China Tariffs May Have Greater Inflationary Impact This Time: Fed’s Goolsbee 

The latest tariffs on Chinese goods might have a larger impact on inflation this time, Chicago Fed President Austan Goolsbee said on Wednesday at the Annual Automotive Insights Symposium in Detroit. 

Goolsbee said that when the Trump administration implemented the first round of tariffs in 2018, businesses relocated easier-to-substitute commodities away from China. As a result, the products that continue to be imported from China “might be the least substitutable goods,” he stated in the speech’s prepared text. 

The impact of the tariffs will also depend on whether a potential second Trump administration applies tariffs to more countries, more goods, or at higher rates. In such a case, Goolsbee suggested, “the impact could be larger and more long-lasting.” 

However, “if companies have diversified their supply chains in the last five years to make them more resilient, they might be able to avoid tariffs without much price increase by shifting production away from tariff-hit countries,” he said. 

What does that mean for monetary policy and the Federal Reserve? Goolsbee asked. “If we see inflation rising or progress stalling in 2025, the Fed will be in the difficult position of trying to figure out if the inflation is coming from overheating or if it’s coming from tariffs,” he said. “That distinction will be critical for deciding when or even if the Fed should act.” 

The best way for the Fed to figure that out is through research and its knowledge of industries through its business contact, he said. “The supply side of the economy cannot be an afterthought for macroeconomics,” Goolsbee said. “We need to rely on industry expertise to figure this out. That means economic experts working alongside business and industry contacts on the ground.”