For weeks, a tariff war between the U.S. and its major trade partners has been escalating. With every new development, Americans are getting more concerned about inflation.
This week, Walter “Dub” Lane, associate professor of economics at the University of New Orleans joined WWL’s Tommy Tucker to give the real deal about what to expect.
“A lot of economists are very nervous about tariffs,” he said. “Now there are some times when selective tariffs make a whole lot of sense,” he added, referring to some of the actions taken by China.
China is just one of the countries involved in the ongoing trade war. President Donald Trump has said that tariffs on China, as well as tariffs on our neighbors, Canada and Mexico, are intended in part to prevent illicit fentanyl and synthetic opioid compounds from entering our country and to help bring more production and jobs back to the U.S. He has also argued that many other countries impose unfair tariffs on the U.S.
Now, even more countries are included in the tariff war. Trump threatened Thursday to impose a 200% tariff on European wine, Champagne and spirits if the European Union goes forward with a planned tariff on American whiskey.
“One thing that the vast majority of economists agree on is that in general, tariffs are bad in the sense that free trade is what’s really best for everybody,” said Lane. “It allows us countries to specialize in what they do best in trade and buy things cheaper that other people can make cheaper than they can.”
He said that the broad tariffs on Canada, Mexico and Europe “could really hurt the overall economy.”
Tucker mentioned former President William McKinley, who used tariffs in the 1800s to raise revenue for the federal government. Lane confirmed that in the era before income taxes, tariffs were a way to raise revenue for the government.
“That’s not the major purpose of the terrorists these days. We’ve got plenty of income taxes and corporate taxes to take care of that,” he said.
Lane added that some economists see the tariffs less as an economic tool than as a negotiating tool for Trump.
“If that’s what he's doing, then if it works, maybe that’s okay. But if he’s really doing tariffs just to do tariffs – and as he said, to try to protect American jobs – that doesn’t work,” the economist explained.
He also offered some perspective on “trade deficits” between the U.S. and other countries.
“When we have a trade deficit, you know, we’re buying more of their goods than we’re selling to them. And that doesn’t sound right,” he said.
However, things are a bit more complicated than they seem. Once those countries have U.S. dollars, they tend to re-invest it back in the U.S.
Lane said the “side of it that almost nobody talks about is that there’s a reason that we have trade deficits, and it’s not just other countries taking advantage of [us]. The reason we have trade deficits is the other countries find the United States a very good place to invest, and that doesn’t seem like such a bad thing to me.”
As far as inflation is concerned, Lane expects to see it go up as long as the tariffs are in place. Just this week, Trump touted a report from the U.S. Bureau of Labor Statistics that showed inflation has only grown by 0.2% in February to a rate of 2.8% for the previous 12 months. Americans have been dealing with high inflation in the aftermath of the COVID-19 pandemic and the memory of a 9% inflation peak during 2022 is still fresh in consumers minds as prices for goods like eggs are in the rise.
“If you’re trying to sell whiskey in Kentucky right now, or you’re a soybean farmer up in the middle the country trying to sell soybeans, well, that’s – we’re going to see a lot of tariffs, reciprocal tariffs that will hurt those people,” said Lane of the impact tariffs will have on Americans.
Inflation will continue to go up as long as broad-based tariffs are imposed, he told Tucker. Trump’s claims that the economic disturbance will be temporary and that the economy will be better off down the road is “a lot less certain,” Lane added.