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Inflation Blues Heightened by Retreat from Globalization

The pandemic could mean a retreat from globalization and the return of businesses to the U.S., along with higher inflation, according to The Wall Street Journal (subscription).
The background: Availability of technology and liberalization of trade have long prompted businesses to outsource production to low-wage countries, while moderate immigration policies allowed lower-wage workers to move to wealthier nations. Economists and policymakers have long suggested that this kind of globalization helped to lower prices overall.
The new world: The pandemic could eventually spur a reversal in the globalizing tendency that has dominated U.S. trade since the 1990s.  

  • “While supply-chain bottlenecks should eventually ease, other trends could persist—protectionist policies such as tariffs and ‘Buy American’ procurement rules, businesses moving production back to the U.S. where it will be less vulnerable to those policies and depressed immigration inflows.” 

The impact: The shift back toward domestic activity could cause an increase in prices and contribute to short-term inflation, compounding the impact from supply-chain disruptions, labor shortages and fiscal stimulus designed to get economies moving.

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