Here is the rationale why tariffs will not cause inflation

 

The Truth About Tariffs

People love to panic about tariffs causing inflation.

They wave around the ghost of the Smoot-Hawley Tariff from the Great Depression like it’s Exhibit A proving tariffs equal economic collapse.

But let me pop this myth:

Tariffs don’t cause inflation. And no, I'm not crazy (despite what angry professors from Harvard or Stanford might tweet at me).

Here's the deal.

Inflation isn’t when just a couple of things become pricier. It’s when your entire shopping basket—eggs, shirts, Netflix subscriptions, bananas, everything—starts costing more because your money’s worth less.

Inflation means your dollars aren’t stretching as far as they used to.

Take the 1800s.

For nearly a century, 97% of America’s revenue came from tariffs. Income tax? Didn’t exist. And guess what inflation was? Basically zero. Maybe 1% a year.

The economy was booming, and tariffs funded nearly everything. So, why do people suddenly think tariffs cause inflation today?

Tariffs are taxes on imports, yes, but prices are set by supply and demand—not tariffs.

Let me give you a simple example.

Imagine fancy potato chips from Canada cost $10, and a 20% tariff pushes that to $12. Everyone panics—prices rose! Inflation!

Nope.

If I only have $100 to spend and the price of my favorite chips goes up, I either stop buying chips or I buy, say, fewer newspapers.

If everyone stops buying newspapers because they’re overspending on chips, newspapers lower their prices or go out of business.

Overall spending stays the same, and inflation doesn’t budge.

Three quick scenarios:

1. We buy pricier chips, but fewer other things: Inflation unchanged.
2. Manufacturers shift to the U.S. to avoid tariffs: Inflation unchanged (and more jobs here).
3. We stop buying fancy chips: Prices drop again. Inflation? Still unchanged.

The only thing that actually causes inflation is printing money.

Between 2020 and 2022 alone, 40% of all money ever created in history appeared overnight.

That’s why inflation shot up afterward—not because of tariffs.

Back to tariffs today.

Still No Inflation

Unlike the infamous Smoot-Hawley blanket tariff (imagine Oprah handing out tariffs: "You get a tariff, and you get a tariff!"), today's tariffs are strategic.

Trump slapped tariffs on chips from Taiwan because we shouldn’t rely on a single foreign supplier for vital tech components—especially if that supplier might get invaded.

Now Taiwan Semiconductor is investing $100 billion in American manufacturing.

Strategic win, no inflation.

Then there’s Canada and Mexico—our friendly neighbors with weirdly huge tariffs on things like milk and butter (299% tariff on butter—really, Canada?).

Trump’s not blanketing everything with tariffs; he’s pressuring trade partners to lower theirs.

If they do, everybody wins. If they don’t, well, then we have a strategic trade chess game—but still no inflation.

In short, tariffs are about strategy, security, and fairness—not inflation.

Yes, blanket tariffs from the Great Depression era were dumb. Obviously. Today's targeted tariffs? Smart.

 James Altucher