weinstein, an economist at Columbia University, says tariffs can actually drive prices down in the long run.
Mr. Weinstein and his colleagues examined the evolution of financial market inflation expectations based on bond market yields at the time of 11 new tariff announcements by the United States and China between 2018 and 2019.
To their surprise, he said, they found that events had lowered inflation expectations so that prices were expected to be around 1 percentage point lower five years later and 1.3 percentage points lower. 10 years later. Stock prices also fell.
“What the markets are predicting, and our data suggests, is that the trade war will have negative effects on productivity,” he said, referring to tariffs on business operations. “When you keep productivity to a minimum, you will have a huge impact on the success of your economy, as well as on prices.”
The Office of the U.S. Trade Representative, which is conducting a review of U.S. tariff policy, is investigating whether easing tariffs, among other factors, could alleviate the shortage of supplies of timber and other products, Cecilia Rouse, Chair of the Council White House economic advisers said in a May 18 briefing.
She added, however, that trade policy is a “much bigger problem” than short-term market fluctuations and must be framed in the context of Washington’s global policy.
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8