Free trade is the best cure for inflation – The News Herald
Something bothers me about recent legislation dubbed the Inflation Reduction Act. It was passed this month by Democrats in the Senate and House and signed into law by President Biden. The content of the law is not my problem. The legislation responds to a number of pressing needs.
But the truth is that the Inflation Reduction Act does not deal with inflation at all. Indeed, no legislation is likely to reduce inflation. The high interest rates and tight money supply experienced recently by Federal Reserve Chairman Jerome Powell will be much more effective than legislation.
The problem is that high interest rates and tight monetary policies lead to economic hardship. That’s why Powell is moving slowly with his program. Indeed, Powell would pass the burden to Biden in a minute if the latter only took it on.
And Biden can and should do it. Congress isn’t the only path a president can take. And it’s important, when considering a president’s options in the face of inflation, to understand the causes of inflation. Fuel costs drive inflation more than almost anything else. Indeed, the recent drop in fuel prices at the pump has induced a slight drop in inflation.
Unfortunately, the recent drop in fuel prices and lower inflation are only a brief respite. Long-term fuel costs will likely remain high. What Biden can do is use his presidential power over trade policy. It has the ability to lift the billions of dollars in tariffs currently imposed on Asian and European products.
Nothing is more inflationary than protectionism. Customs duty is a cost of imports passed on to the consumer. The result: inflation. Of course, Asia and Europe are far from commercially pure. But if the United States took the lead in free trade, as it has done in the past, Asian and European markets would react in the same way.
Lest you question my assertion that protectionism is the culprit of inflation, consider the UK’s position. Do you think home inflation is bad? In the UK, it exceeded 10%. And UK inflation is expected to rise above 13% by the end of the year.
And why is the UK in this predicament? Because of Brexit. Before Brexit, the UK benefited from the open markets of its European trading partners. Brexit paved the way for the UK to forgo the benefits of open markets in Europe.
As for the United States, free trade was an essential part of the American exceptionalism that defined our experience from the years after World War II until the economic boom of the 1960s. We now know that inflation we face is not transitory, as Biden and Powell stated earlier this year. But our future, including our economic future, remains largely in our hands.
President Biden can claim the so-called Cut Inflation Act as a victory. But if President Biden really wants to reduce inflation, he will start lifting the billions of dollars in tariffs, which are hurting us more than our trading partners.
John O’Neill is a freelance writer from Allen Park. He graduated in history from Wayne State University.