Tariff mythbusters: Alternative perspectives on US tariffs
A tariff is like a consumption tax, but incurred at the border rather than at the point of sales, with part of the tax increase borne by the exporter, as opposed to the consumer
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MUCH ink has been spilled about the economic cost of tariffs and the looming risk of a US recession or stagflation. While we should not dismiss such concerns, neither should we assume that these outcomes are inevitable. Challenging market assumptions can be quite rewarding, and I hope to provide alternative perspectives.
Tariffs inflationary?
Many people assume that tariffs are inflationary. The logic seems straightforward. A 10 per cent tariff should translate into a 10 per cent price increase, all else being equal. However, that is not always the case.
Consider the case of medical gloves. Since January 1, 2025, the US has raised tariffs on Chinese-made medical gloves from 7.5 per cent to 50 per cent, an increase of 42.5 percentage points. Yet, glove prices have not risen in proportion to the tariff hike. That is evident from the results of Malaysian glovemakers, who should have benefitted.
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