The trade war's pandemic parallel
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Illustration: Aïda Amer/Axios
President Trump is taking one of the pandemic's most harmful, unintended economic consequences — supply chain chaos — and morphing it into official U.S. policy.
Why it matters: There is no deadly virus forcing a near halt to global commerce or the subsequent scramble to respond to surging reopening demand.
- Even if the magnitude is smaller, economists warn tariffs might result in a similar negative shock, with high levies that destroy supply chains.
What they're saying: "There's a fundamental fear that we might be on the edge of going back to conditions like 2021 or 2022 — where inflation is raging out of control and costs are on everyone's mind," Chicago Fed president Austan Goolsbee told the Economic Club of New York last week.
- Manufacturers tell Goolsbee that "'maybe this is going to take us back to the 2020 kind of experience with supply disruptions, and we can't get components,'" he added.
Driving the news: The U.S. is probing the national security effects from imports of pharmaceuticals and semiconductors, according to notices filed Monday by the Commerce Department.
- Trump has already suggested that the investigation might result in tariffs on such goods, though it's unclear how high they will be or when they might take effect.
The intrigue: Top White House economic officials believe the pandemic exposed a national security threat — the fragility of U.S. manufacturing supply chains — a belief shared by their Biden-era successors.
- The difference is that the Trump administration says the shock justifies aggressive tariff policy. It is a "stick" of sorts to prod companies into onshore production.
- "One of the things we've learned from the COVID-19 pandemic is that it exposed critical vulnerabilities and choke points in global supply chains, and this has undermined our ability to maintain a resilient domestic industrial base," Commerce Secretary Howard Lutnick said in a statement announcing auto sector tariffs last month.
Yes, but: The pandemic also exposed the economic damage that can occur when manufacturers can't get key inputs from abroad and there's no domestic capacity for substitution. Tariffs risk the possibility of a repeat.
- China has retaliated against the U.S. with export controls that could choke off manufacturers' supply of rare earth minerals necessary to produce electric vehicle motors, fighter jets and more.
Threat level: "If there is another COVID or [more] tariffs, there will be shortages in certain medical supplies," Benedikt Brueckle, chief executive of health care firm CompuGroup Medical, told Axios at an economic forum for global executives in Phoenix last week.
- Brueckle said companies sprang up to fill the supply gap of personal protective equipment when supply chains broke down at the height of COVID.
- "But what happened after COVID is most of these companies went bankrupt because there was no more demand," he said, pointing to the consequence of a short-term policy focus on domestic manufacturing.
