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Are Tariffs the New Engine of Inflation

By Prof. Khalid Wassef Al-Wazani

Professor of Economics and Public Policy

Mohammed Bin Rashid School of Government

Since the onset of what may be described as the first global trade war between the United States and China, the international economic landscape has been increasingly characterized by multiple disruptions that have directly affected living standards across both advanced and developing economies.

For nearly four decades, the world benefited from economic openness and globalization. During that period, firms were able to relocate production to locations offering lower costs and higher efficiency, resulting in lower consumer prices, expanded international trade, and improved living standards across many economies. In this sense, globalization was not merely a driver of economic growth; it also served as an effective mechanism for containing inflationary pressures. Today, however, the global environment is undergoing a profound transformation. Escalating geopolitical tensions, extending beyond traditional conflict zones and reaching critical global trade routes such as the Strait of Hormuz, have exposed the vulnerabilities of international supply chains. In response, many countries have begun prioritizing economic security, self-reliance, the reshoring of strategic industries, and the search for alternative sources of energy.

Within this changing landscape, tariffs have returned to the center of economic policymaking. Once viewed primarily as conventional instruments of trade protection, tariffs have evolved into key components of broader strategies aimed at restructuring global economic relationships. Yet this shift raises an important economic question: who ultimately pays the cost of protection?

In theory, tariffs are designed to shield domestic industries and support national employment. In practice, however, a significant portion of tariff costs is often passed on to consumers through higher prices for goods and services. As import costs rise, production costs increase, and these increases are eventually reflected in final consumer prices. Here lies the central paradox. While governments seek to strengthen economic security and reduce external dependence, they may simultaneously new inflationary pressures. In this sense, tariffs are increasingly becoming an indirect source of modern inflation. Nor is this phenomenon limited to the United States and China. Similar trends can be observed worldwide through industrial reshoring policies, efforts to build alternative supply chains, and the growing use of reciprocal trade restrictions. Although these policies may be strategically justified, they carry economic costs that cannot be ignored.

What we are witnessing today is not merely another trade dispute. Rather, it is a broader reconfiguration of the global economy. The world is gradually moving away from an era in which efficiency and cost minimization were the primary objectives, toward one in which economic security and geopolitical resilience have become dominant priorities. Ultimately, tariffs may not be the sole driver of inflation, but they are becoming an increasingly influential factor. The challenge facing policymakers in the years ahead is not whether they will continue to protect their economies, but how much economic cost their societies are willing to bear in exchange for that protection.

Prof. Khalid W. Al Wazani