Webinar

Reporting on Supply Chains and Inflation

Tuesday, December 14, 2021
Mike Blake/REUTERS
Speaker

Bernard L. Schwartz Senior Fellow, Council on Foreign Relations

Presider

Vice President for National Program and Outreach, Council on Foreign Relations

Host

Adjunct Senior Fellow, Council on Foreign Relations

Edward Alden, CFR’s Bernard L. Schwartz senior fellow, provides context and background on why global supply chains are blocked and the economic implications of the backlogs. Carla Anne Robbins, adjunct senior fellow at CFR and former deputy editorial page editor at the New York Times, hosts the webinar.

FASKIANOS: Thank you. Welcome to the Council on Foreign Relations Local Journalists Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach at CFR.

As you may know, CFR is an independent nonpartisan organization and think tank focusing on U.S. foreign policy. This webinar is part of CFR’s Local Journalists Initiative created to help you draw connections between the local issues you cover and national and international dynamics. Our programming puts you in touch with CFR resources and expertise on international issues and provides a forum for sharing best practices.

I want to remind everyone that today’s webinar is on the record, and the video and transcript will be posted on our website after the fact at CFR.org/localjournalists.

Today, we will discuss “Reporting on Supply Chains and Inflation” with our speaker, Edward Alden, and host Carla Anne Robbins. We shared their bios in advance, so I will just give you a few highlights.

Edward Alden is the Bernard L. Schwartz Senior Fellow at CFR, specializing in U.S. economic competitiveness, trade, and immigration policy. He also the Ross Distinguished Visiting Professor at Western Washington University. Mr. Alden is the author of the book Failure to Adjust: How Americans Got Left Behind in the Global Economy and has served on several CFR-sponsored independent task forces on subjects including the future of work, trade and investment policy, and immigration. He was previously the Washington bureau chief for the Financial Times and has reported for the Vancouver Sun and other publications.

Carla Anne Robbins is an adjunct senior fellow at CFR. She is faculty director of the Master of International Affairs Program and clinical professor of national security studies at Baruch College’s Marxe School of Public and International Affairs. Previously, she was deputy editor—editorial page editor at the New York Times and chief diplomatic correspondent at the Wall Street Journal.

So thank you both for being with us. I’m going to turn it over to Carla to have a conversation with Ted and then we’re going to open up to all of you for your questions, comments, and to share best practices that you’ve found in your own reporting. So thank you both and over to you, Carla.

ROBBINS: Thank you, Irina.

And Ted, it’s so great to see you, and I love wonking out with you because all those years I sat at the Journal next to all those people who understood economics and every time I wrote about nuclear weapons I felt like I had something superior to them, but that was only a rare moment because you guys actually understood far more wonky and important things than I did.

OK. So tonight—today’s, you know, challenge, of course, is how to make this accessible to our readers, which you’ve done for such a long time as a journalist. So supply chain is not one of those normal part of our lexicon words, at least it wasn’t before the pandemic. Now it seems to be everywhere. So can we start with a little bit of reality testing. How bad is the supply chain problem? I mean, you turn on the television and you hear about it all the time. And are some goods and sectors hit harder than others? Because I must admit I haven’t felt it all that much in my own life, but I also haven’t tried to buy a new car. I did manage to get my husband a new printer for Christmas and HP came through pretty fast. So is it particular sectors? Is it particular parts of the country? And are we hyping out about this?

ALDEN: Yeah. Thanks very much, Carla. It’s great to be here with you. And I think, you know, for better or worse, actually, nuclear weapons are suddenly becoming a big issue again as well. (Laughs.) So maybe the economic security stuff is about to pivot.

But so let—I’m going to give two responses to this. One, I do think it is a reasonably big deal, certainly from a business perspective. If you’re covering companies, really every company is facing this at some level or another. I mean, the ones we read about tend to be the big ones that are in the news. The auto companies, most prominently, have not been able to get the semiconductors they need for production. New car prices are up significantly because the inventory’s not there. Used car prices are up far more because people can’t get new cars and so they’re buying used cars instead.

Apple has been hit significantly by this. It’s had to completely kind of reformulate a lot of its production plans going into the Christmas season.

If you’re trying to buy new furniture, the wait times are now, you know, many, many months.

I think this one is starting to pass, but you know, if you tried to buy a bicycle in the midst of the pandemic it was almost impossible. My sister-in-law runs a small bicycle shop and for a long time she just—you know, she couldn’t get bikes, and now they’re finally starting to come through.

So I think there are a lot of sectors of the economy that have been hit quite dramatically.

I think the other thing that’s going on here, you know, putting this much bigger picture, is the—just this general sense of disruption that we’ve had for a couple of decades now with respect to the global economy. I mean, for a long time the trajectory of the global economy was a reasonably steady upward trajectory in which, you know, economies were becoming more integrated around the world. Wealth was growing, particularly in the developing countries but not exclusively. And I think we’ve now lived through, you know, kinds of—really, two decades of disruption. I don’t know where you date it exactly, but you could look at the Asian financial crisis at the end of the ’90s. You could look at 9/11 and the restrictions that followed that. Obviously, the financial crisis and the Great Recession in ’08-’09. And then COVID, and now the aftermath of COVID. So I think there is this sense of a relatively regular series of highly disruptive events, and I think that’s partly why we are focusing so much on the supply chain crisis even though, you know, for the most part it hasn’t really damaged our daily lives all that much unless, as you say, you really need a new car, in which case—(laughs)—you’re going to be paying a lot more money for it.

You’re muted still, Carla.

ROBBINS: Good. This is what—this is our lives, of course, yes.

ALDEN: It is indeed.

