WASHINGTON — While supply chain disruptions, labor shortages and fiscal stimulus have all been blamed for rising inflation in the near term, another long-term force could also to be at work: “de-globalization”.
Economists and policymakers have long argued that globalization has helped lower prices. With the fall of trade barriers, domestic companies were forced to compete with cheaper imports. Technology and trade liberalization have encouraged companies to outsource their production to low-wage countries. Generally liberal immigration policies have allowed many low-wage workers to move to richer countries, although the link between immigration and wages is unclear.
This trend could be reversed as the pandemic accelerates the withdrawal from globalization that has been underway for several years. While supply chain bottlenecks are likely to ease, other trends may persist: protectionist policies such as tariffs and “buy American” procurement rules, companies returning production to states. United where it will be less vulnerable to these policies, and depressed immigration flows.
“Reorganizing and shortening supply chains… will have a cost that will be passed on to suppliers and, ultimately, consumers,” says Dana Peterson, chief economist of the Conference Board, an independent research group supported by large American companies.
Studies have shown that globalization has influenced US prices. Kristin Forbes, an economist at the Massachusetts Institute of Technology, found that parts of the consumer price index influenced by global factors, such as commodity prices, currency fluctuations, and global value chains, have caused half of the changes in the index between 2015 and 2017, up from around 25% in the early 1990s. Economists Robert Johnson of the University of Notre Dame and Diego Comin of Dartmouth found in a 2020 article that trade international had the effect of reducing consumer prices in the United States by 0.1 to 0.4 percentage points per year between 1997 and 2018.
The share of foreign content in global manufacturing output increased from 17.3 percent in 1995 to 26.5 percent in 2011, according to data from the Asian Development Bank analyzed by the Conference Board. It has since fallen to 23.5% in 2020. Global foreign direct investment, a key indicator of cross-border business expansion, peaked at around $ 2 trillion in 2015 and fell to $ 1.5 trillion. dollars in 2019, according to the United Nations Conference on Trade and Development. .
De-globalization gained momentum with the global financial crisis of 2008, the British vote to leave the European Union in 2016 and the tariffs of former President Donald Trump. This could add to the current high inflation, although these effects are difficult to disentangle from the pandemic.
Citi economists note that prices for home furnishings and operations, which fell almost steadily after the 2008 financial crisis, began to climb in 2017, as the Trump administration prepared to hit China with tariffs. , ultimately imposing a 25% tariff on these products. These prices increased by 3% between October 2017 and March 2020 and have since gained another 8.5%.
The Trump administration’s tariffs on steel, aluminum and imports from China, combined with retaliatory tariffs from trading partners, have increased the annual costs to American consumers by $ 51 billion per year, according to the American Action Forum, a center-right political research group.
President Biden negotiated an end to some of Mr. Trump’s tariffs such as steel and aluminum from Europe, but left most tariffs on goods from China in place.
Last month, the Commerce Department doubled the levies imposed in 2017 on Canadian softwood lumber to 18%. They stem from decades of complaints from US producers that Canadian exports are being subsidized. National Association of Home Builders President Chuck Fowke said the tariff increases “would put upward pressure on lumber prices and make housing more expensive,” noting that home builders are already on the move. struggling with rising construction costs and rising lumber prices well above pre-pandemic levels.
The Biden administration in June banned imports of certain solar panel materials from China’s Xinjiang region, a major producer, over the alleged use of forced labor there. As a result, the price of polysilicon, a key ingredient in solar panels, climbed to more than $ 20 per kilogram in the second quarter of 2021, from $ 6.20 a year earlier, according to Wood Mackenzie, a research firm.
“The [policy] uncertainty has a huge impact on the availability and price of products, ”said Abigail Hopper, managing director of the Solar Energy Industries Association, which represents solar panel installers.
The Biden administration is also seeking to restore supply chains for some critical products such as semiconductors, pharmaceuticals and rare earth minerals, while proposing to speed up the requirement for federal agencies to purchase. more products made in the United States.
Biden not only continued Trump’s trade policies, but amplified them with tougher ‘Buy American’ provisions, local content requirements, and pro-union proposals on electric vehicles and batteries in new bills. spending, ”said Gary Clyde Hufbauer, economist at Peterson. Institute of International Economics. He estimates that these measures implemented by the Trump and Biden administrations could add half a percentage point to US inflation over the period affected by the policies.
Meanwhile, economists at JPMorgan Chase & Co. estimate the U.S. immigrant population this year to be about three million less than if pre-2017 immigration trends had continued. Domino’s Pizza Inc. CEO Richard Allison said on a call for results in October that the drop in immigration in recent years has contributed to the labor shortage due to the pandemic, in particular drivers, which had increased costs and increased delivery costs. “In a country whose population is not growing as before, we, in our industry and a number of others, will need more immigration … to continue to have a strong workforce,” a- he declared.
Many American companies have pushed the administration to ease tariffs to reduce costs, such as on children’s shoes, steel and aluminum. The US Chamber of Commerce has asked him to raise the cap on immigrant visas.
But economists say the return of supply chains to the United States could have a more lasting impact than tariff changes, at a time when restrictive immigration rules and baby boomer retirement are keeping the US labor market alive. tense. “It could mean a longer-term change in the dynamics of inflation because you’ve just transferred more power to domestic workers,” Ms. Forbes of MIT said.
Write to Yuka Hayashi at [email protected]
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