Chris Larsen (YouTube) argues that equating tariffs with inflation is an oversimplification. The speaker explains that tariffs can raise prices for some goods but may also reduce demand, meaning tariffs do not necessarily increase overall price levels; they can, however, lower GDP or productivity by reducing output.
When you hear the word tariff, a lot of people have been equating that to inflation. Right. Oh, well, the government's going to make the costs of things go up, therefore that's inflationary. Right. And that's not necessarily true. Right. Economics is the imperfect science. Right. And so tariffs could actually result in actually decreased demand stuff. Things might go up as an example for tariffs, or maybe labor is going to go up because of lack of availability due to curbing immigration or something like that. Right. That doesn't necessarily mean the costs of inputs have to go up. It could just mean that people are going to demand less of those goods because they cost more. And so it doesn't actually have a net effect higher on prices, but it could actually have a net negative effect on GDP or basically productivity, output.
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