The tariffs the Trump administration is imposing on imported goods from China have infused uncertainty in the economy and capital markets, but they haven’t resulted in marked inflation.
Nor is the latest tranche of tariffs expected to spike inflation by the end of the third quarter this year, the period the Social Security Administration uses to assess the cost of living adjustment for Social Security beneficiaries, according to one economist.
“The trade war certainly creates some additional uncertainty, but perhaps not as much as one might think,” said Eric Gaus, an economist with Moody’s Analytics, a provider of financial analytics.
The impact tariffs have on the cost of goods, and ultimately inflation, will likely be manifested after the third quarter, added Gaus. The COLA is based on the year-over-year third quarter — July, August, and September — inflation number.
In April, the SSA forecasted a 1.8 percent COLA for Social Security beneficiaries in 2020.
A 25 percent tariff on $50 billion of Chinese imports was imposed in July of 2018. In September, a 10 percent tariff was placed on $200 billion worth of Chinese goods, with a scheduled increase to 25 percent by the end of 2018.
That increase was delayed as negotiations between the world’s two largest economies commenced. But talks broke down, and in May, the U.S. raised the 10 percent tariff to 25 percent.
So far, the tariffs have had a minimal impact on inflation — less than 0.1 percent since the initiation of the new levies last July, said Gaus.
“Before, I might have been swept up in the thinking that the result on inflation would be worse,” he said. “But in hindsight, the numbers make sense. The increases in costs are getting eaten up in the supply chain, so that by the time goods reach consumers there is very little impact.”
Gaus does caution that the trade war’s impact on inflation could change, and quickly, just not by the end of the summer.
“We anticipate the latest increase to 25 percent will have a larger impact, but it will take a while. It took a year for the impact of the first tranche of tariffs to take effect — the peak impact was seen about six or seven months later,” said Gaus.
Last year, corporations had the benefits of dramatically reduced tax rates under the Tax Cuts and Jobs Act and an economy that was stronger than it is now. Large companies, like Apple, were also able to nimbly re-source supply chains outside of China.
“The impact was smoothed over pretty easily,” said Gaus. Going forward, however, there is less “wiggle room” for firms.