Feb 15, 2022 - Politics & Policy

Biden's inflation Catch-22

Photo illustration of Joe Biden in a room with walls covered in doors.

Photo illustration: Aïda Amer/Axios. Photo: Max Mumby/Getty Images

President Biden and his top advisers are caught in a loop: They know inflation wounds them politically and hurts their voters, but scrapping some inflationary policies would wound them politically — and hurt their voters.

Why it matters: The president remains committed to the core elements of his economic program, even as price hikes threaten to wipe out Democrats in November's midterms.

  • His approach includes imposing strict "Buy American" requirements on all federal spending, and, so far, maintaining President Trump's tariffs on China.
  • Both of those hardline policies put upward pressure on prices, leading to higher inflation.

Behind the scenes: As administration officials start to spend the $1.2 trillion bipartisan infrastructure money for roads, bridges and broadband, the president has put his Cabinet on notice.

Officials face a high bar if their departments want a waiver to "Buy American," people familiar with the matter tell Axios.

  • Some administration officials privately acknowledge the requirement can add to inflation — a view publicly expressed by economists.

What they're saying: "The objective has to be buying as cheaply as possible," said Larry Summers, a former Treasury secretary and National Economic Council director under President Obama.

  • "When you make other objectives dominant — prioritizing small business, buying American or the empowerment of workers — you are sacrificing the low-price objective."
  • "And that is a negative and not a positive on inflation," Summers said.

The other side: Some of the current president's economists question whether "Buy American" has any effect on inflation.

  • “Is there an independent inflationary impact from Buy America? We have never seen it,” Council of Economic Advisers member Jared Bernstein told Axios.
  • “I don’t think the president has competing priorities," he added. "I think the president has complementary priorities, and we have to make sure they are implemented in a way that helps the American people both next week and next year.”
  • Labor Secretary Martin Walsh also told Axios: "Under the Made in America executive order, federal purchases will help to bolster domestic manufacturing and manufacturing supply chains, and support good-paying, union jobs."

Driving the news: If Russia invades Ukraine and NATO responds with stiff sanctions, inflation could get even worse.

  • "I will not pretend this will be painless," Biden said Tuesday, warning about higher energy prices.
  • January's Producer Price Index (PPI) rose 9.7%, compared to a year ago, coming in higher than economists estimated, the Labor Department reported Tuesday morning.

The big picture: Last week, the White House unveiled a three-pronged plan to fight inflation: fixing supply chains and the country's infrastructure, lowering health and child care costs and promoting competition to benefit consumers.

  • Officials are also quick to point to the Federal Reserve as the primary firefighter for inflation.
  • With opposition from Sen. Joe Manchin (D-W.Va.), Biden's $2 trillion Build Back Better agenda, which is focused on lowering costs, is unlikely to pass in time to address inflation in the near term.

Between the lines: While the Biden administration is reviewing Trump's tariffs on China, officials don't think they are a huge contributor to inflation.

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