Will tariffs cause inflation? - It's a complicated question - video Dailymotion

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Dr. George Calhoun is a Teaching Professor in the School of Business at Stevens Institute of Technology in Hoboken, NJ, comments on the possibility of an economic recession as a result of the Trump administration instituting tariffs.

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00:00The tariffs, in the view of the headline writers, is certain to cause inflation.

00:06And there's kind of a basic logic, right?

00:09You add a tax on top of a product's price, and the price goes up.

00:13The consumer's end price goes up.

00:16So that's sort of the starting point.

00:18And the thought process I went through was, is that the right way to look at it?

00:24Are there other ways to look at it?

00:26And it turns out there are other ways to look at it.

00:29My name is George Calhoun.

00:31I'm a professor of quantitative finance at the Stevens Institute of Technology.

00:37Trying to anticipate what the effects of now changing from a very low tariff regime,

00:44we were the lowest tariffs in the world until the end of 2024,

00:50to a high tariff regime, to try to anticipate those effects is not,

00:55you can't just easily go back and draw on history for that.

00:58The history is too out of date.

01:01And that's, I think, what creates the uncertainty around this question.

01:06The question is always, is it different this time?

01:09And that's the question in every time there's a crisis in the financial system,

01:14or in this case in the trade system,

01:16a shock that is out of proportion to what the historical trend was,

01:22you want to try to anticipate,

01:24is it going to change the behavior of the system in some fundamental way?

01:28And I think there's a good chance of that,

01:31particularly with respect to the Chinese-U.S. trade relation,

01:36which may well be the focus of this whole theater.

01:40The action and the changes and the significant game-changing aspects of this tariff war

01:49are going to manifest themselves in the relationship between China and the U.S.

01:54It's hard to say what the two parties are after here.

01:58I think China is in a weaker position, generally speaking, than the U.S. in this battle.

02:07It doesn't mean that we won't have some pain,

02:08but the U.S. is economically starting from a very strong position.

02:15The models that are being put together to try to estimate the inflationary impact of tariffs

02:22are producing potential inflationary impacts that are actually quite small

02:29relative to this range of measurement imprecision,

02:34which is not to say that there isn't inflation,

02:37but it's to say that we want to be careful not to overreact to something

02:42that is actually perhaps within the margin of error, so to speak,

02:46or in the noise of the measurement itself.

02:49Even if it does mean that there's an extra tax on top of a particular product,

02:56that's a one-time event in the view of most economists

02:59that does not necessarily then translate into what inflation really is,

03:05which is a sustained trend of price increases.

Will tariffs cause inflation? - It's a complicated question

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