When tariffs enter the news cycle, so does panic about inflation. Commentators sound the alarm: prices are going up! The cost of living is going to skyrocket! Tariffs, they argue, are just a tax on consumers. But here’s the truth: this is a fundamental misunderstanding of both tariffs and inflation. Allow me to explain and get this in writing.

Key Point #1: Inflation Is a Systemic Phenomenon

Inflation isn’t just when a few prices rise. It’s when all prices rise—across the board. Groceries, rent, fuel, clothing, wages and I mean everything. It’s a systemic issue. No industry or product is saved.

Key Point #2: Tariffs Are a Localized Phenomenon

Tariffs, on the other hand, are not systemic. They’re targeted. They apply to specific goods coming from specific countries. That’s it. This means prices for one good can go up because of tariffs but another could fall as a result, cancelling each other out. There is no systemic net effect unless, quite literally, the nation imports everything, and I mean everything. This is rarely ever the case because of farming, tech, general industry, and more.

I Repeat: Tariffs Don’t Equal Across-the-Board Price Hikes

Let’s say the U.S. puts a tariff on imported steel from China. Steel prices might go up—but only for that particular subset of steel. Domestic steel producers may benefit, and other exporters might step in to fill the gap. Or U.S. manufacturers might switch to substitute materials, lowering demand and stabilizing prices. You don’t get a chain reaction where every product in the country suddenly costs more because one tariff was applied.

Tariffs Can Even Lower Prices… Few Understand This

Here’s the twist: tariffs and retaliatory trade actions can actually lead to price declines in some areas. Imagine China retaliates by blocking imports of American corn. Suddenly, U.S. farmers can’t export to a major buyer. Domestic supply builds up. What happens to prices when supply outweighs demand? They fall.

This ripple effect doesn’t just impact corn. Anything made from corn including ethanol, animal feed, corn syrup, processed food ingredients now gets cheaper. That’s a downward force on inflation.

Substitution and Competition Help Cancel Out Tariff Effects

Economists love to talk about substitution effects, and for good reason. If tariffs make one good more expensive, consumers and businesses shift to cheaper alternatives. That shift increases demand for the alternatives, but it also increases competition. Producers respond by improving supply chains and boosting output to meet new demand, often at lower prices.

This is why tariffs rarely, if ever, cause systemic inflation. The economy adjusts.

In fact, in some cases, they do the opposite.