Unions And Inflation:  The More That You Give, The More It Will Take

Can food

The Biden Administration thinks a lot about workers.  In fact, as they look at international trade policies they specifically use what they call a “worker-centric trade policy,” which is another way of saying that they will adjust tariffs and quotas to assure the health of domestic business.  In a lot of ways, that sounds great.  No one wants to see jobs move out of the US.  Certainly, no one is going to vote for someone that had a policy that would directly move jobs offshore.  However, as is true with nearly every economic policy, there are very direct consequences to other important battles.  

Unfortunately, when we think about the manufacture of items that closely resemble commodities, working in favor of workers is the same as working for higher prices for consumers.  At the end of the day, the policy effectively moves money from the left pocket to the right one… or perhaps more appropriately, it removes money from the left instead of the right. 

Last week, the Wall Street Journal told the story from the point of view of the United Steelworkers Union and The Consumer Brands Association.  The Steelworkers in this case, make the materials that are used in making tin cans.  The problem, of course, is that this material, even in something close to its end form, can be made far more cheaply in other parts of the world than it can in the US.  For the Consumer Brands companies, there’s really no good reason not to use the cheaper product.  But, if the US decides that we need additional tariffs on these sorts of goods to protect workers, it means that the cost of food has to go up because the cost of a can would have to move up by as much as 30%. 

For legislators, this is a complete Catch-22.  Don’t support the unions and risk losing their political support, or support the unions with tariffs and continue to send inflation higher.  Obviously, the latter choice hurts a broader swath of the economy and means lost votes as well. 

For the Biden Administration, they will likely go the tariff route and serve the unions because of their direct involvement with funding the democratic party.  But that’s probably the wrong decision for the country.  Every time we make a decision like this to serve the few, we generally hurt the many.  Inflation caused by tariffs is still a headwind to what the Federal Reserve is trying to accomplish. 

Frankly, these decisions set up very well for whatever Republican faces Biden next year.  A more sensible action would be to help the unions train employees for businesses that are more forward-looking.  The United States, without subsidy, will generally lose when producing commodity or low value-add goods. 

Our workers are best served by learning to do new and better things and leaving price wars for countries where they do not have the same opportunity set.  If the process of reshoring is going to work, we need to also understand that our cost basis is going to be higher, so what we produce must be of higher value and more differentiated. 

Source: The Wall Street Journal


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