ROBBINS: So I get why at the start of the pandemic there wasn’t enough PPE. You know, China was a major supplier. There was huge demand. Their factories were closed there. So what’s driving what’s going on now? You know, COVID changed demand patterns, caused shutdowns, labor shortages. How much—you know, how much of this is trade policy? I mean, you know, what’s really driving all of this? And is there a simple way of explaining it, since it would seem to me that if I were writing a story I’d want to explain it? Because there are a lot of politicians out there who are going to—who are going to want to, like, blame it on the infrastructure bill or blame it on Joe Biden or blame it on the Chinese or—you know, as you said, the global economy’s been disrupted for quite a long time. But is there a simple way of explaining what’s going on here?

ALDEN: Yeah, this is—this is a hard one because, you know, you kind of know the classic journalistic rule of three, right? Here are the three causes of the—of the supply chain shortage. And this one kind of eludes, you know, really simple formulation.

I mean, I think—I think the biggest cause is just surging demand for goods. There was a complete change in purchasing patterns as a result of the pandemic. We stopped going out to movies. We stopped going to restaurants. We didn’t go to, you know, spas, whatever. Like, whatever sort of personal services went down dramatically and people started buying stuff, right—I mean, you know, computers for Zoom and home-exercise equipment and, you know, new televisions. And they looked around their house and they said the furniture looks shabby, we really need to upgrade, et cetera, et cetera. We are—you know, if you look at purchases of manufactured goods in the United States now, we’re 25 percent above where we were at the same period in 2019. That’s just extraordinary growth. So I think if you had to—had to put your foot on—you know, your finger on one cause, that’s the biggest.

But then you throw in a whole bunch of other things. You know, in the—in the first couple of months of the pandemic, companies shut down their orders. They said, look, the economy’s going into massive recession; we don’t need inventory anymore. And so a lot of manufacturing capacity shut down quite dramatically. It’s had a hard time ramping back up.

You know, as different strains of COVID have come and gone, there have been regional shutdowns. I mean, for the semiconductor shortage, shutdowns in Southeast Asia have had a huge impact on that particular supply chain.

There have been energy shortages. You’ve seen these in China. That’s affected Foxconn’s production in China. You saw it in Texas. You’ve seen it in parts of Europe.

You’ve had labor shortages, you know, at the ports. And so unloading containers at the ports, it’s been hard to get enough people. We don’t have enough truckers to move the boxes out of the ports.

You know, if you want to blame it on Joe Biden you’d say, well, the various stimulus packages put a lot of money in people’s pockets, so that accelerated this buying of stuff which has helped exacerbate the supply chain crisis.

So it’s a little bit of all of these, which makes it a hard story to explain really simply. But it’s also a very fertile story, right? In any community you can find parts of this story that are operative at quite local levels. So I think that also makes it a very good story, one that there’s a lot of different angles you can come at it.

ROBBINS: So just we’ve had people—you know, our colleagues who are here—and please, you know, we’re going to turn it over to you guys really soon, but you know, if you’ve got questions right now please, you know, put it in the Q&A or raise your hand and jump in if I’m not asking the right questions. Certainly, we’ll turn it over to you, but I do have a few more questions.

You know, given the fact that there are so many different causes of this, obviously, it makes it hard to fix. That said, I mean, it’s really not all that surprising. We have a global pandemic. I mean, you know, you would expect bad things to go on. You would expect there to be, you know, chaos and disruption and all of this. But is this temporary? Is it fixable? I mean, you know, Biden and Buttigieg made a big deal about how they went to the Port of Los Angeles and they said we’re going to work twenty-four hours a day and all those containers are going to get cleared and all of that. Is this temporary? Is it fixable without going to fortress America? Because I think some people are drawing the lesson from this which is we should never buy anything abroad again; we should make everything at home.

ALDEN: I mean, I think parts of it are absolutely temporary and fixable, you know. I mean, at some point the container-ship delays will get themselves sorted out. The boxes will get moved away from the ports, at least if the—if the dockworkers don’t all go on strike sometime—(laughs)—in early 2022, which is not impossible. But assuming that doesn’t happen, that will clear out.

You know, you will see new investments in supply. That’s already happening. You look at semiconductors. You know, we’ve had the announcement of two new fabs that are going to be built here in the United States—one in Arizona, one in Texas. It’ll take a couple of years before those are producing anything, but you will see supply respond to this enormous demand.

So I mean, you know, that happens with market economies, right? So this will, in terms of the immediate supply chain crisis, I think sort itself out.

The two potential longer-term pieces, one is inflation. And you know, we’re seeing what the latest monthly report, inflation running at 6.8 percent annualized. We haven’t seen levels like that at all since the early 1990s and in any kind of consistent way since the late 1960s and 1970s. And the challenge with inflation is—and you know, I mean, there are better people than myself to talk with about this, lots of smart economists. I think Larry Summers has mostly been right about this even with criticism from his—from his colleagues. But inflation can get baked into an economy because of what they call inflation expectations. People expect prices to rise, therefore they demand higher wages, therefore companies pass those higher wages through in prices, and you get a self-reinforcing cycle.

I mean, one of the interesting things we’re seeing in some good local stories here as well which we have not seen since the 1970s is significant labor actions, right, I mean, you know, union workers going on strike and getting pretty good contract deals. That’s what happened with the John Deere workers. The Kellogg workers I think have refused to accept the contract offer. I may be one behind on that. Maybe they’ve accepted two and there’s another one that’s holding up. But there are a bunch of big strike actions, which we haven’t seen in decades. So this does start to feed in.

So we may actually be on the cusp of a new era of inflation, which will change a lot of calculations. I mean, if the Federal Reserve decides that inflation is getting baked into the economy it will start to raise interest rates, and we haven’t seen that in a significant way in decades. So that has some lasting effects.

