The Federal Reserve has been attempting to push up inflation to a 2% annual rate.

With the promise of Trump’s initiative to maintain or even return manufacturing to the United States comes the promise of tariffs or value-added taxation on imports.

Some may flinch at the concept of tariffs or taxes on imports.  Free trade is what a free-market capitalist should promote, right?  But to be a free-market capitalist on tilted playing fields is inherently unfair, and also a perfect description of what has transpired for roughly two decades.

Mexico, the EU, and China all have value-added taxes (VAT) on the goods they import.  The percentages hover in the 15% range.  They protect their industries, raise revenue, and draw off our manufacturing as it seeks shelter.

The United States does not have import tariffs or value-added taxes.  The tilt of the field is glaring.  It is no wonder that our nation has constant and significant trade imbalances with each of these economic entities.

With the promise of at least matching tariffs or value-added taxation applied to our imports, Trump places the Federal Reserve in a delicate predicament.

Despite absolutely no mention of promoting inflation in the Federal Reserve’s mandate or mission statement, the central planners have deemed 2% annualized inflation the proper target.  In spite of the fact that since the financial crisis of 2008, consumer prices are up roughly 13% before the effects of compounding, this isn’t enough for the Fed to come off record low rates and normalize.  More is wanted, curiously.  (Maybe college tuition and health insurance should be weighed?)

Putting aside the inaccurate metrics the Fed employs for measuring real everyday consumer and wholesale price inflation, one must admit that the flood of imports from abroad has tamped down inflation in the United States.  One could even conclude that we have been “importing deflation” for nearly two decades.  Cheap foreign labor has provided price-attractive electronics, clothing, equipment, and parts, with the side effect being our loss of domestic manufacturing in those same areas.  What can one find in the Black Friday ads that is still made in America?

Once again the policies of the federal government counter the efforts of the Federal Reserve.  The Fed pumps to promote inflation; the federal government strikes trade arrangements that import deflation via cheap imports.  The Fed pumps to push wages higher; the federal government seems to allow the illegal immigration of cheap labor, dampening otherwise normal upward wage pressures.  ’Twas ever thus.

And now the Federal Reserve, the unauthorized promoter of inflation and the poor measurer of same, may be placed in yet another quandary when the matching tariffs and or VAT suddenly ramp up the cost of imported goods.  What will become of their inflation trigger points then?  If prices quickly leap 5%, will the Fed carve out the effects of the tariff or VAT?  Or, as they should, will they recognize that the importing of deflation has come to a sudden halt?

If they were to “carve out” the effects of the new import duties, then they were therefore remiss in not considering the effects of the “tilted playing field” of the past two decades, in which cheap goods flowed into our country at the urging of an unfair trade arrangement.

In tandem with this Fed quandary arises another serious question.  Exactly how did we, as a nation, end up on the short end of such skewed trade arrangements?  Who benefited, other than the consumer, from crafting and maintaining such an arrangement?

We have enjoyed reasonably priced goods at the expense of losing our domestic manufacturing.  The sting of losing these means of production is yet to be felt.  Be certain that regardless of how our reliance on domestic production resurfaces, it surely will.

The central planners at the Fed will need to dance quickly or explain away with double-speak the conundrum they have created for themselves, and us.  Equal trade arrangements may beget higher domestic prices for goods and resultantly higher interest rates.  A quick dose of both will draw the spotlight on that 20-trillion-dollar debt and the cost of servicing that elephant in the phone booth.  Hey, where’d he come from?  Answer: the last eight years.