An army of studies have contended for months that President Trump’s import tariffs were costing American families hundreds of dollars a year through higher prices of goods such as washers and dryers. The only problem is, there’s not much evidence.
Take washers and dryers. Prices did spike after tariffs took effect in mid-2018 on models manufactured outside the U.S., but the cost of new appliances have since returned close to pre-tariff levels, government data show.
At one point last fall, prices for laundry equipment were rising at a 15% annual pace. And now? Prices have fallen 1.2% in the 12 months ended in May, according fresh government data.
Inflation more broadly has also declined since Trump resorted to tariffs last year. Consumer prices have increased just 1.8% in the past 12 months, down from a six-year high of 2.9% last summer.
The low rate of inflation is pushing the Federal Reserve closer to a reduction in interest rates, an expectation that has fueled a recent rally in the U.S. stock market DJIA, -0.09%SPX, -0.15% .
What’s going on? Economists point to a variety of explanations.
The global economy has gotten weaker and the U.S. dollar stronger, making imports cheaper for Americans to buy and lessening the impact of tariffs. The cost of imports excluding foreign oil have fallen almost 1% in the past year.
“We are importing deflation,” asserted chief U.S. economist Chris Low of FTN Financial.
Companies can also shift production to lower-cost manufacturers in the U.S. and abroad to keep prices low. LG and Samsung, for instance, now make more appliances in the United States.
The cost to produce each good or service, known as unit-labor costs, have been declining for two years.
Businesses don’t have much pricing power, either. Even though there’s lots of talk by executives that they will pass tariff-related costs on to customers, customers are very resistant to price increases. And with the internet at their fingertips they can shop around for the best deals or simply wait for prices to fall again.
“Despite some modest upward pressure from tariffs, inflation remains well in check due to the strong dollar, falling unit labor costs and aggressive online competition driven by digital technologies,” said Sal Guatieri of BMO Capital Markets.
If the tariffs remain in place long enough, economists say, inflation will creep higher and higher prices will eventually bite Americans in the purse or wallet.
Yet as the recent evidence shows, the relationship between tariffs and higher prices is far from an exact one.
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