The other piece of this, which you alluded to in the reaction, oh, we can’t buy anything from anywhere, is I do think we are seeing and will continue to see significant government efforts at reshoring, at bringing back production either here to the United States or at least have it in countries that are seen as reliable allies of a variety of critical products. Semiconductors is the most obvious, but I think the supply chain for the next generation of electric vehicles, there are a lot of interesting things going on on that front. I think with respect to medical equipment we’re going to see it, critical minerals, and other things.

All of this is going to be the source of a lot of trade conflicts, not just U.S.-China but among allies as well. We’re seeing this right now over electric vehicles in the Build Back Better package. So I think that is going to be quite long term as well.

So I think the sort of, you know, huge backlogs, the big price spike in container shipping, all of that I think will sort itself out. We’re even—we’re already seeing prices for container shipping fall a little bit. But I think some of these other things are going to last much longer.

ROBBINS: So Todd Price has written a question, and—but, Todd, do you want to ask the question?

Q: Sure. Happy to.

ROBBINS: Great. Can you—can you first tell us who you work with?

Q: Oh, yeah. Hi. I work for USA Today network. I cover food and culture broadly across the South, and obviously, we’re seeing a lot of this on the local level.

One thing I was curious about, you talked about the issue of energy shortages and kind of listed a few around the globe. My guess is they all have very distinct causes, and the only one I’m really that familiar with is the Texas outage. Is that something really related to this pandemic moment, or are these just standard energy shortages that happen or we’ll see in the future? You know, how should we kind of think about that in the context of this moment? Is that just something that always happens thrown on top of this more specific situation?

ALDEN: Yeah, I don’t—I wasn’t trying to point to a sort of pandemic cause of the energy shortages except to the extent, you know, there’s been something of a spike in demand because of rising production. I think it’s more—and again, I’m not an energy expert, but I think it’s more this transition that we’re still in the fairly early stages of towards cleaner energy, which I think is going to create a lot of challenges. We’re seeing this more in Europe than anywhere else. But I think as you’re moving away from reliable but dirty fossil fuel sources of energy to cleaner but less reliable sources of energy, particularly solar and wind, I think there are going to be ongoing reliability supply issues for some period of time. That’s a huge, huge transition, and transitions tend to bring with them disruption.

So, you know, if you look at the—at the shutdowns in China, it was just they were producing far too much dirty energy for the targets they were trying to meet and the local pollution issues, and so they ramped back supplies to multinational companies operating in certain regions in China. I think you’re going to see more of that kind of thing happen. So I think energy disruptions are going to become more common than they had been.

So I wasn’t implying that this was in some way caused by the pandemic, though, you know, at times everywhere, right, you know, because people weren’t allowed to go to work, you had some impacts. But no, this is not pandemic-specific.

ROBBINS: Robert Chaney, do you want to ask your question?

Q: Hello. Hello.

ROBBINS: Hi. Can you tell us who you work with?

Q: I’m Rob Chaney. I’m a natural resources reporter for the Missoulian newspaper in Montana in the Rocky Mountains.

ALDEN: Great place. Beautiful place.

Q: I’m curious about the supply chain for big commodities like coal or wheat, agricultural products, stuff that’s going in major ocean ships as opposed to container ships. Are they getting bottlenecked in the same way? Because those are the things that, you know, in the Pacific Northwest we’re moving across the ocean back and forth, but I haven’t heard as much noise that those ships are all piled up in the harbor somewhere.

ALDEN: Yeah. I mean, I’m out here in Washington state, so not that far from where you are. I agree, I have not seen the same indications of problems in shipping bulk commodities. Smaller agricultural economy—you know, commodities have been hit by this. I mean, to the extent that your exports are reliant on containers, because there’s so many sitting on the docks, it’s affecting the export side not just the import side.

But I agree, I have not seen any significant evidence of disruptions in bulk commodity exports. It’s possible I’ve just missed that, but I certainly haven’t heard a lot about it either. So I think that—you know, I think most of the shipping problems are associated with the movement of containers and access to containers more than the bulk commodities, so I don’t think that has been as big an issue. I think you’re right about that.

ROBBINS: So part of the issue is not just not having people to unload the containers; there’s also just a problem of having the containers themselves because they—when the merry-go—when the—when the merry-go-round stopped—or I suppose it’s musical chairs stopped, there were containers left in the wrong places?

ALDEN: I think, I mean, all of these. I think there were containers left in the wrong places. I think there is actually a shortage of containers. They’re not being produced fast enough for the current level of demand. And some of that, I think, is that, you know, manufacturers who make containers don’t expect the demand to continue at this level indefinitely, and I think that’s a realistic expectation.

There are also what they call the chassis for containers. Production of those has actually been disrupted in part by the tariffs on China. That’s a major source of those chassis.

Truck trailers. There’s actually a shortage of the trailers on the trucks to move the containers.

So all parts of that, you know, sort of supply chain of the supply chain have also been disrupted. So I think it’s combination of bottlenecks, in the sense that there are a lot of containers just piling up waiting to be moved to their destinations by rail and then by truck, and then returned. But there also is an actual shortage of both the containers and the other components needed to move those containers. So both of those things.

ROBBINS: Yeah. For me to understand this I have to sort of think of this, like, you know, Playmobile. I have to sort of imagine all these things like on the floor. (Laughs.)

ALDEN: Yeah. (Laughs.)

ROBBINS: Amy Rivers (sp), do you have a question?

Q: Yes. Thank you. I was wondering how much does increased consolidation over the last couple of decades and increased monopolization of companies and industries have to do with these shortages?

ALDEN: That’s a great question that I’m not sure I have a really good answer to. You know, the logical connection there would be that consolidation means that companies have some ability to hold back supply in order to increase prices. That’s the normal benefit that comes to a company from monopolization. I don’t think we’ve seen a lot of that in this case. I mean, I think we really have a more kind of straightforward situation of demand outrunning supply. Now, it’s possible you could argue that in an economy that was somewhat less consolidated you would have more smaller companies moving more nimbly to meet the demand. I don’t know how to assess an argument like that.

