How Washington could fight record inflation in the United States

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Washington (AFP) – As US prices rise at a rate not seen in decades, President Joe Biden’s administration is looking for ways to turn the tide.

From easing tariffs on China to tackling the semiconductor shortage, Washington could take many steps to control price increases.

However, analysts warn that few will offer immediate relief from the price spike that has hit the world’s largest economy this year as it rebounds from the Covid-19 pandemic:

Roll back Chinese tariffs

Under former President Donald Trump, the United States imposed tariffs on Chinese goods worth $ 370 billion in 2018, citing trade practices Washington deemed unfair.

The Biden administration has maintained those tariffs, but said it will review trade strategy toward China, as well as initiate a process to allow some U.S. companies to benefit from exemptions from the levies they say drive up costs.

China is the largest supplier of goods to the United States, and Biden may choose to ease tariffs further to deal with price increases, which the Labor Department set at an annual rate of 6.2% in October.

In an interview with CBS on Sunday, Treasury Secretary Janet Yellen refrained from changing pricing policy, but acknowledged that “it would make a difference.”

“Tariffs tend to increase domestic prices,” she said.

Jay Bryson, chief economist at Wells Fargo’s merchant and investment bank, said a reduction in tariffs would help “at the margin” and reduce the costs of some products, but would not deal the fatal blow to inflation Biden might be looking for.

Sort supply chains

Even if tariffs were removed, the United States would still face grumbling in its ports.

Ships have idled off the coasts of Los Angeles and Savannah, Ga., For months awaiting cargo unloading, raising fears of disruptions to the holiday shopping season.

There are many reasons for the disruption in supply chains and Biden has attempted to address this by pushing the Port of Los Angeles to provide 24-hour service, as well as making WalMart, FedEx, and UPS work for extended hours. to eliminate backlogs.

The White House has said the $ 1.2 trillion infrastructure bill that Biden is expected to sign on Monday will spend money on modernization projects that can further help ports.

But Andrew Hunter, senior US economist at Capital Economics, wasn’t so sure.

He warned that the overhaul, along with a $ 1.85 trillion effort to expand U.S. social services, Biden is pushing Congress to pass, “will do nothing to contain inflation now, and may even increase it. yet if they result in a further short-term expansion budget review, which stimulates demand. “

Stimulate the production of semiconductors

US factories have struggled in recent months to secure semiconductors, the automotive sector being particularly affected.

The slowdown in new car production is a factor in soaring used car prices that pushed headline inflation up, while the efforts of car rental companies to rebuild their fleets have also played a role. role.

Biden met with top CEOs in the semiconductor industry earlier this year and looked for ways to work with the European Union to address shortages at a summit in September.

Put pressure on the Fed

The branch of the US government best equipped to manage inflation is the Federal Reserve.

However, its tools are blunt: The central bank could raise rates from zero, but doing so while the economy is still recovering from the pandemic could trigger a recession.

Its senior officials have also made it clear that there will be no rate hike until the Fed completes its monthly asset purchases, which is expected to end by the middle of next year.

“Since (inflation) is caused, at least in part, by supply constraints, there is not much the Fed can do about it. The Fed cannot make more computer chips,” Bryson said.

Fed Chairman Jerome Powell and other senior officials are appointed by the White House but act independently, which means that while Biden wanted to change US monetary policy now, the decision is not his.

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