Liberation, Tariffs, and Inflation
“Tariffs cause inflation.” “No, printing money causes inflation.” “It matters not — we will be liberated from tariffs against us.”
You might be wondering which of the above statements, often heard in the mainstream media, is actually correct. Unfortunately, as it relates to tariffs, inflation, and the question of whether tariffs are simply taxes and whether they cause inflation, the answer is far more nuanced than what pundits and talking heads typically offer.
The discussion around tariffs, inflation, and taxation has been dominating both mainstream and social media over the past several months, particularly following the election victory of Donald J. Trump as the 47th President of the United States. These conversations have intensified with the announcement of executive orders — set to go into effect on April 2, 2025 — that will apply reciprocal tariffs to all nations imposing tariffs on the United States. As noted, the relationship between tariffs, taxation, and inflation is multifaceted. While opinions vary between optimism and pessimism, what remains clear is that we must ask some key questions regarding how these dynamics affect the economy, the individual, and the aviation industry in particular.
Get Involved: Do you believe that there will be negative consequences of reciprocal tariffs? If so, what could those consequences be? Please share your thoughts in the comments below.
What Are Tariffs?
Many 21st-century citizens in developed economies, especially in the U.S., often misunderstand what tariffs actually are. Simply put, tariffs are a form of excise tax applied at a country’s border on imported goods. These taxes are paid not by the country exporting the goods, but by the consumers within the importing country. For example, if Country A imposes a 10% tariff on imports from Country B, it is the consumers in Country A — not Country B — who pay the tax when they purchase those goods.
However, things get more complex when factoring in economic leverage. If the market of Country A is strong enough, exporters from Country B might lower their product prices to remain competitive after the tariff is applied. This is one argument presented by the current U.S. administration. Yet, this strategy is less likely to succeed today than it may have in the past, as nations like China, Russia, and India (key BRICS members) now represent large alternative markets.
Historically, tariffs were once the primary means of raising revenue for the U.S. federal government. Before the 16th Amendment of 1913 introduced income taxes, tariffs were the government’s main tax tool. Ironically, many Americans once supported income taxes in hopes that tariffs would be eliminated — a promise that was never fully realized.
As economist Murray Rothbard explained, tariffs restrict interregional trade, force inefficient allocation of resources, and ultimately reduce consumer welfare by enabling domestic producers to charge monopoly prices. When trade is blocked, more productive foreign firms are excluded, and domestic consumers are left with fewer and costlier options.
“Tariffs and various forms of import quotas prohibit, partially or totally, geographical competition for various products… They also injure the more efficient foreign firms and the consumers of all areas.” — Murray N. Rothbard, Power and Market (2006)
Do Tariffs Cause Inflation?
To answer this, we turn to Nobel Laureate Milton Friedman, who famously stated: “Inflation is always and everywhere a monetary phenomenon.” In other words, inflation is not caused by tariffs or taxes — it’s caused by the expansion of the money supply.
Inflation occurs when a central bank increases the money supply, either through direct money printing, asset purchases (monetizing debt), or enabling private banks to expand credit. While tariffs can raise the price of specific imported goods, they do not cause a general rise in prices across the entire economy. Therefore, tariffs are not inflationary in the macroeconomic sense.
However, there is a potential caveat for countries that issue a global reserve currency, such as the United States. If broad-based tariffs reduce foreign demand for U.S. dollars, then those dollars — normally used abroad — may remain within the domestic economy. This increased money supply at home could theoretically contribute to inflation. This concept, still under development by the author, may merit further exploration within contemporary monetary theory.
Will Tariffs Affect the Aviation Industry?
The answer is a resounding yes. The aviation industry relies heavily on global supply chains for parts, raw materials, maintenance equipment, and aircraft components. If broad-based tariffs are imposed, the cost of operations for airlines, aircraft manufacturers, and service providers will rise — at a time when the industry is already grappling with recessionary pressures.
Southwest Airlines, long considered one of the most financially resilient carriers, recently announced its first major workforce reduction in over 50 years. This development is a harbinger of broader distress in the industry. As operating costs rise due to tariffs, we may see more layoffs, bankruptcies, or route cuts, particularly from smaller or budget airlines.
Supporters of tariffs argue that such policies give domestic manufacturers the room to grow. While this may be true in theory, rebuilding an industrial base comparable to what the U.S. had in the 1960s and 1970s would take years — possibly decades — and would involve considerable economic pain in the short term.
From a free-market perspective, the better path would be to focus on comparative advantage: produce and export what we do best and import what we do not. Unfortunately, protectionism currently seems to be the political flavor of the day.
Conclusion: Tariffs, Inflation, and the Future of Aviation
As the global economic landscape shifts, discussions about tariffs and inflation have become central to both public policy and business strategy. While tariffs do raise the price of imported goods, they do not inherently cause inflation. Inflation remains a monetary issue — driven by central bank policies and money supply expansion.
The aviation industry, due to its reliance on international supply chains, will likely face higher operating costs from broad-based tariffs. While this could potentially spur domestic manufacturing over the long run, the immediate consequences may include recessionary pressures, reduced airline profitability, and rising consumer fares.
As we move forward, it is imperative that policymakers adopt strategies rooted in sound economic reasoning rather than populist protectionism. Tariffs can be useful tools under specific circumstances, but they are not panaceas. As with any economic policy, their costs, benefits, and unintended consequences must be carefully weighed.
Thank you for reading this week’s On Aviation™ full article. Do you believe that there will be negative consequences of reciprocal tariffs? If so, what could those consequences be? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.
Orlando Spencer — On Aviation™
References
Investopedia. (2025, February 13). What Is a Tariff and Why Are They Important? https://www.investopedia.com/terms/t/tariff.asp
Rothbard, M. N. (2006). Power and Market (4th ed.). Ludwig von Mises Institute.