In some of the places where we see this most acutely, like in semiconductors, so capital intensive that the kinds of resources that are needed to increase production are really largely in the domain of big companies. And there’s not a lot of evidence, I think, of over-consolidation in the semiconductor industry. There may be parts of it where you see that, but there are a variety of producers. And they’re all facing the same problem of not being able to meet the demand. So I do think this is more of an old-fashioned story of demand exceeding supply than it is monopoly consolidation, production being artificially restricted story.

Have you looked into cases where you’ve seen some link between consolidation and specific supply chain problems? I mean, again, this is a huge topic. And there are different effects in lots of different parts of the economy. So you may be seeing things that I haven’t come across.

Q: I was reading Matt Stoller on it, actually. He does a Substack based on this and sort of has a really interesting argument. So I was just wondering your perspective on it.

ALDEN: OK, great. Thanks.

ROBBINS: So while people formulate more questions, I—Irina says I—(laughs)—I always have questions. So can we maybe just take as an example semiconductors, since they seems so, sort of, fundamental. And when this started, you know, PPE, which is something we can all get our brains around. There were a lot of people who said: How did we get into this hole in which something that we took for granted, it turned out we were completely dependent on a supplier that was so far away, and we never even thought about it. And then something like—and I think semiconductors are just like that. A, did we just—was this just sort of the nature of the global economy, that we just took for granted that things would move smoothly? And, B, the politics argument for bringing it all home predated the pandemic. You know, good jobs were sent overseas. You know, the loss of union jobs, all this. If we bring all this stuff back here, is that the right answer?

ALDEN: So, I mean, a couple of different things there. I mean, I do think there were people who foresaw this. You know, Barry Lind’s work, which has become much more popular recently and there are some folks in the Biden administration who’ve worked closely with him, he was writing about this some decades ago, about the vulnerability associated with these very far-flung global supply chains. But, you know, I think we make a mistake if we imagine there’s some controlling hand out there in the global economy, right? These are the consequences of millions of individual actions. Even if you want to look at the higher level of the big companies, thousands of individual actions.

And there were, you know, enormous market pressures to achieve the most cost-efficient outcome. I mean, you could look at what Dell did many decades ago in, you know, breaking up the supply chain for the production of computers, locating a lot of it in different places in Asia. You know, creating a system where you could go online and you could, you know, order the computer in exactly the specifications you wanted it, and the thing would be delivered to your doorstep, you know, a few days later. And you essentially had a, you know, demand-driven supply chain. I mean, that was an extraordinary breakthrough. And many other companies began to follow that same practice because, you know, they were operating in areas where price mattered, where quality mattered. And there was significant savings to be had by locating parts of the supply chain all over the world.

And I use, you know, Richard Baldwin’s book The Great Convergence in the class I teach out here. And he talks about the big picture history of this. I mean, the internet and global communications made it possible for companies to locate production pretty much anywhere in the world and control it reasonably successfully. So the market pressures to go in that direction were enormous. And if your—if your template is, OK, the global system is pretty stable. Which it was for decades, for all the various ups and downs I’m happy to talk about, the global system—the global economic system, pretty stable. And therefore, what’s going to drive your decision making on where to locate production is primarily cost.

Well, now I think we are moving into an era where, from a corporate perspective, risk has gone up dramatically. So, you know, you had with the Trump trade wars the risk that, you know, your product is suddenly going to face a 25 percent tariff coming into the United States. Are you positioned to deal with that? I think we’ve had more climate-related risk—you know, floods, and fires, and other instances. I’m pretty close to Vancouver, British Columbia, which was cut off from western Canada for about a week and a half because of these huge rainstorms and floods that cut their major roads and railroad. So you’ve got that risk. You’ve got growing geopolitical risk with China, very clearly, with tensions rising between the United States and China. And then, you know, we’re living in the middle of pandemic risk now, what that does to your production in different parts of the world.

And so I think every company is now asking itself the question: How do we protect against that risk? And I think in some sectors we will see reshoring, but we haven’t seen this massive movement back to the United States. I mean, in fact, that’s part of why we’ve got a supply chain crisis, because a lot of the stuff that we’re consuming is coming from Asia on container ships. So it’s not all being made here by any stretch. I think in some sectors companies will decide, yes, they need to diversify, including diversifying back home to protect themselves. I think this has been very good for Mexico. You know, Mexico is a fairly low-cost manufacturing platform that’s close to the United States. Less chance of disruption. The Southeast Asian economies are doing very well as some production has relocated from China.

So I think there is going to be this reshuffling that goes on. But certainly I don’t believe we’re going to end up back in a situation where production is once again primarily domestic, for domestic consumption. I think in some of these critical areas where there are security-related issues, we’ll see more of that. But certainly for broad consumer products, I think there will continue to be global production and trade.

ROBBINS: So I suppose what I was going to ask about this is that when you go through the calculations that decision makers make, is it—for the longest time, labor cost was the number-one issue driving this offshoring. And particularly if you could move things really quickly distance became less of an issue. When you talk about geopolitical risk, climate risk, all the other risks you’re talking about, labor cost becomes less of the—it’s still there, but it’s not necessarily the number-one issue, or just one of them.

So where do these things move to? And if they don’t move back to the United States, or maybe some of them will move back to the United States. All those factories that, you know, have been shut down in the U.S., is there a potential of them reopening and doing different things? Do we see a potential of the renaissance of good jobs that, you know, people who graduated from high school once could get? Do we see a renaissance of the union movement in the United States? Or is that just a pipedream? Because interestingly enough, Biden ran on that as much as Trump did.

