These days, I find it more important than ever to stay up-to-date on economic events, and, as a new father, my passion for economics—which I studied in school and have written about online for years—has taken on a new sense of purpose. It’s no longer just something I do for fun or speak about online, it’s now a mission to make a better future for the next generation. And I want to leave behind a world that inspires them to do the same for the generation after that.

That brings me to economic policy that continues to stir up headlines: tariffs.

Tariffs, in my view, are one of the most misunderstood topics in economics, especially at the mainstream media level. People often throw out blanket statements like, “Tariffs cause inflation,” without thinking through the actual mechanics. The fact is: tariffs do not cause inflation if there are substitute products.

Let’s break this down with a simple example.

Picture a toy store where there are three versions of a basketball being sold. One is made in Country A, another in Country B, and one is manufactured locally, in the very country where the store operates. Now, suppose the government imposes tariffs on imports from Country A and B. Maybe Country A faces a 10% tariff, and Country B a 5% one, because of unequal trade policies or lack of reciprocity. The locally made basketball is not subject to any tariffs and so its price remains steady—or maybe even drops to become more competitive. Consumers naturally shift toward the lowest-cost option. The price of one specific product may rise, but the availability of substitutes prevents overall price levels from rising. In addition, it’s possible that Country A and B may simply let the tariffs eat in their profit margins and keep the price the same as before.

This isn’t inflation. It’s a realignment of cost structures and incentives to push other countries to trade equally and give local manufacturers competitive safe guards to sell to their own people. Tariffs, in this case, are only a form of leverage and protection—not a tax or inflationary event on consumers.

Now, to be fair, things do get more complicated when there are no close substitute products, but for 95% of tariffs, there is always a close enough substitute. Let’s say there’s a rare fruit grown only in the Amazon rainforest, and your country imposes a tariff on it. If there’s no domestic or alternative source, yes, the price may rise. But even here, consumers can pivot—maybe not perfectly, but close enough. If it tastes like s strawberry, and the strawberries are grown locally, then you simply might just buy the less expensive strawberries and give up on the Amazon rainforest fruit. Or, another view, is that the importing country might carve out a special exemption in its trade policy for that specific item, because of its unique value. Again, that’s leverage and incentives, not inflation.

That’s the key thing behind tariffs: it’s a change in the incentive structure for the producers and consumers. If a country is strong enough in its negotiating position, tariffs can be an effective tool to reshape global trade relationships.

Seen through this lens, tariffs are less about inflation and more about strategy—leverage and incentives.

Thanks for reading! I have more economic posts coming.