How Tariffs Lower Inflation Without Hurting the Economy
The San Francisco Federal Reserve’s paper on tariffs leaves us with a puzzle: w hy do tariffs affect the economy in such a counterintuitive way?
Looking at 150 years of data, the researchers at the San Francisco Fed found that tariff hikes are followed by lower inflation and higher unemployment . That runs contrary to the widespread assumption that tariffs might result in higher levels of employment but at the cost of higher inflation.
The authors of the paper say they think this might be a demand-destruction story : tariffs scare investors, tighten financial conditions, and reduce…
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