ALDEN: Yeah. You know, I don’t think it is completely a pipedream. And there are a lot of good economists out there who would probably disagree with me. But, you know, for instance, you’ve seen this revival, it may prove to be temporary, of furniture making in North Carolina because of these long delays with furniture coming primarily from Asia. So you have actually seen some resurgence of local production. Whether that will continue or not remains to be seen. But I think, you know, you do see this adaptation. If you’re not getting supplies from one place you’re going to look more locally.

Clearly, if you look at what the Biden administration is trying to do, they are very much all-in on this notion. If you look particularly with electric vehicles and the tax credit that’s part of this build back better package, it’s very much designed to create a lot of union jobs as a result of the transition not just to electric vehicles but to clean energy more broadly. You know, Vice President Harris was out yesterday, you know, announcing this new initiative to create five hundred thousand charging stations around the country. There’s huge infrastructure-related work here. The fact that Biden was able to get a bipartisan infrastructure deal.

And let’s—you know, it’s easy—we tend to move on from one thing to the next. (Laughs.) But, you know, I watched Barack Obama try for eight years to get an infrastructure bill, unsuccessfully. You had Donald Trump came in, that was a high priority. The White House made it a high priority. I talked to people in the White House about it a lot. Everything was infrastructure. They never got it. Biden managed to get that bill through. That’s a lot of money that’s going to pump out into the economy creating a lot of, you know, construction, blue-collar-related jobs. So I do think there actually is the prospect for some significant resurgence of those sorts of jobs. It’s not going to be the 1950s and 1960s again. I mean, manufacturing as a percentage of the economy is about a third of what it was in terms of employment in the 1960s. And that’s because of automation, and productivity, and we just produce stuff a lot better than we used to be. Yeah, I do think there’s significant capacity.

Unions, you know, getting back to my earlier comment about inflation, we have a situation of labor shortages right now. And labor shortages empower unions because companies have fewer alternatives. They can’t say, well, we’re just not going to deal with the union. We’ll hire other people. Or, you know, they’re much more persuasive in fending off union drives because, you know, the subtle warning there that, you know, the company will do an end-run around the union and hire new people. That’s hard to do right now. So the unions, you can see it, have more bargaining power than they’ve had since the 1970s. So I actually do think we’re going to see something of a shift back and a strengthening of those kinds of jobs. Not a full reversion to where we were in the ’50s and ’60s, but something. Yeah.

ROBBINS: So, you know, a lot of people on this—on this webinar are a lot younger than you and I. (Laughs.) And you are younger than I am. So they haven’t lived through inflation. We remember inflation. So, and I used to live—I used to live in Argentina. I really know inflation. So I’ve always felt that, in addition to the rule of three, winners and losers are great stories. So how do we—you know, covering inflation is a new thing for a lot of people out there. How do we cover inflation and its impacts in local communities?

And it’s so important to cover beyond—you know, it really effects people’s lives. And it has a huge psychological impact on people. It has a huge potential political impact—you know, the sort of misery index issues here when people go to the midterms. And it’s also self-fulfilling, as you said before. Inflation expectations drive inflation. So I think it’s really important to have reality testing when we cover inflation. I think we have a real responsibility as reporters. What are good ways to cover inflation that actually have reality testing attached to them on a local level?

ALDEN: That’s a really good question. I mean, I think—it’s been a long time since I’ve covered inflation too. I mean, I’m thinking back to the 1970s, when I was still in college. And so I think I may have written a few student newspaper—(laughs)—articles about it. But it’s been a long time since—

ROBBINS: You’re not that much younger than I am. I’m feeling better.

ALDEN: Yeah. Yeah, since any of us have thought deeply about how to cover that. I mean, there—you know, there’s the sort of obvious big picture story, which you saw throughout the ’70s, which is: If this persists it’s going to lead to very high interest rates. And very high interest rates have significant distributional consequences, right? They’re very bad, in particular, for young families trying to buy homes, or buy new cars, and establish themselves. So you know, you saw in the 1970s, I mean, mortgage rates at times going up, you know, 15, 16, 17, 18 percent. That’s kind of unimaginable. And the burden of that on a lot of new homebuyers and things is going to be very, very significant.

You know, places that have got large retired populations, inflation eats away terribly at retirement savings, right? You know, if you’ve got your nest egg that you plan to get you through retirement and that begins to be nibbled away, that has substantial negative impacts on the retired population. So there are different ways to tell that story. You know, for small businesses, there’s this constant pressure trying to decide what to pass through in terms of the costs of your products. And, you know, we’ve been in a long, long period where companies were tremendously cautious about that, because they were worried about losing market share. And they were always looking to shave costs and try to keep prices stable because the thinking was, if we raise our prices we’re going to lose customers.

All that’s been sort of thrown up in the air now a little. I mean, companies just have no choice but to pass on more of these costs to their customers. Again, that’s very much a small business story in communities around the country. But small businesses have difficult calculations, right? How high can we raise our prices before we start to lose customers? So I think those are all—those are all interesting stories. There are lots of—it’s a new set of distributional stories in a lot of ways that I think will get thrown up if we do move into a steady era of inflation.

ROBBINS: And there are mechanisms to address inflation. As you said, raising interest rates is one of them. And it is sort of an odd time because unemployment is low, I mean, when you consider we’re coming out of a global pandemic. And that is another story to write about. I mean, these are—I mean, they’re bad times on a certain level. But they’re pretty good times on another level. People have jobs, and that’s a good thing when you consider how much global disruption there is. If the Fed raises interest rates, are we looking potentially at a recession? I mean, how do we—you know, how—we all talk about that as one of the levers. I mean, what are we looking at here?

ALDEN: I mean, it’s honestly, in some ways, the most puzzling economy I’ve ever seen. And I think, you know, there are a lot of distinguished economists who are equally puzzled by it. Because you have this extremely low unemployment rate. You have a massive labor shortage. And, you know, I talk to company folks all the time. And there are no companies out there that aren’t complaining about the fact that they can’t hire people. And yet, the labor force participation rate is at historic lows. People are not going back and taking the available jobs.

