To Fight Inflation, Fight Protectionism
Surging inflation has made it much more difficult for US President Joe Biden's administration to justify a continuation of Donald Trump's protectionist policies. Though "openness" and "globalization" may have fallen out of political favor, free trade remains sound economic policy.
NEW HAVEN – One of the main goals that US President Joe Biden has set for his administration is to empower American workers and the country’s middle class. Many believe that globalization (along with several other factors) contributed to stagnating real wages, rising inequality, and the sense that American workers have lost out to workers in other countries with lower labor standards. But in its attempt to reverse these trends, the Biden administration has embraced protectionist rhetoric and policies that will cause American workers to lose once again.
Though any mention of the word “openness” is met with suspicion nowadays, the surge in inflation – the US Consumer Price Index was up 8.3% in April – has nonetheless prompted a discussion among economists about whether trade liberalization (and openness more generally) could be used to rein in rising prices. Since one of the main arguments for free trade is that it lowers prices for consumers, the link between open borders and inflation is worth contemplating.
To be clear, no reasonable economist claims that the recent inflation is the result of trade restrictions. By now, the causes are well understood to be a combination of pandemic-driven supply-side shortages, policy-fueled demand, and further supply-side disruptions caused by Russia’s war in Ukraine. But as policymakers struggle to contain inflation without causing a recession, they must recognize that “Buy American” requirements, tariffs, and immigration restrictions may be making a bad situation worse.