Washing machines at a Lowe's Home Improvement store in East Rutherford, N.J., in May. (Ted Shaffrey/AP)

The so-called chart of the cen­tu­ry prom­is­es a deep­er un­der­stand­ing of how President Trump’s trade war could ob­lit­er­ate con­sum­er pocketbooks and up­end the ec­on­omy.

That’s likely why this sim­ple pres­en­ta­tion of con­sum­er prices has “made the rounds” at the Federal Reserve, ac­cord­ing to Bloom­berg. It has long been one of the shini­est ob­jects ricocheting around econ blogs (this one included) and Twitter accounts.

The chart’s cre­a­tor, American En­ter­prise Institute and University of Mich­i­gan-Flint e­con­o­mist Mark Perry, shows the long, steady di­ver­gence in prices be­tween things that can be eas­i­ly trad­ed, most­ly goods, and things that can’t, most­ly ser­vices.

Perry’s clean pres­en­ta­tion, en­hanced by AEI de­sign­er O­liv­i­er Bal­lou, en­cour­ag­es read­ers to con­front the fun­da­men­tal tradeoff of glob­al­i­za­tion: cheap com­pe­ti­tion from a­broad has pushed down prices of tele­vi­sions and toys, help­ing keep in­fla­tion low even as the cost of ed­u­ca­tion and health care soars.

Here it is. The items in blue, ac­cord­ing to Perry, are those that are open to in­ter­na­tion­al com­pe­ti­tion.

Main­stream ec­ono­mists gen­er­al­ly a­gree that glob­al­i­za­tion con­tri­butes to slow price growth. Last year Clau­dio Borio, a top e­con­o­mist at the Bank for International Set­tle­ments in Basel, Switzerland, weighed the evi­dence and de­clared in a speech that “one would ex­pect the en­try of low­er-cost pro­duc­ers and of cheap­er la­bor into the glo­bal ec­on­omy to have put per­sist­ent down­ward pres­sure on in­fla­tion, es­pe­cial­ly in ad­vanced ec­ono­mies.”

This chart is ele­gant and ef­fi­cient, but by expanding it into a messier, wonkier version, we can shed even more light on the phenomenon it highlights.

We’ll start by in­clud­ing every cate­go­ry of spend­ing. Perry chose 15 representative items (plus wages) out of a list of hun­dreds. Perry used the Labor Department’s con­sum­er price index, but one of our sto­ry’s pro­tago­nists, the Federal Reserve, pre­fers to meas­ure in­fla­tion with the Commerce Department’s per­son­al-con­sump­tion-ex­pend­i­ture (PCE) price index. So we used that.

We also tried to hint at the size of dif­fer­ent sec­tors — thick­er lines rep­re­sent more spend­ing. We col­ored the lines based on of­fi­cial cate­go­ries, rath­er than our as­sess­ment of how trad­a­ble each good or serv­ice might be.

These cate­go­ries show a sim­i­lar trend. Most dur­able goods (brown lines) have be­come cheap­er since the end of 1999. Dur­able goods are typ­i­cal­ly used for three years or more, such as furniture, cam­eras and auto­mo­biles. As a cate­go­ry, they are more likely to be trad­ed across borders — and thus the most likely to get pricier should a trade war es­ca­late.

Some nondurable goods (teal lines), such as toys and cloth­ing, are also easy to man­u­fac­ture cheap­ly a­broad and ship to the U.S. It’s no co­in­ci­dence that they are a­mong those with the low­est price in­creas­es.

Most ser­vices (red lines), such as res­tau­rants and health care, are chal­len­ging to im­port and ha­ven’t seen the type of com­pe­ti­tion that would keep prices low.

We can also go one step farther and cal­cu­late just how much each cate­go­ry has con­tri­buted to the annu­al in­fla­tion rates watched by the Fed. Dur­able goods — many of them cheap im­ports — have been the only cate­go­ry that helped slow price growth. There are a few ex­cep­tions, such as the pe­riods in 2009 and 2015–2016 when vol­a­tile oil prices sent the prices of nondurables into free-fall.

These cheap in­ter­na­tion­al goods ha­ven’t al­ways been help­ful. The Fed has strug­gled to meet its goal of a 2 percent in­fla­tion rate since the re­cov­er­y began.

It’s close right now. If it weren’t for the 0.27-percentage point drag from dur­able goods in the first quar­ter of this year (brown bar), in­fla­tion would have been at or above 2 percent for the first time since the early years of the cur­rent ex­pan­sion.

And there are signs price growth is ac­cel­er­at­ing — Thurs­day’s CPI re­lease in­di­cat­ed that, at 2.8 percent annu­al growth, prices are ris­ing at their fast­est rate in more than six years.

The cur­rent trade con­flag­ra­tion could push in­fla­tion even high­er, es­pe­cial­ly for dur­able goods. As Perry and oth­ers have point­ed out, wash­ing-ma­chine prices de­clined for years as in­ter­na­tion­al manu­fac­tur­ers such as LG and Sam­sung fought for share in the U.S. mar­ket. Then Trump dropped the tar­iff ham­mer in Jan­u­ar­y. Wash­ing ma­chines have been grow­ing more ex­pen­sive ever since.

It won’t just be wash­ing ma­chines. The AEI chart speaks to people be­cause it in­cludes everyday ob­jects like text­books and toys. In another world, it might also include wash­ing ma­chines. Going to that level of de­tail for every spend­ing cate­go­ry re­sults in what pro­fes­sion­als such as our­selves re­fer to as “spa­ghet­ti,” but that’s nev­er stopped us be­fore. We’ve labeled a few of the out­li­ers.


When trade bar­ri­ers rise, they hit hard­est at the bot­tom of the chart. The items down there aren’t the big­gest part of the ec­on­omy — look at all the thin lines — but they are of­ten the items con­sum­ers inter­act with most. In those cate­go­ries, con­sum­ers have long been ac­cus­tomed to fall­ing prices. Com­bined, those fac­tors mean that these goods are pre­cise­ly where Americans will first feel the pain of the president’s trade pol­icy.