Reviews | Biden has the means to reduce inflation. Why doesn’t he act?
As a reminder, a tariff is a tax on goods paid by the American consumer who buys these goods. It is by definition inflationary; it increases the price of a good such as an imported car. But it causes even more inflation than that because it also raises the price of equivalent domestically produced goods. If a Mazda sells for more, Ford and General Motors also tend to raise the prices of their cars.
The reverse logic also applies. If you lower prices, it also has a wider effect: when the Mazda gets cheaper, Ford and GM will lower their prices to be competitive.
In March, the Peterson Institute for International Economics produced a study estimating that canceling most of Trump’s tariffs would reduce inflation by 1.3 percentage points. Lawrence H. Summers, a contributing columnist for the Post who has been prescient about much in this economic crisis, endorsed the study, agreeing that lowering trade barriers was “by far” the greatest microeconomic measure that could be taken to reduce short-term inflation. term.
The second, he noted, would be immigration reform. Now is the time to further roll back Trump’s restrictions on immigration, many of which are the result of executive action and hundreds of which are still in place, which have caused severe labor shortages in sectors such as agriculture, construction and healthcare.
The problem, however, is not with facts or logic. No one seriously disputes the validity of these assertions. During the campaign, Biden lambasted Trump’s China tariffs and much of his immigration policy. Yet after taking office, the White House Biden behaved on these issues like a deer caught in the headlights – paralyzed by fear that any major change could be attacked by Republicans.
This defensive crouching is not only visible in economic policy, but also in foreign policy. Biden campaigned on the idea that Trump had been a dangerous aberration in American politics, that his policies had been well outside the mainstream, and that Biden would bring the country back to normal. Imagine if Biden, in his first week in office, had done just that, reversing a series of Trump policies — ending tariff wars, re-entering the Iran nuclear deal, and restoring some normalcy to Trump relations. America with Cuba.
Instead, nearly a year and a half into the Biden administration, issue after issue, we are still living in Trump’s world. Biden might have paid a small political price initially, but it would have been short-lived, and he would have reaped the rewards of more sensible policies for the rest of his term.
The Democratic Party has learned the wrong lessons from Trump’s narrow victory in 2016. It believes the only way to win over working-class white voters is to commit to a pro-Trump set of economic policies, primarily protectionism and commercialism. But Trump voters are largely driven by cultural issues: Just listen to Ron DeSantis, JD Vance, Mehmet Oz and others complain about cancel culture, gender identity, woke corporations and now abortion. In this area, Democrats need to listen more and adjust their rhetoric and actions. Economically, voters are looking for results — some of which could easily be achieved by Biden cutting tariffs and easing some immigration restrictions.
Inflation hurts the poor and lower middle class the most, as they spend a much larger share of their income on items such as food and clothing that become cheaper through global trade. Getting cheap goods at Walmart is a much bigger deal for someone making $30,000 a year than $300,000. In Britain, inflation, which is at its highest level in 40 years – mainly caused by Brexit – is having a particularly negative effect on low-income groups. Similarly, studies show that tariffs are also regressive, hurting the poor far more than the rich.
A conventional wisdom has frozen in the United States that decades of free trade have led to stagnant wages for the middle class and misery for the working class. This view conveniently excludes the massive benefits of dramatic and sustained reductions in the costs of crucial aspects of life such as food, clothing and technology. We see what happens when the economic winds turn in the opposite direction and costs start to soar. This might make us all a little nostalgic for globalization.