When it rains it pours! Inflation is one threat for our economy and that of our trading partners.
When the winds of inflation began to stir, it should have been a short blip on the screen. There was too much money circulating through our economy because of government stimulus spending in the wake of Covid. Then shortages of materials caused by the logistics of “just in time” inventory management made matters worse. And it continues with China shutting down their economy to contain Covid.
Through all this, our economy has remained relatively strong. Inflation would have risen but not to the levels we now see. The Ukrainian invasion by Russia has complicated matters substantially. This non-Covid event has introduced oil and food shortages that are global in nature.
Both food and oil have markets that are anything but local. Any disruption causes worldwide problems. 30% of the world’s grains come from Russia and Ukraine. The problems become worse when countries like India place a ban on wheat exports and Saudi Arabia won’t increase oil production to counter the Russian’s drop in oil.
Here at home, the Biden administration seems to be paralyzed by its inability to decide on a plan. In his recent Washington Post column, Fareed Zakaria was spot-on in his assessment of tariff and immigration policies…both of which were carryovers from the Trump administration.
Trump’s trading policies were not rooted in today’s world. His view was that of 17th century mercantilism. Plenty has changed since then including the notion of a physical exchange of hard assets for the purchase of goods. Countries that carry trade balances can have stronger economies.
A tariff is a tax on the consumer not the manufacturer. It makes goods more expensive in the U.S. According to a study cited in Zakaria’s article from the Peterson Institute, the tariffs enacted during the Trump administration add 1.3% to the inflation rate.
For years, some in this country said that if wages were raised, then Americans would perform unskilled and physically demanding jobs such as laborers and farm workers. We have raised wages to above $15 per hour, and we still have a shortage of people for jobs. People who believed that Americans would take those jobs if the pay was higher did not consider two things. One was that higher wages would be inflationary and the second was that there are simply not enough people to fill all the jobs available.
America has benefited from immigrants since 1607 when Jamestown was settled. We relied on a steady stream of newcomers to grow our economy and work in every job from scientist to ditch digger. For those who hate today’s immigrants and say that their forefathers came to the US legally, they are right.
To come here legally in 1900 if you were European, all that was needed was the money for passage. A person landed at Ellis Island, or another immigration center, and were asked questions, examined for illness (both mental and physical) and was allowed entry into the country if he/she wasn’t a known criminal or anarchist. I was told by my grandfather that he and his parents were admitted in less than four hours.
Cheaper goods and more workers is how America became the economic powerhouse it did. It wasn’t by limiting one or the other. Tariffs and closed borders for both trade and immigration will narrow America’s future and make us poorer…and in the short term will result in continued inflation.