By Chris Brunet
President Joe Biden emphasized in his State of the Union address on Tuesday that he would fight inflation by enacting a policy that economists generally agree would exacerbate inflation.
“I think I have a better idea fight to inflation,” said Biden. “Lower your costs, not your wages… That means make more cars and semiconductors in America… Instead of relying on foreign supply chains, let’s make it in America.”
— ABC News Politics (@ABCPolitics) March 2, 2022
Biden was immediately rebutted by the Peterson Institute for International Economics on Twitter. “While a political winner, research finds that ‘Buy American’ requirements increased US domestic procurement costs across federal & state governments by 5.6% in 2017, costing US taxpayers an additional $94 billion.”
These higher costs exemplify what economists call “gains from specialization” and “mutually beneficial trade.” For example, the iPhone X would cost double the price (roughly $2,000) if it were manufactured in America, according to tech analyst Tim Bajarin. By manufacturing products overseas instead — where labor costs are much lower — and importing it, consumers gain access to cheaper phones.
During his term in office, former President Donald Trump promised to stimulate domestic manufacturing, as has Biden over the past year.
In an attempt to enact his “Buy America” policies, Trump famously started a trade war with China. Ed Gresser, vice president and director for trade and global markets at the Progressive Policy Institute, estimates that the Trump tariffs added 0.5% to annual inflation during Biden’s first year in office.
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