Some of that maybe is a result of the pandemic. A lot of people retired earlier. Clearly there are people who are still worried about going back to work because of the ongoing threats from COVID. I think, you know, there appears to have been a reevaluation by people of the place of work in their life and how much they want to work and how hard they want to work. Some of this may be the carryover from the money that went into people’s pockets during the pandemic, though that explanation gets less and less compelling the farther away we are from those—from those payouts.

So I think that’s why the Fed is in such a complicated position, because in some ways it looks like we’re in this extremely strong economy, with very low unemployment rates, very strong consumer demand. But on other measures, particularly labor force participation, the economy doesn’t look so strong. And, you know, just being out there, and it looks different in different parts of the country. But you don’t get a general sense of economic boom, you know? There are a lot of storefronts that, you know, shuttered up during the pandemic. There are a lot of people still struggling out in the country.

So I think that’s why Chairman Powell is being so cautious on this. But the danger with inflation is if you’re too cautious for too long, it gets out of control. And then the only tools that you can use to bring it under control are the sort that Paul Volcker used at the end of the 1970s and the early 1980s, which is the Fed raises short-term interest rates to extraordinarily high levels, to ring inflation out of the economy. And Volcker was successful at doing that, but he created, you know, an extremely deep recession here in the United States in the process of doing that. So the Fed obviously doesn’t want to find itself in that position. But avoiding that is just incredibly challenging.

ROBBINS: Well, that’s a cheery thought. And I just sort of want to—Mark Trumbull has a question; I want to go to him. But I just thought of one thing that I remembered from living in Argentina about the uncertainty of inflation. I mean, people took prices off of everything. There were no prices anywhere. There were no prices on menus in restaurants. There were no prices in grocery stores because they couldn’t keep up with it. And when you’re doing planning, whether you’re a small business or a large business, it’s very hard to—it’s very hard to plan out, you know, more than a few weeks. Which leads into this very interesting question I think that Mark Trumbull has raised.

Mark, would you like to voice your question? And tell us for whom you work—or, with whom you work.

Q: Sure. Yeah. Hey, this is Mark at the Christian Science Monitor.

And, yeah, I’m just curious—it kind of ties into inflation, because with this less stable world that we seem to be entering it means costly decisions. Two ways to make the supply chain more resilient might be to have more inventory that you’re keeping on hand, or to have redundancy in your supplier base. So do you see signs that companies are doing those things, even though it costs more money and might filter into prices? And is it more in some industries than others, where that might happen? Like autos.

ALDEN: That’s a great question. And the answer is—the answer is yes. I mean, you know, and it’s one of the reasons I think that the shortages have actually been exacerbated, which is because companies are worried about shortages they’re stockpiling when they have the opportunity to stockpile. I haven’t seen a really good analysis kind of going industry by industry, and where you’re seeing the most inventory buildups. I think you could easily find such a thing out there if you looked at the different market analysts.

I mean, one of the—you know, one of the interesting causes of the semiconductor shortage that I think has been very underreported is, you know, as a consequence of the U.S. sanctions on the major Chinese technology companies—like Huawei and ZTE, the phone producers and others—that has made it very difficult for them to purchase Western chips. As those companies face the prospect of sanctions, they stockpiled massively. They started buying up every Western-made chip that they could get their hands on and created this huge inventory they hope to kind of get them through until domestic Chinese production can fill that shortfall. But that created—that helped exacerbate the global shortage that we are seeing in semiconductors.

So, yeah, I think absolutely we are seeing this. I think we’re going to see more of it. I think for a period of time it will exacerbate the supply chain issues. And then we’ll probably see some kind of settling down. But as you mentioned, you know, holding inventory is costly. Diversifying production is costly. And from a, you know, company decision making perspective, it’s really—it’s really hard, right? Because if you’re too cautious, you may end up pricing yourself out of whatever market you’re in. But if you’re not cautious enough, the next disruption, you’re not going to be able to supply your customers. So I think every company is struggling to find the right balance there.

And, again, that’s a—that’s a fairly new calculation. You know, what was being taught in the business schools for future supply chain managers for years was all the, you know, principles of lean management, and cutting inventory, and just-in-time production. Those haven’t gone out the window, but they’ve now been supplemented by this new set of risk calculations, and how do companies try to protect themselves against the sort of disruptions we’ve seen.

ROBBINS: It would be very interesting to go to business schools and see whether or not they’re changing their curriculum.

ALDEN: It would be—it would be a great—I think there’s a great story there. I think it’s happening, but slowly.

ROBBINS: Because, I mean, having been in school, having gone back to school at the time of the fall of the Berlin Wall and the unraveling of the Soviet Bloc, and seeing all these people struggle with, what are we going to call what it is we do? You know, is it post-Soviet studies? You know, that we’re in a post-just-in-time management. It is—

ALDEN: Those dissertations on decision making in the Soviet Politburo that suddenly weren’t terribly useful anymore, yeah. I think there’s certainly—

ROBBINS: Why I stopped being an academic and became a journalist. (Laughter.) Life was overtaken by events. So, as you said, you know, we tend to—we tend to have the attention span of a mayfly, those of us in the journalism business, and the public does. Everybody’s so focused on this, you know, is the big bill going to pass? And the small bill was not a small bill, the infrastructure bill. Are there winners that local reporters should be looking at? Particular industries that are going to get, you know, more support, more money, more attention, more push from this bill, from the White House, that people should be paying attention to? It’s hard.

You know, following the money is really a big and challenging thing to do. Have you read anybody, seen anybody who’s doing a really good job of deconstructing the infrastructure bill so we can see how it’s going to affect my state, my community? And since the states ultimately are going to translate this, and they got to apply for things, they got to figure out, you know. And, you know, tracking this seems like a really good story for—you know, lots of good stories for this. Because some people are going to mess it up and some people are going to do a good job. So it seems to me like it’s the gift that’s going to keep on giving for journalism for quite a while.

