The Good News of Inflation Tomorrow

Globalization is going away. Not immediately and not without a fight from the Big Winners in the Globalization Game. But it’s going. One result will be higher prices, especially for manufactured goods, as national and regional economies become more autonomous and splintered.

That sounds bad. But another result will be a cleaner and, hopefully, fairer world. What’s coming is not the disruption-driven inflation experienced of late by many of us as pain at the grocery store and gasoline pump. This is prices for everything that reflect the true value of resources –- including the cost of paying workers a comfortable living wage, so everyone can pay the higher prices.

What we’re seeing now is Federal Reserve Board Chair Jerome Powell and other central bankers reversing all their sweet talk of a few months ago about higher baselevel wages being part of their mandate. Instead, they’re stomping on wage increases at the lower end of the pay scale in the good ‘ole Paul Volcker way.

Less Globalization = Higher Prices?

The globalized post-1980 economy in which corporations roamed the world in search of the cheapest labor and raw materials was great for business, as economists are quick to point out.

It was also great for “consumers,” as people came increasingly to be known, especially in the US, where our most important role in the global economy is to buy stuff, not make stuff. Cheap labor and raw materials translated into cheap products, thanks not least to the pounding fist of such retailers as Walmart and Amazon, as they drove down costs all along ever-more-remote and elaborate supply chains.

The Chinese government helped, too, by keeping yuan-dollar exchange rates at levels that made their goods competitive in the West but didn’t bring unmanageable wrath down upon them from an anti-dumping crowd in the US that, until Donald Trump, had become marginalized in any case, functioning only in labor unions and other obscure corners of the economic system.

Unfortunately But Predictably

Whatever its benefits for business, that mode of operation was disastrous for the climate, oceans and rivers, plants and non-human animals, and in fundamental ways, for most humans — even those who in their guise as consumers often became convinced that access to cheap stuff made lousy jobs and somebody else’s pollution acceptable.

Over the last decade or so, since the 2008 financial crash, that conviction began to weaken, as real income stalled at low levels for a majority of households, and the benefits of recovery from the financial mess all seemed to go to the same bunch of bankers and “investors” who had caused the crisis in the first place.

Made at Home — whether home be the USA or somewhere else — is starting to look better to people outside China. Concurrently, the Chinese government has decided it’s time to consume at home more of the stuff they make in China.

Beijing’s shift from an “export-driven” development model to policies friendlier to domestic Chinese consumers was loudly proclaimed and has been reflected in exchange rates and other government moves. But it has gotten buried in much of the Western press in the crush of reporting on Covid and now Zero-Covid developments.

Decoupling

The loss of popular support for a heavily import-dependent US economy cleared the path for Trump to slap tariffs on many Chinese goods and abandon the automatic support for foreign investments by US corporations reflected in the trade policies of the Clinton, both Bush, and the Obama administrations. Trump’s new path proved so popular that Biden has so far left these tariffs in place — despite lobbying against them from Big Tech, Big Retail and Elon Musk.

Taken together, what all these developments mean is that the Chinese are less likely to want to sell cheap stuff to the West, just as the West is eyeing a turn back toward domestic manufacturing. It might seem like a fortuitous meeting of minds. Instead, however, it is providing the economic underpinning for heightened geopolitical tensions between the US and China.

Adding to the momentum behind what is coming to be known as “decoupling” — it’s rarely said exactly which countries are decoupling from what other countries — are Russia’s invasion of Ukraine, the Western attempt to retaliate by isolating Russia financially and economically, and China’s continued trade with Russia in disregard of such attempts.

India, Turkey and several other formal and informal US allies have been even more ostentatious than China in short-circuiting Western financial sanctions to boost purchases of Russian oil and coal at discounted prices — with little negative blowback from Washington. But then, logic and consistency have rarely been notable attributes of US foreign policy.

Tensions between the US and China were exacerbated by the visits of Nancy Pelosi and a second congressional delegation to Taiwan this month and by the major military exercises held around Taiwan in response by the government in Beijing.

Naturally Higher Prices

Whatever else results from all this — which could include war, but who’s worried? — it implies higher prices in the US for all that stuff we used to import from China.

Whatever impact tariffs and other tensions with China have had on the current bout of inflation has bene hidden so far, first by the famed supply chain disruptions caused by covid-closures, and then by the huge runup in fossil fuel, grain, fertilizer, and other bulk food prices that resulted from the war in Ukraine.

With oil and grain prices now easing, though, heftier price tags for manufactured goods should start to get more attention. So far, goods are continuing to move out of China towards the US and Europe, with price increases stemming only from factors such as tariffs and exchange-rates. But the impact of shifting industrial policies on either side of the Pacific will be felt in time.

One big question is whether Fed policymakers, press and opinion makers, and ordinary folks out in the field will understand the difference between today’s Covid and Ukraine-related inflation and the naturally higher prices that go with deglobalization.

If Americans want to make more stuff at home, without massive pollution, and with living wages for the workers involved, they will have to pay more for that stuff. It’s that simple. But then again, many of us also need to buy less, because the planet won’t tolerate more unimpeded growth in everything humanity buys and sells.

This path of analysis and action gets us to the same place that battling climate change, dealing with recession, and so many other lines of thought seem to get us: Degrowth. Those of us who buy a lot of cheap stuff now should buy less but better, and all of us should make sure that everybody gets what they really need. It may not happen that way, but there’s a chance it will.

It turns out that cheap stuff wasn’t the solution, it was a big part of the problem. Not the cause, but a very major symptom of the disease that globalized capitalism proved to be. We’re moving on, whether we like it or not. Let’s try to find ways to like it.