The potential tariff-revenue checks proposed by President Donald Trump could exacerbate inflation, warn economists. The checks, which could range from $1,000 to $2,000, might lead to increased consumer spending, potentially driving up inflation.
Economists Warn Tariff Checks May Spur "Weird Feedback Loop"
The economists are concerned that the tariff-revenue checks could create a “weird feedback loop” that justifies passing on more tariff costs to consumers, reported Fortune on Sunday.
Chris Motola, a financial analyst at National Business Capital noted that if the delayed inflation or jobs reports—postponed due to the government shutdown—show signs of an economic shift, the tariff-revenue checks may be seen as less inflationary. Still, these checks could boost consumer spending, potentially offsetting the financial strain from tariffs.
"It could kind of be a weird feedback loop where the tariff stimulus justifies passing on more tariff costs," said Motola.
Paul Johnson, an adjunct professor of value investing at Fordham's Gabelli School of Business, noted that the checks could have a weaker but similar effect to the Biden-era pandemic stimulus packages. The checks' inflation-adjusted purchasing power would be reduced, as recent high inflation has outpaced wage growth.
Johnson is skeptical that there are high chances consumers receiving the tariff checks “feel like it's free money,” instead of putting it into savings.
A White House official responded to these concerns, stating that the economists were speculating based on “unsubstantiated assumptions about hypothetical policymaking.”
Trump Shifts Tariff Revenue Plan to Fund Nutrition Program
The Trump administration has been considering the idea of issuing tariff rebate checks for a while. The checks would be funded by the hundreds of billions of dollars in tariff revenue imposed by the administration.
However, the administration recently stated that the tariff revenues would be used to fund a key nutrition program for low-income mothers and babies during the government shutdown.
That being said, not everyone is on board with the idea of using tariff revenue for rebate checks. Economist and gold advocate Peter Schiff has criticized the proposal, calling it “one of the dumbest ideas” offered by Republicans. Schiff argues that if Republicans want taxpayers to have the tariff revenue, then they shouldn’t impose tariffs on them in the first place.
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