President Trump has decreed 25% tariffs on imports of steel and aluminum. These are inputs to a whole lot of industries. Boeing uses (literally) tons of aluminum every year. That’s why their airplanes can fly efficiently. Auto manufacturers, despite increasing reliance on plastics and other composite materials, use a whole lot of steel (think combustion engine blocks). These tariffs will affect wide swaths of the US economy.
Yesterday I was going to estimate the inflationary impact of these tariffs. While I was rummaging around trying to find an input-output model of the US economy, I found something even better. Omar Barbiero and Hillary Stein, economists at the Federal Reserve Bank of Boston, had already done pretty much what I was working on.
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“The Impact of Tariffs on Inflation” is the lead article in the February 6 issue of the bank’s Current Policy Perspectives. Their conclusion:
Turning to the 25 percent tariff on Canada and Mexico and 10 percent on China, we estimate an inflation impact of 0.5 to 0.8 percentage point, depending on the markup assumption. Under the more extreme scenario of a 60 percent tariff on China and a 10 percent tariff on the rest of the world, we estimate an inflation impact of 1.4 to 2.2 percentage points.
The paper is only seven pages long and pretty readable. Everyone should read it if only to learn their interesting approach to the problem.
