Do tariffs increase inflation?

Hi. I’m Lone Candle.

Several articles on tariffs have claimed that tariffs contribute to inflation in a simple manner. They argue that although tariffs are not the main cause of inflation, they contribute, so reducing or eliminating tariffs would help limit inflation. While it’s true that tariffs likely increase the cost of goods taxed with tariffs, their overall impact on inflation is much more complicated.

Don’t get me wrong. Tariffs have negative consequences. Tariffs are costly and need to be justified with potential good sides to counteract the negatives. I am not making a pro-tariff argument here. What I am doing, is correcting the common claim that tariffs simply contribute to inflation, when in reality, tariffs have a variety of effects; some of which contribute to inflation, while others are deflationary.

Tariffs are taxes on foreign imports. When an import is taxed, this directly increases the cost to the importing business. The business can either eat the entire cost of the tax, or share some or all of that cost with consumers in the form of increased price. Because inflation is a general increase in prices, and the increase in the price of foreign goods due to a tariff tax contributes to the overall price of goods and services, tariffs quite directly increase inflation in this way.

Tariffs will also increase prices by way of inputs. Some goods are imported, then used to produce other final goods for the consumer. For example, tariffs on steel may increase prices for…