Economist Art Laffer discussed tariffs on Fox Business, asserting that import taxes won’t lead to inflation, as the negative effects on prices would be balanced by reductions in export prices.
After President Trump announced mutual tariffs with various countries on April 2nd, he later called for a 90-day “suspension” of these tariffs. On the show “Kudlow,” Laffer articulated his viewpoint against the idea that tariffs necessarily increase inflation, explaining his reasoning clearly.
“Initially, tariffs raise import prices. However, the U.S. will still need to export to finance these imports. So, when an import tax is imposed, it’s like imposing a tax on exports as well,” Laffer explained to guest host David Asman. “This aligns with Lerner’s symmetry theorem. As a result, prices for our exportable goods and services will decrease. Therefore, any increase in import prices will coincide with a decrease in export prices, effectively offsetting each other.”
He referenced historical examples, such as the 10% surcharge established during Nixon’s administration, which actually preceded a notable drop in inflation.
“Looking back at Nixon’s era, when we implemented that extra 10% charge, inflation rates significantly dropped. However, this didn’t hinder trade. Even the Kennedy Round and NAFTA had no observable impact on prices,” Laffer added.
Nixon introduced the 10% surcharge in 1971 as a means to protect U.S. industries and tackle trade imbalances, affecting all duty-free imports. While the immediate inflation effects were mixed, the long-term benefits included a weaker dollar, which bolstered exports.
Laffer then dismissed criticisms claiming that tariffs were stoking inflation. “Those who focus solely on prices don’t grasp the fundamentals. They lack both practical experience and economic understanding,” he remarked.
Despite the tariffs set to begin on July 9, Trump celebrated an economic win, as important inflation metrics fell to their lowest levels in four years. According to Commerce Department data, the Personal Consumption Index showed inflation decreasing to levels not observed since March 2021.
