But some economists noted that making supply chains more resilient could carry its own costs, making products more expensive when inflation is already a major concern.
Adam S. Posen, the president of the Peterson Institute for International Economics in Washington, said the pandemic and Russia’s invasion of Ukraine might lead companies to locate at least some of their supply chains in places that were more politically stable and less strategically vulnerable. But pushing companies to duplicate production could waste taxpayer dollars and introduce inefficiencies, raising prices for consumers and lowering growth.
“At best you’re paying an insurance premium,” he said. “At worst you’re doing something for completely political reasons that’s very economically inefficient.”
Other economists have emphasized that global supply chains are not always a source of fragility — sometimes they can be a source of resilience, too.
Inflation F.A.Q.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said in an interview that the world had been seeing a trend toward the decentralization of manufacturing and production, in which supply chains were moving out of China into Vietnam, Laos, Cambodia, Bangladesh, Ethiopia and other countries. That is an opportunity to diversify supply chains and bring poorer countries into the global trading system, allowing them to reap the benefits of globalization, too, she said.
Rather than reeling in supply chains to concentrate them in developed countries, she said, businesses are doing more “nearshoring” — shifting to low-cost but less-distant countries — as well as pursuing risk-mitigation strategies like building up inventory.
Ms. Rouse, the White House economic adviser, said that while it could make sense to promote increased domestic production of some critical components such as computer chips, the Biden administration was not pushing to reverse offshoring entirely.
Article source: https://www.nytimes.com/2022/04/14/business/economy/biden-supply-chain.html
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