Biden's inflation Catch-22
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.
- They cite a January Peterson Institute of International Economics study.
- It concluded repealing the China tariffs — a key priority for business groups — would only reduce inflation by 0.26%.