How to Make Tariffs Inflationary -- and How Not To

Trump’s proposal for a $2,000 “dividend” would be inflationary just as Covid stimulus payments were. They would drop straight into the money supply, into the demand side of the economy, with no corresponding increase in production. Refunds of tariffs already paid, on the other hand, if SCOTUS determines the IEEPA tariffs are unlawful, would drop straight into the supply side of the economy and restart the stalled process of disinflation. SCOTUS may order refunds itself, or remand the matter to the Court for International Trade. Either way, the government has already promised the courts it would make refunds. There is SCOTUS precedent for denying retroactive remedies on technical grounds, or if the effect would destabilize established economic relationships. But there is also precedent that cost to the government is not an issue. We expect refunds will be ordered, and we think markets are not expecting it.