Don't forget: There's still a trade war going on
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What recent trade investigations are impacting U.S. import taxes?
More tariffs are in the pipeline from Marketplace. I'm Sabri Beneshour, in for David Brancaccio. On top of everything, the trade war simmers on. Yesterday, the U.S. Trade Representative announced an investigation that could result in a whole new round of import taxes. Marketplace's Nancy Marshall-Ganzer has more. The Trump administration is investigating more than a dozen countries, including China, Vietnam, India, and the European Union, using Section 301 of the Trade Act of 1974. The U.S. Trade Representative's Office will be looking into whether these countries are producing too much, flooding the U.S. with cheap products, and making it hard for American companies to compete. But unlike the tariffs struck down by the Supreme Court last month, Section 301 levies can't be imposed right away.
First, there has to be an investigation, public comment period, and a hearing scheduled for May. The Trump administration wants the Section 301 tariffs to replace a temporary 10 percent import tax President Trump imposed last month, which is due to expire in July. I'm Nancy Marshall-Genzer for Marketplace. The Federal Reserve is meeting this coming week to figure out what to do with interest rates in this country. Interest rates are how the Fed manages two problems in the economy, unemployment and inflation. And the tricky thing is it cannot fight both at the same time. Higher interest rates fight inflation, but are bad for jobs. Lower interest rates are good for jobs, but bad for inflation. So it's got to pick.
And the war in the Middle East is making that a whole lot harder to do. Marketplace's Justin Ho has that. It's a pretty safe bet that the Fed is keeping an eye on the war in Iran and its effect on energy prices, says Menzi Chen, an economics professor at the University of Wisconsin-Madison. I think they will be eager to make sure that they show commitment to not let inflation get out of hand. Chen says the Fed usually focuses on core inflation, which strips out energy prices since they can jump around month to month. But he says the Fed is also going to consider scenarios where the conflict drags on, keeping energy prices high for a while. And if it's sustained, then that's going to feed into core prices eventually.
That's because the cost of energy can affect prices throughout the economy. You think of something like airfares, which are in quote-unquote core inflation, but a really important piece of the cost structure for airlines is their fuel. Claudia Somm is chief economist at New Century Advisors. Higher inflation could cause the Fed to eventually raise interest rates. But Somm says the Fed will also consider what could happen if energy costs rise so high that the economy slows down. That's a scenario in which the Fed would be stepping in and potentially cutting rates, even though those energy prices are higher because it's starting to create unemployment and, you know, wreck growth. Somm says all the Fed can do at this point is gather as much data as it can and prepare for any of these outcomes.
I'm Justin Ho for Marketplace.
This week we got inflation numbers for February. Grocery prices rose four-tenths of a percent that month. That was before the war drove up oil prices and threatened the global supply of fertilizer. There have been periodic calls to control prices at the supermarket, even proposals to cap prices. Economists in general do not like that. So let's get into it. David Ortega is a professor at Michigan State University. Good morning. Good morning, Sabri. Whether it is government-mandated control over prices or some sort of arrangement for grocers to reduce their own prices, economists are not usually thrilled with the idea of price controls, to put it mildly. Why is that? Well, it's because you're really tampering with the market mechanism and it can lead to unintended consequences, things like shortages and sort of misallocation of resources.
So when you have prices that are capped below the market clearing levels, producers have less incentive to supply those goods.
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