The four years of the previous administration accounted for the biggest push towards De-globalization in the last 50 years. The current administration has dropped many of the ultra destructive tarrifs, but has kept in place the demonization of economic competitors, and accelerated weaponized dollar denominated sanctions.
But what's wrong with that? America first puts Jobs in America above all else, and shouldn't any country be concerned with that?
Of course. And many high paying jobs got sourced outside the US over the last 50 years. So returning those jobs, and returning capital hiding in foreign tax exempt banks is all good.
On the other hand, De-Globalization is highly inflationary.
Many of those highly skilled jobs are not being filled here in the US. Populations are aging everywhere, workforces are shrinking everywhere, and there are 100 million working age people in the US who are not looking for a job for whatever reason. They have left the workforce and they don't want those jobs that were being sourced to tens of millions of available workers acrross the globe every year. There is a global dearth of workers. Which accounts for the "surprisingly strong" employment reports.
This is highly inflationary.
Also, those countries that we have attacked with tarrifs and sanctions thereby weaponizing the dollar, including China, Russia, and many middle Eastern countries and some South American countries are now trading directly with each other. They are cutting out the dollar. And they are making the US develope alternate supply chains. Other countries like India, are following suit as a preventative measure against a weaponized dollar.
If that makes you politically happy, then great.
But realize: De-dollarization as a facet of deglobalization it is highly inflationary for the United States..
Since the US destroyed Huawei in 2018 - something that was very popular here - every Chinese CEO has moved to de-dollarize its supply chain, Now that China is rebounding, Japan and Europe and India will be selling into China. But not the US. This weakens growth at the very time inflation is soaring.
Re-sourced supply chains as a result of de-globalization are highly inflationary. They may make the US more "secure" but they weaken export growth and make imports more expensive.
The tensions arrising from this economic warfare and the hot warfare Between Russia/China and US/Europe is highly inflationary in that resources are diverted just as it weakens growth as export markets disappear.
Deglobalization makes the risk for escalating war infinitely more likely.
War is highly inflationary.
All that oil and gas that was moving from Russia to Europe is now moving to China and India. Good for them. Inflationary for us.
On top of this, the green energy movement of the current administration, though perhaps necessary in the long run, is highly inflationary in the short run, as oil companies are reluctant to invest in an uncertain future.
This is also highly inflationary.
So high energy costs, high cost of food, high cost of goods, high cost of labor and weak growth.
The US will take in about 4.8 Trillion in taxes this year (barring a recession.) We will spend 1.3 in interest expense. 2.6 on social security and medicaid. And 900 billion on the military. That leaves nothing for anything else. ZERO for roads, education, law enforcement, Politician's salaries, transer payments, it all comes out of deficit spending. That's reality. We can cut spending, but can we do without any government at all?
Biden's budget at 6.8 trillion leaves about 2 trillion in deficits. That was the average for the Trump years. That's become the norm.
How is that sustainable without creating massive inflation?
It's not.
And the Fed is trying to cut rates and reduce liquidity to reduce all this inflation. The reduction in liquidity is already causing chaos in the credit markets. In the last week there have been two major bank failures: Silvergate, a crypto freindly lender (surprise surprise) and Silicon Valley Bank - which is the second largest bank failure in US history. At the same time First Republic Bank and other large regional banks stopped trading today (Friday 3/10). It's not clear right now what their exposure is.
But what is clear is that the Fed is already losing control of the credit markets, making it tightening program difficult if not impossible.
How then will inflation be controlled?
It won't.
Learn to live with it.
Protect yourself with Hard Assets.
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