ALDEN: Yeah. I would—I would highly recommend the work that’s coming out of Brookings Metro Program. There’s a lot of regional money in both the infrastructure bill that’s passed and in the reconciliation bill that has not passed yet. And as you sort of alluded to, a lot of the process is regions competing for these pools of money, cities competing for these pools of money. Brookings has started to put together a pretty good inventory of what’s in the bills, who’s competing for these different pots of money. I mean, one of—one of the really interesting things I think that’s reflected in both of these pieces of legislation is a greater focus out of Washington on place-based economic development.

I mean, I think the general approach has tended to be—and this is, you know, certainly throughout the ’90s and 2000s—you know, the goal of federal policymakers is to maximize growth nationally and let the chips fall where they may. But of course, part of what we saw as a result of that was some parts of the country doing tremendously well. All of the big, globally-connected cities—be it, you know, San Francisco, or Seattle, or New York, or D.C., or Austin, Texas, or Atlanta—all these places doing extremely well. And both rural areas and a lot of the smaller, old manufacturing centers really suffering.

And of course, this is part of the source of our current political discontent, that there’s a lot of parts of the country who feel—you know, in the subtitle of my book—that they were really left behind from the benefits of global economic integration. These bills have a lot of money in them to be thrown at the problem of trying to redevelop economies in these places that have fallen behind. That’s a tremendously difficult undertaking, you know, the history of sort of subsidizing regional development around the world is a pretty checkered history. It’s hard to point to enormous successes. There’s a certain economic logic for why the big cities are doing so successful in the modern technological economies.

But I think there is a really interesting story in the Biden administration’s efforts to try to revive the economies in a lot of these places and how that will play out, where are the successes, where are the failures, you know, who locally is going to benefit from that? Is the process going to be corrupted in various ways? You know, you look under the—in the Trump administration tax bill there were big tax breaks for investments in these distressed communities around the country. But there was just a lot of corruption associated with it.

You know, the designation of communities that were eligible for big tax breaks for companies that were—you know, and for investors, not really companies, for funds and others that were investing. The system was gamed a lot. A lot of the money went to places that didn’t really need it. So, yeah, there are a lot of great follow-the-money stories that are going to come out of these pieces of legislation, the same way it came out of the efforts in the Trump tax bill that were sort of aimed at generating regional development.

ROBBINS: Who makes those decisions? You know, who gets to decided? You know, because there’s lots of money up for grabs there. Is it going to be made out of Buttigieg’s job? Or does it—where do we look? And how long is this going to take, for this money—for the money to make it through the snag?

ALDEN: Yeah. I haven’t looked at all the details, and I would recommend—you know, Mark Muro is the guy who’s leading a lot of these efforts at Brookings. I would recommend, you know, a former CFR RA of mine, Rob Maxim, is working with him on this. So I know their work reasonably well. But, yeah, a lot of it’s—you know, a lot of it is federal grants of one sort or another. So Commerce Department, Department of Transportation. Department of Agriculture in many cases—those are sort of the big players. And there are competitive grants of one sort or another. So, yeah, the particulars are different for the different pots of money. But those are the places to look.

ROBBINS: And how much is this involved—I mean, sort of globally? We are—we are CFR. I mean, there are—Biden has, you know, talked about there’s this EU program about, you know, supposedly we’re going to have to be global infrastructure. We’ve got a rivalry with China that’s supposedly—you know, we’re going to take on their One Belt One Road competitively. Are there partnerships with American businesses that we should be looking at that are going to get a benefit? Or is this all just quack, quack, quack talk that they—that they go to these meetings and claim that they’re going to do these things? I mean, that’s an awful lot of bandwidth to be taken up all at the same time.

ALDEN: Yeah. No, I mean, I don’t—I don’t think it’s all quack, quack, quack. But the—you know, the big picture here is the administration has two goals, you know, big goals economically that kind of conflict with one another. One is trying to—you know, to sew up all of the divisions that were created during the Trump administration, over international trade in particular. So the administration has done a deal now with the Europeans to get rid of the steel and aluminum tariffs from the Trump administration, to put to bed this long-running dispute overs subsidies to Airbus and Boeing, to try to get on more common ground with respect to China.

But at the same time, the Biden administration wants to do these things that are specifically seen as creating good jobs here in the United States. So I think as I mentioned this electric vehicles tax credit that’s in the build back better package provides a clearly trade-illegal set of incentives for companies to make electric vehicles here in the United States. The Canadians are furious about this. They’re threatening trade actions. The Mexicans are furious about this. The Europeans are furious. The Japanese are furious.

So there’s a lot of tension between, you know, where can we cooperate with allies and where is the administration looking to try to tilt the playing field very much in the direction of the United States and U.S. workers. I mean, the umbrella for this administration’s trade policy is a worker-centered trade policy. What’s in it for American workers? And even at the foreign policy level, you know, Jake Sullivan and others were part of this Carnegie project that talks about a foreign policy for the middle class. So the administration is trying to find ways to show the American people that our foreign policy actions are directly benefitting you in your pocketbook. And that, invariably, creates quite a bit of tension with trading partners.

The sort of common actions with respect to China, like this build back better world, I think there’ll be some opportunities for big companies and others there. But I think the scale of that is tiny compared to some of these other things.

ROBBINS: So we have reporters on the line who have gone very quiet, you guys. You guys are making me work too hard.

ALDEN: Sorry about that. I’m clearly not hitting the right notes here, but.

