(Headline USA) President Joe Biden has a solution for high inflation that seems counterintuitive: Bring factory jobs back to the U.S. and force them to pay more while coming up with creative ways to reduce overhead.
This challenges a decades-long argument that employers moved jobs abroad to lower their costs by relying on cheaper workers.
The trend has contributed to the loss of 6.8 million U.S. manufacturing jobs, but it also translated into lower prices for consumers and put downward pressure on inflation in ways that kept broader economic growth going.
It was a trade-off that many corporate and political leaders were privately comfortable making.
Now, with inflation at a 40-year high, the president has begun to argue that globalization is stoking higher prices. That’s because proponents of outsourcing failed to consider the costs of increasingly frequent global supply chain disruptions.
Recent disruptions have included the COVID-19 pandemic, shortages of basic goods like semiconductors, destructive storms and wildfires and, now, the Russian invasion of Ukraine, which has sent oil prices soaring.
Many of the issues are a direct result of Biden’s policy failures or shortsighted planning, such as his decision to close off much of America’s energy production early in his presidency and his decision to impose vaccine mandates, which led to even greater shortages in an already depleted workforce.
In fact, some have speculated that the supply issues, which Biden and Transportation Secretary Pete Buttigieg were slow and reluctant to acknowledge, might be intentional. By driving up costs and impoverishing American citizens, Democrats can then justify even more social-spending programs to subsidize their lost income and more regulations to accompany the increased government dependency.
Some officials, including Buttigieg and Energy Secretary Jennifer Granholm, have openly expressed their yearning for higher gas prices that will force the automotive industry to transition to electric vehicles.
Ignoring the underlying root cause of reckless government spending, Biden presented a false dichotomy by claiming the federal government had only two options to address inflation: It could either pull back on support and cause wages and growth to cool, or it could get rid of the pressure points that can lead to inflation when emergencies and uncertainties occur.
“We have a choice,” Biden said Friday when announcing plans by Siemens USA to add 300 jobs. “The way to fight inflation is to drive down wages and make Americans poorer or have a better plan to fight inflation: Lower costs and not your wages.”
The president then unspooled his thinking that more manufacturing of semiconductors inside the U.S. would lead to more cars and other products being produced domestically. That would fill the supply chain and, in theory, bring prices down.
But this plan would take years to implement and the consumer price report being released Thursday is expected to show that annual inflation rose to nearly 8% last month, according to the financial data firm FactSet.
Having dug himself into a pit, Biden’s present challenge is that he’s got long-term plans on inflation to address pain that consumers are feeling each day, said Douglas Holtz–Eakin, president of the center-right American Action Forum, who described Biden’s plan as “optics.”
“Semiconductor manufacturing facilities take years to build,” he said. “Inflation’s here now, and it’s it’s an issue now.”
Biden’s assertion sets up an ideological battle with Republicans, who blame the president’s $1.9 trillion coronavirus relief package for being excessive and flushing more cash into the U.S. economy than was needed.
GOP lawmakers have said inflation—up from recent averages of about 2%—is entirely the president’s fault, while the administration is trying to say the bigger problem rests with the structure of the global economy.
“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 this new Biden effort as largely an attempt at political damage control, rather than a data-driven approach to reducing inflation.
“It’s primarily about optics,” said Scott Lincicome, director of economics and trade at the libertarian Cato Institute.
“The Biden administration clearly knows that inflation is a political albatross,” he added. “And they are looking for anything and everything to show American voters that they have a plan to fix the problem.”
Lincicome said the vast majority of inflation is caused by Federal Reserve efforts to boost growth, Biden’s relief package and the general challenges of restarting an economy after the pandemic.
Restoring factory jobs that went elsewhere would not address those challenges, and any arguments for that are based on the belief that supply-chain disruptions have become a permanent feature of the global economy, he said.
“Global supply chains lower costs and increase efficiency,” Lincicome said. “The idea that reshoring will somehow lower costs assumes a permanent pandemic situation, and that’s just not reality.”
The Biden administration, for its part, is making that exact argument—supply chain disruptions are becoming more common and weighing on prices in ways that companies previously failed to consider.
Rather, by inflicting a series of perpetually “managed” crises such as wars and pandemic emergencies, globalist leaders hoping for a “Great Reset” might effectively change the longstanding paradigm based around free-market principles.
The White House contends that the existing setup of the U.S. economy makes it vulnerable to disruptions that drive up prices. When companies first sent jobs overseas, they failed to fully account for the possible setbacks and challenges that can occur over time with distant factories.
People were not accounting for increased “risks and disruption, and they weren’t thinking about five-, 10-year horizons,” said Sameera Fazili, deputy director of the White House National Economic Council. “They were looking at minimizing costs over a one-year horizon, two-year horizon.”
The administration is basing its argument, in part, on analyses done by the McKinsey Global Institute. A 2020 report by the institute found that companies will likely experience supply-chain disruptions lasting a month or longer every 3.7 years, which increases costs and cuts into profits.
The risks examined in the report range from a “supervolcano” to a “common” cyberattack.
There are political risks as well, as 29% of all global trade in 2018 came from countries ranked in the bottom half of political stability by the World Bank, an increase from 16% in 2000.
Adapted from reporting by the Associated Press