Are Tariffs Inflationary Or Deflationary? Are They Really ‘A Beautiful Thing?’

Until recently, the message from the bond market has been that tariffs are deflationary because they depress global economic activity. As Warren Buffett recently observed, they are a tax that consumers, importers, and/or exporters pay. It is widely presumed that tariff increases have a transitory, one-shot, price-rising impact.

Indeed, on Sunday, US Treasury Secretary Scott Bessent predicted that the Chinese "will eat any tariffs that go on." On Tuesday, the Trump 2.0 tariff on China was raised from 10% to 20%. It's unlikely that Canadians and Mexicans will eat the 25% tariff imposed under Trump 2.0 on Tuesday; rather, US consumers will. Recognizing this, on Wednesday the White House announced a one-month tariff exemption for automakers.