Trump continues to rack up wins at the trade negotiation table with our trading partners.  But there’s still a spirited debate that needs to be resolved on whether the Trump tariffs have increased prices.  We think the answer is yes, at the margin. But it’s complicated.

We’re a little queasy about the Trump argument that tariffs don’t filter down like sand in an hourglass to consumer prices. Sure, some of the cost will be borne by the importers. But businesses with thin profit margins can’t eat the whole extra cost of taxes imposed on them.

A study published in May by Fed economists found that tariffs on Chinese imports in February and March had already affected consumer prices.  The chart shows that import prices rose more rapidly than the prices of domestic goods.

Sorry, there is no tariff free lunch.