President Joe Biden has a solution for high inflation that seems counterintuitive: bring factory jobs back to the United States.

This challenges a decades-old argument that employers have moved jobs overseas to cut costs by relying on cheaper workers. This trend contributed to the loss of 6.8 million jobs in the US manufacturing sector, but it also translated into lower prices for consumers and put downward pressure on inflation significantly. to sustain broader economic growth.

It was a compromise that many business and political leaders were comfortable making in private.

Inflation at its highest in 40 years

Now, as inflation hits its highest level in 40 years, the president has begun to argue that globalization is fueling rising prices. Indeed, proponents of outsourcing have failed to factor in the costs of increasingly frequent disruptions to the global supply chain. Recent disruptions have included the COVID-19 pandemic, shortages of commodities like semiconductors, destructive storms and wildfires, and, now, the Russian invasion of Ukraine, which has driven skyrocketing oil prices.

Biden says the feds can take two courses on inflation. It can either reduce support and cause a slowdown in wages and growth, or eliminate pressure points that can lead to inflation in times of urgency and uncertainty.

“We have a choice,” Biden said Friday, when announcing Siemens USA’s plans to create 300 jobs. “The way to fight inflation is to drive down wages and make Americans poorer or have a better plan to fight inflation: cut costs, not your wages.”

The president then unveiled his thinking that more semiconductor manufacturing in the United States would lead to more cars and other products being produced in the country. This would fill the supply chain and, in theory, lower prices. But that plan would take years to implement and Thursday’s consumer price report is expected to show annual inflation hit nearly 8% last month, according to financial data firm FactSet.

Long term inflation plans

Biden’s challenge is that he has long-term inflation plans to deal with the pain consumers are feeling every day, said Douglas Holtz-Eakin, president of the center-right American Action Forum, who called Biden’s plan “optical.”

“Semiconductor manufacturing facilities take years to build,” he said. “Inflation is here now, and it’s a problem now.” Biden’s claim sets up an ideological battle with Republicans, who accuse the president’s $1.9 trillion coronavirus relief package of being overkill and pumping more money into the US economy than necessary. GOP lawmakers have said inflation — up from recent averages of around 2% — is entirely the president’s fault, while the administration tries to say the biggest problem lies with the structure of the government. ‘Mondial economy.

House Republican Leader Kevin McCarthy and others said last week that inflation – especially for gasoline – was the nation’s biggest source of angst ahead of this midterm election. year.

“You don’t need a speech to know what the state of the union is. You feel it every time you go to the grocery store and the gas pump,” McCarthy said on Twitter.

Critics see Biden’s new effort as an attempt at political damage control, rather than a data-driven approach to reducing inflation.

“It’s mostly about optics,” said Scott Lincicome, director of economics and commerce at the libertarian Cato Institute. “The Biden administration knows inflation is a political albatross. And they’re looking for anything and everything to show American voters they have a plan to fix the problem.” Lincicome argues that the vast majority of inflation is caused by the Federal Reserve’s efforts to stimulate growth, Biden’s relief package and the general challenges of restarting an economy after the pandemic. Restoring factory jobs that have gone elsewhere would not solve these challenges and all the arguments for doing so are based on the belief that supply chain disruptions have become a permanent feature of the global economy, says -he.

“Global supply chains reduce costs and increase efficiency,” Lincicome said. “The idea that relocation will somehow reduce costs assumes a permanent pandemic situation and that is simply not the reality.” The Biden administration, for its part, makes this accurate. argument – ​​supply chain disruptions are becoming more common and are weighing on prices in ways companies hadn’t considered before.

US economy vulnerable to disruption

The White House argues that the current configuration of the US economy makes it vulnerable to disruptions that drive up prices. When companies first sent jobs overseas, they did not fully consider the potential setbacks and challenges that can arise over time with remote factories. People weren’t factoring in the increased “risk and disruption, and they weren’t thinking about five- or 10-year horizons,” said Sameera Fazili, deputy director of the White House National Economic Council. “They were looking to minimize costs over a one-year horizon, a two-year horizon.”

The administration bases its argument, in part, on analyzes conducted by the McKinsey Global Institute.

A 2020 report from the institute found that companies are likely to experience supply chain disruptions lasting a month or more every 3.7 years, driving up costs and cutting profits.

The risks examined in the report range from a “supervolcano” to a “common” cyberattack. There are also political risks, as 29% of all global trade in 2018 came from countries ranked in the bottom half of political stability by the World Bank, up from 16% in 2000.

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Posted: Wednesday, March 09, 2022, 12:46 PM IST


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