Fareed Zakaria
President Biden says that combating inflation is his “top domestic priority.” But he certainly isn’t acting that way. He has in plain sight several measures that would reduce inflation significantly, and yet appears hesitant to take them. As many distinguished economists have noted, the repeal of most or all of Donald Trump’s tariffs would be the single most effective way of reducing inflation in the near future.
As a reminder, a tariff is a tax on goods paid by the U.S. consumer who buys those goods. It is by definition inflationary; it raises the price of a good such as an imported car. But it causes even more inflation than that, because it raises the price of the domestically made equivalent goods as well. If a Mazda sells for more, then Ford and General Motors also tend to raise prices on their cars.
In March, the Peterson Institute for International Economics produced a study estimating that reversing most of the Trump tariffs would reduce inflation by 1.3 percentage points. Lawrence H. Summers, a Post contributing columnist who has been prescient on many things in this economic crisis, endorsed that study, concurring that trade barrier reduction was the single biggest microeconomic measure “by far” that could be taken to alleviate inflation in the near term.
The second one, he noted, would be immigration reform. This is the time to reverse more of Trump’s restrictions on immigration, many done by executive action and hundreds of which are still in effect, which have caused severe worker shortages in industries such as farming, construction and health care.
The problem, however, is not one relating to facts or logic. No one seriously disputes the validity of these claims. During the campaign, Biden lambasted Trump’s tariffs on China and much of his immigration policy. Yet after entering office, the Biden White House has behaved on these issues like a deer caught in the headlights — paralyzed by fear that any major shifts might get attacked by Republicans.
This defensive crouch is not just visible in economic policy, but foreign policy as well. Biden campaigned on the notion that Trump had been a dangerous aberration in American politics, that his policies had been far outside the mainstream, and that Biden would return the country to normalcy. Imagine if Biden, in his first week in office, had done just that, reversing a slew of Trump policies — ending the tariff wars, reentering the Iran nuclear deal and restoring some normalcy to America’s relationship with Cuba.
Instead, almost a year and a half into the Biden administration, on issue after issue, we are still living in Trump’s world. Biden might have paid a small political price initially, but that would have been short-lived, and he would have reaped the gains 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 woo White working-class voters is to engage in a set of Trump-lite economic policies — chiefly protectionism and mercantilism. But Trump voters are motivated largely by cultural issues: Just listen to Ron DeSantis, J.D. Vance, Mehmet Oz and others rail about cancel culture, gender identity, woke corporations and now abortion. In that realm, Democrats need to listen more and adjust their rhetoric and actions. On economics, voters are looking for results — some of which Biden could easily deliver by reducing tariffs and easing certain immigration restrictions.
Inflation hurts the poor and the lower middle class the most, because they spend a much larger share of their income on items such as food and clothing that get cheaper thanks to global trade. Getting cheap stuff at Walmart is a much bigger boon for someone making $30,000 a year than $300,000. In Britain, inflation, which is at a 40-year high — mostly caused by Brexit — is having a particularly adverse effect on lower-income groups. Similarly, studies show that tariffs are also regressive, hurting the poor much more than the rich.
A conventional wisdom has congealed in the United States that decades of free trade have led to stagnant wages for the middle class and misery for the working class. That 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 are witnessing what happens when the economic winds move in the opposite direction, and costs start spiraling up. It might make us all a little nostalgic for globalization.
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