Days after Walmart announced its intention to raise prices due to President Trump’s tariffs on Chinese goods, the company clarified that it will also, to borrow a term from the president’s aggressively worded social-media retort, “EAT” some of the higher costs on its own.
Trump has also assured the company, “I’ll be watching, and so will your customers!!!”
Nonetheless, while pondering how to keep prices low for his constituents, the president would be wise to recall the failed Nixon-Ford-Carter-era price-control experiments of the 1970s.
Though the circumstances were different and the tactics more extensive and official than Trump’s public pressure on one company, we learned a lesson that’s as true today as it was then: It’s practically impossible to control inflationary forces without addressing their root cause.
It may be that Walmart shareholders, as Trump prefers, will earn less on their investments in order to cover much of the cost of stocking the shelves with foreign goods that have been made more expensive by tariffs (or with more expensive domestic replacements). It’s also possible that the company’s executives and employees see smaller pay increases or weaker benefits.
Yet if the tariffs persist, customers will almost surely see higher prices. And with the Trump bullhorn calling attention, the price increases will surely be noticed.
Through the bully pulpit or by some other means, the president hopes to avoid the political nightmare of rising inflation while preserving his much-loved tariffs. But even if he were to persuade reluctant Walmart shareholders to eat every bite of the tariffs, it would merely hide part of the cost. It’s still there.
For example, such an outcome might mean fewer Walmart stores built and fewer people hired to run registers, operate pharmacies or stock shelves.
One way or another, while things are being sorted out across world markets — and while we wait to see if tariff negotiations succeed at eventually expanding markets, trade and prosperity — we the people are left a little bit poorer.
The ordeal brings memories of Nixon administration wage and price guidelines and President Gerald Ford’s and President Jimmy Carter’s later efforts to purge high prices from the U.S. economy. Some will remember Ford’s “Whip Inflation Now,” or “WIN,” buttons and 1974 legislation creating a top-down effort to influence prices through the President’s Council on Wage and Price Stability.
Unfortunately for those who placed their faith in these centralized approaches — or for those today on both the right and the left who think chastising retailers offers more than temporary solutions — it was learned once again that inflation is fundamentally a monetary phenomenon. If there is too much money chasing too few goods, inflation will always result, in disguise or out in the open.
The price campaign affected Girl Scout cookies and just about everything else in the economy. But it was not until around 1979, when Federal Reserve chair Paul Volcker attacked the root of the problem by dramatically and painfully reducing the amount of money flowing into the economy, that inflation finally succumbed.
Sadly for shoppers, the modern presidential effort to close harbors to foreign goods through trade obstructions (at least in the short run) must reduce the amount of goods in the economy. Unless the amount of money circulating is also reduced, there will be inflation — disguised or otherwise — at Walmart and across the economy.
To make matters worse, President Trump is urging the Fed to open the money valves at the same time he doubles down on reducing the volume of available goods in the marketplace.
One foot is on the brakes. The other is on the gas. It’s not clear which will come off first. So, for now, keep your seatbelt fastened.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University’s College of Business and Behavioral Sciences.
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