AYESHA RASCOE, HOST:
Higher tariffs will result in higher prices. That was the blunt assessment from Walmart CEO Doug McMillon last week, saying prices could rise as soon as this month. In a social media post, President Trump hit back yesterday saying Walmart should eat the tariffs and not charge valued customers anything. Mark Blyth of Brown University is a political economist and, along with Nicolo Fraccaroli, is the co-author of the new book "Inflation: A Guide For Users And Losers." Mark Blyth, welcome to the program.
MARK BLYTH: Great to be with you.
RASCOE: So the inflation figures last week - they were actually good, and yet we have this warning from Walmart. So what can we expect in the coming months?
BLYTH: So here's how to think about this. The way that we used to think about inflation was, it was always because the government spent too much money. And what we learned in the pandemic was, nope, you can generate inflation a whole bunch of other ways, like cutting off all of the gas in Europe or losing your supply chains from China during COVID. So if you think about what Trump is doing, it's kind of a policy-induced supply shock. They're deliberately making prices more expensive for the idea of reindustrializing the country, but that's actually policy. Now, that's uncharted territory. We've never been in that world before, but that seems to be kind of the inflationary moment we're in.
RASCOE: And so in this moment, in the coming months, what do you expect? - because it seems like what Walmart is saying - and maybe other retailers may follow suit - is that even with this 90-day pause for Europe and the rest of the countries and a 90-day thaw for China, that the - kind of the damage has already been done, and with the uncertainty, prices are going to go up.
BLYTH: I think the Walmart CEO is absolutely correct on this. Not only do we not have a whole bunch of stuff that was never put on a boat in China because the tariffs were 134 or 154, now we're back down to a 30% tariff. That's a lot. You know, the markets kind of went, woo-hoo, that's great. We're back to normal. You're not back to normal. You got 10% on the rest of the world and 30% on China, which is one of your biggest trading partners. So that's got to hurt. And you're right about the uncertainty. We don't know what happens 60 days into the 90-day pause. Do the tariffs go up again? So if you're a supply chain manager, this is a total nightmare. You have no idea what's doing. So you try to get as much supply as you can at this point, and that itself builds up prices.
RASCOE: But, you know, for decades, China has actually helped keep inflation low in this country. How has that worked? Is it because they produce so many cheap goods and send them over here?
BLYTH: It's not just cheap goods. Economists talk about the - sort of the received or developed comparative advantage that China has in manufacturers. They can produce at scale, and they can now produce at very, very high quality. This is why they dominate green energy supply chains and the whole sectors. This is why they've taken over the EV market of almost the whole planet. This is a huge industrial machine, the likes of which we've never seen before. And we liked that when it was basically, we send our capital over there. Your people make our stuff for much less wages. We send it back, and we get cheap products. Now that they've actually become a peer competitor, the United States is far less comfortable with this, and this is the latest iteration of this game. But let's remember, Biden kept up all of Trump's tariffs. This has been 10 years in the making.
RASCOE: Are there any parallels that you can draw from the past when you analyze this particular moment?
BLYTH: So the one that people always reach for is the Smoot-Hawley tariffs in the 1930s. The world economy was already in a terrible, terrible shape in the 1930s. Smoot-Hawley was very much kind of the coup de grace rather than anything that caused the Great Depression on its own. We're in a situation where things were going pretty well. You know, there's lots of domestic issues to do with inequality, deindustrialization, deaths of despair. I'm not saying it's all fantastic. There's a reason that populists are being elected all around the world. But overall, things are OK. Now what we're doing is we're doing these policy-induced supply shocks because we want to, and that's something that we've never seen before.
RASCOE: So President Trump says one of the reasons for his tariff policy is to bring manufacturing jobs back to the U.S. In your opinion, is there a world in which that can happen without higher inflation?
BLYTH: In short, no. Now, we actually tried this under the Biden administration. That's what that whole Inflation Reduction Act was all about. That was an attempt behind tariffs that Trump started and Biden extended to deploy the state to bring lots and lots of foreign and domestic capital and investment into green sectors. And that requires industrial policy, that requires skill training, et cetera.
What we've got with Trump is a very simplified version of this. We're not going to do anything with the state. In fact, we're going to try and gut it. We're going to go to war with the training institutions - the universities - and we're just going to rely on really high tariffs and the magic of the market to make this happen.
It's unlikely it's going to work on that basis. You need more of a coherent strategy. And even if you did, it's got to be inflationary. If you're moving people from one sector to another, and you don't have extra people, and we don't like immigrants anymore, then that means that the costs of shifting from one area to another have to be accounted for. The new investment has to be accounted for. And if you're doing this with basically a population where you don't increase the labor supply, it's just got to get more expensive.
RASCOE: That's Mark Blyth from Brown University. Thank you so much for joining us.
BLYTH: It was a pleasure. Transcript provided by NPR, Copyright NPR.
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