Tariffs will raise prices. But the climate crisis is the real inflation risk | As temperatures rise and countries back off their decarbonization efforts, we must confront a reality central banks can’t correct
https://www.theguardian.com/commentisfree/2025/apr/22/tariffs-inflation-climate-crisis
3 Comments
From the article: Inflation is, at base, a tax on consumption – and it hits the poor the hardest, since they consume more of their incomes and the rich consume less.
That’s one reason for concern over Donald Trump’s tariffs, which will disproportionately affect the poor. When the 90-day pause on the tariffs expires, it is reasonable to expect prices to rise, and by a lot.
That’s because, first, intermediate goods – rather than finished ones – dominate trade, crossing borders and being tariffed multiple times along the way, which makes them highly inflationary. Second, while the tariffs of the first Trump administration could be more easily absorbed by exchange rates and producers, there is no way tariffs of this magnitude can be absorbed. Producers and consumers must take a hit, and that means rising prices. It looks like the poor, once again, will suffer the most.
But if Trump’s tariffs were to disappear for good, would we return to a world of stable prices? Insights from our forthcoming book, Inflation: A Guide for Users and Losers, suggest that is sadly not the case, for three reasons.
The first is how we think about inflation and how we respond to it. We identified four distinct ways that the public and central banks have talked about the causes and effects of inflation in the past few years. The first story is the textbook idea that “the government spends too much money”. The second focuses on wages pushing up prices – a labor market story. These two stories both see inflation as coming from demand outpacing supply. Consumers demand too much because governments put too much money in their pockets, and workers ask for higher wages despite no significant improvements in productivity. If production can’t keep up with the surge in demand, then the inevitable consequence will be rising prices.
I think what people mean to say is that climate change may impact production.
When production is impacted, the central bank then has a choice. It can either raise interest rates (prevent inflation) or keep rates where they are (preserve spending structures).
There’s pros and cons either way. But production getting impacted is bad regardless of whether or not a central bank chooses to allow inflation or not.
Because our ultimate goal is to actually get people goods and services. Prices and the price level are just means towards that end. Right?
At the aggregate level, prices aren’t the main issue; the main issue is whether people are actually getting wealthier in real terms.
There’s too much focus on inflation. If the central bank enjoys reasonable independence from government, then you don’t need to worry about it too much.
What we should be worried about is real incomes. Those can go up or down independently to what’s happening to prices.
That’s why taxes can actually be extremely effective ways to control inflation. You can see the issue of inflation as money chasing bad. If taxes were used to disincentives market choices they could be useful at guiding resources towards value add. Which I think is the biggest issue the West faces and why everything is getting worse. We have way to much money chasing bad because we under tax inflationary spending habits.
The everything crises brought on by climate change has been dramatically under priced in in the market and that’s because the government has been wildly irresponsible. So has every other actor in the economy. I think the Trump administrations backers want to create an environment where they aren’t blamed for the crises and can redirect the United States to seize the difference in losses.