This is a challenge to a decades-old argument that employers have moved jobs overseas in order to reduce costs and rely on cheaper workers. This trend led to the loss in U.S. manufacturing jobs of 6.8 millions since 2000. However, it also resulted in lower prices for consumers and a decrease in inflation that allowed for greater economic growth.
This was a compromise that many political and corporate leaders felt comfortable with.
With inflation at an all-time high of 40%, the president is now arguing that globalization is driving up prices. Because outsourcing advocates failed to account for the increasing frequency of global supply chain disruptions, this is why prices have risen. Recent disruptions include the COVID-19 pandemic and shortages of basic goods such as semiconductors, destructive storms, wildfires, and now the Russian invasion in Ukraine. This has pushed oil prices skyrocketing.
Biden said that the federal government has two options for dealing with inflation. Either it can reduce support and slow growth, or it can eliminate the pressure points that can cause inflation in times of uncertainty and emergencies.
Biden stated Wednesday that “Making It in America” is one way to address our supply chain and cost problems. We can make the products we need faster by not waiting and reducing shipping costs.
At a White House event, the president shared his thoughts with Commerce Secretary Gina Raimondo and other state governors as well as business leaders. They met to discuss the need to pass a bill to provide funds for domestic production of computer chips. This was a key bottleneck that caused higher prices last year for computers, appliances, and autos.
Raimondo stated that she expected the bill to be completed between now and Easter after the event. Raimondo argued to legislators that the chip shortage was responsible for higher auto prices, which in turn led to an increase in inflation last year. The demand for chips is still outpacing the supply, which makes it unlikely that this problem will be solved immediately.
Raimondo stated that it will take 12 months for it to get there.
Biden’s plans will take many years to implement. According to FactSet, the consumer price report released Thursday will show that the annual inflation rose to almost 8% last month.
Biden’s problem is that he has long-term inflation plans to alleviate the pain consumers feel every day, according to Douglas Holtz Eakin, president and CEO of the center-right American Action Forum. Holtz Eakin described Biden’s plan as “optics.”
He said that it takes years to build semiconductor manufacturing facilities. “Inflation is here, and it’s an issue right now.”
Biden’s claim sets up an ideological struggle with Republicans who accuse the president of his $1.9 trillion coronavirus relief program for being too generous and pouring more money into the U.S. economic system than was necessary. GOP lawmakers claim inflation is entirely at the president’s responsibility, while the administration tries to point out that the larger problem lies in the structure of global economic.
Kevin McCarthy, House Republican leader, and others stated last week that inflation, especially for gasoline was the main source of nation’s anxiety ahead of this year’s midterm elections.
“You don’t need to give a speech to understand what the state is of the union.” McCarthy stated on Twitter that you feel it every time your go to the grocery or gas station.
Critics view this new Biden effort primarily as an attempt to damage control rather than a data driven approach to reducing inflation.
Scott Lincicome (director of economics at the libertarian Cato Institute) stated that “it’s primarily about optics.” “The Biden administration knows that inflation is a political problem. They are willing to do anything to prove to American voters that they have an answer to the problem.
Lincicome claims that most of the inflation is due to Federal Reserve efforts in growth, Biden’s relief program and general difficulties of restarting an economy following a pandemic. He says that restoring factory jobs that were lost elsewhere would not solve those problems. Any arguments in favor of that approach are based on the belief supply chain disruptions have become an irreplaceable feature of the global economic system.
Lincicome stated that global supply chains reduce costs and increase efficiency. “The notion that reshoring will somehow reduce costs assumes that there is a permanent pandemic. This is just not true.”
This argument is being made by the Biden administration. Supply chain disruptions are more frequent and have a greater impact on prices than companies could ever imagine.
According to the White House, the current structure of the U.S. economic system makes it more vulnerable to price increases and disruptions. Companies did not fully consider the potential setbacks and challenges that could occur with distant factories when they first sent jobs overseas.
According to Sameera Fazili (Deputy Director of the White House National Economic Council), people were not considering increased “risks” and disruptions. They also didn’t think about five, ten-year horizons. They were looking at minimising costs over a one year horizon and a two-year period.
McKinsey Global institute analysis is part of the administration’s argument. The institute’s 2020 report found that supply chain disruptions could cause companies to lose money for as long as a month every 3.7 years.
The report examines risks ranging from a “supervolcano to a common cyberattack. Political risks are also present. 29% of global trade in 2018 was from countries that were ranked in the lowest half of the World Bank’s political stability, up from 16% in 2000.