ROBBINS: I think you’re doing a great job. I’m learning all sorts of stuff. But I have questions for them. So if we’re going to turn it on them for the last five minutes. They can report for us. I mean, we want to know, what are you guys seeing out there? And, you know, Ted, what do you want to hear from them about what they’re seeing about supply chain disruption or about inflation in their communities? I mean, you guys are out there reporting. And, I mean, I’m a professor. I may call on you if you don’t—if you don’t—(laughs)—

ALDEN: I mean, I’m really interested in two things. Both, you know, how might—you know, you said, oh, you know, my own life hasn’t been affected by this all that much. How much impact people are seeing in the communities they’re covering? And the other—the other question, I think, you know, which we’re all focused on all the time these days is just how do people apportion the political blame, right? At the end of the day, the sitting president ends up being responsible for whatever’s going on. And I’m—I mean, this’ll be big going into 2022.

How do the voters look at—on the one hand, OK, there’s more money that’s come into their pockets, both from all the packages that were passed during the pandemic, from this infrastructure bill if reconciliation goes. There’s a lot more money that’s going to come out into these communities. But, on the other hand, you have inflation and disruptions and others things that are going to be laid at the foot of the president. And I’ll just be very interested to see across the country how voters are looking at these. How they—how they assess their own, you know, personal costs and benefits from this combination of forces.

ROBBINS: Todd Price I think has an answer to our question. Either that or has one.

ALDEN: Excellent.

ROBBINS: Great. Todd, please.

Q: I don’t have all the answers. (Laughs.) You know, as I said, I cover a lot of restaurants and other small businesses. And I agree with you personally. I haven’t been that impacted. The only case that really came up was when my car got totaled and I had to get a car, and it was impossible to find a car. But I do think as consumers, we can avoid these things, but I do hear again and again from businesses they can’t. And I think, you know, just last week I was talking to a gentleman who owned a bar in Birmingham that had closed during COVID. And he said: I got a call last week from, you know, the leading restaurant in town saying, hey, do you have an extra crate of martini glasses sitting around? Because we can’t get them. You know, and she’s like, well, you’re closed. Maybe you got some.

And it’s that kind of scramble I hear from small businesses. I mean, they can’t just decide not to get martini glasses this week and not serve cocktails. And they’re just, I think, worn out and scrambling in all directions to find things. And it’s unpredictable. And they just don’t know what they’re going to not be able to get next week that they’re absolutely going to need. So that’s what I’m hearing.

ALDEN: And that’s—you know, that’s new and unusual, right? I mean—

Q: Yeah. Oh yeah. Yeah, this is not something that—(inaudible)—or supply. You know, if you needed martini glasses, you called—

ALDEN: Pretty straightforward.

Q: —(inaudible)—and they came in, and that was no problem, and you didn’t worry about it.

ALDEN: Yeah. Yeah. Exactly.

ROBBINS: And are people—are people also talking, Todd, about inflation? I mean, for me, what I hear about inflation it’s all gas prices. I mean, that’s sort of a leading indicator for everybody and it frames all conversations.

Q: Yeah. No, I mean, again, because of the restaurant focus I do a lot of my work and you hear a lot more complaints about food cost, proteins in particular. You know, it’s the squeeze from both ends. They have—supplies are costing more, they’re really having to offer more money to get employees in. And there’s a real huge reluctance, and always has been, to raise prices on the customers to make that up. So I think there’s a double squeeze there. The labor issue’s a big part of that, so. Which is both inflation and conditions. I mean, people are asking for more money, but they’re asking for less tangible rewards as well, so.

ALDEN: I mean, in some ways obviously this is a good thing, right? I mean, people at the lower end of the wage scale have more bargaining power than they have had in many, many decades. And for, you know, business owners, that’s hard, particularly in the kind of sectors you cover, you know, restaurants and small businesses, and things like that. But from a kind of broader societal perspective you’d say, in a lot of ways, this is overdue, right? I mean, the—

Q: Well, I mean, there’s no doubt that, you know, restaurant prices have been supported by very low labor costs—exploitative labor costs, in many instances. And, you know, that industry can’t go on that way forever, particularly if, you know, they rely on immigrant labor and other ways to exploit labor. So I think that’s a longer-term issue with restaurants there. The prices are artificially low, so.

ALDEN: The immigrant—let me, just as a side note—I know we’re almost out of time. The immigration piece is interesting here. And there’s some good new data coming out as a result of the 2020 Census that suggest, you know, that compared to, you know, pre-Trump trends, we’re down about three million immigrants in this country from what we would have otherwise. And most of those would have been working age. So it’s not the whole story of the—of the labor squeeze, but it’s a not-insignificant part of the story. And probably a bigger part in the industries you cover, Todd. Again, you know, we could decide how to evaluate that, but that’s—that has been a big piece of the labor shortage side of the equation.

ROBBINS: Well, Ted, as ever, God, I always love talking to you. It’s so much fun. I’ll call you afterwards because I’ve got six more questions for you.

ALDEN: Thank you. This has been great. Appreciate it.

ROBBINS: I’m going to turn it back to Irina. And thank you guys so much.

FASKIANOS: Thank you both—Carla, for all your questions, Ted, for your insightful analysis. We really appreciate it. And thanks to all of you for participating and taking time away from your deadlines that you’re under to write your stories and whatnot.

So you can follow Carla on Twitter at @robbinscarla and Ted at @edwardalden. Of course, Ted also posts frequently on CFR’s website. You can follow his work there at CFR.org. Go to ForeignAffairs.com for the latest developments and analysis on global supply chains and international trends and how they are affecting the United States, as well as a whole other host of issues that we cover on our website at CFR.org. As always, please send us suggestions for future webinars, email [email protected].

Thank you all for being with us. Thank you, Ted, Carla, and wishing you all a happy holiday season. Stay well.

ALDEN: You as well. Thanks, Irina.

ROBBINS: Thanks, Irina. Bye, everybody.

ALDEN: Bye-bye.

(END)

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