Fight inflation, fight protectionism

Fight inflation, fight protectionism

Rising inflation has made it difficult for the administration of US President Joe Biden to continue the protectionist policies dating back to the Donald Trump era. 

Although "opening up" and "globalization" may no longer be politically favored, free trade is still sound economic policy.

* The article expresses the opinion of Pinelopi Koujianou Goldberg

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 a number of other factors) has contributed to falling wages, increasing social inequality, and the feeling that American workers lag behind workers in other countries with low income. 

lower labor standards. But in an effort to reverse these trends, the Biden administration has adopted protectionist rhetoric and policies. This could cost American workers again.

While any mention of the word “openness policy” is questionable today, the rise in inflation – the US CPI rose 8.3% in April 2022 – prompted a discussion among the economists on whether trade liberalization (and greater openness) can be used to rein in the current price frenzy. Since one of the main arguments of free trade is that it helps lower prices for consumers, the link between open borders and inflation is worth pondering.

To be clear, no economist has claimed that recent inflation is the result of trade restrictions. To date, the reasons explained are supply chain disruptions due to the pandemic and supply shortages due to the Russia-Ukraine conflict. But as policymakers struggled to contain inflation without triggering a recession, they realized that “Buy American” requirements, tariffs and immigration restrictions could make matters worse than.

According to a recent policy brief from the Peterson Institute for International Economics (PIIE), practicable reductions in trade barriers “could help reduce inflation by about 1.3 percentage points.” This study is conservative and focuses only on trade restrictions that could reasonably be lifted in the short term. The proposed reduction of trade barriers will not address the root of the price increase, but it will ease the situation.

American consumers would welcome such short-term relief. If the Biden administration finds it necessary to sell oil out of the Strategic Petroleum Reserve despite its commitment to tackling climate change, why hasn't it recognized the need to reverse it? Tariff strategy of former President Donald Trump? In 2021, according to the PIIE summary report, these tariffs will still apply to more than half of all goods imported into the United States.

More importantly, openness policies, whether it's free trade or immigration, contribute to consumer welfare in indirect ways. Although these effects are often difficult to quantify, they are of paramount importance. That's why economists often turn to basic thinking principles when arguing about them.

According to Elon Musk, the basic thinking principles are to look at the world in terms of physics (physics way). You boil things down to the most basic truths and ask the question "What can we be sure is true?" and then argue further.

One of the most important benefits of free trade is that it makes domestic companies (and the labor market) more competitive, allowing them to keep prices low and innovate continuously to stay ahead of the curve. Likewise, immigration alleviates labor supply shortages, and skilled immigrants can boost productivity and innovation. Progressive countries understand this and accept immigration. For example, the UK has introduced a new skilled worker visa scheme to welcome graduates from the world's top universities.

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