If Biden’s administration fails in their efforts to “buy American only,” the FED would be correct in predicting inflation would only be transitory. The Federal Reserve calls inflation “transitory” as it keeps interest rates near zero [Source], thus minimising borrowing cost for a federal government falling further into debt. If the Biden administration succeeds in its efforts, however, the result would be a lasting, meteoric consumer price hike: the inflation the FED is hoping to prevent.
“If an agency wants to issue a waiver to say, ‘We’re not going to buy an American product as part of this project; they have to come to the White House and explain it to us,” Biden said. [Source]
Here is an example: “The price for some Chinese-made surgical masks has recently dropped to as low as 1 cent, compared with about 10 to 15 cents for American masks that use domestically produced raw material.”
Merrow Manufacturing, a 183-year-old textile company in Fall River, Mass., recently stopped production after the number of unsold gowns hit a million. The company’s $18 reusable gowns, he said, don’t stand a chance against similar products from China that sell for $6. [Source]
These examples confirm two facts: “Buy American” will result in an explosive price increase, and the jobs needed in America are not those currently in China. A policy like this would only help secure or create 40K USD plus GDP per capita jobs if, for instance, European instead of Chinese businesses are barred from tenders.
Decoupling from China would only be justified, and successful in denying free market competition, if American national security is at stake. Now, however, the challenge is: making it a national security issue would produce ballooning inflation, and go against the FED’s recommendations.
Thus, we have a significant geo-political paradox: Asia supplies America with cheap goods, thanks to their cheaper than 10K USD p.a. jobs. At the same time, Biden’s administration partners with European allies, against their Chinese/Asian suppliers, in the hopes of creating domestic jobs worth more than 40K USD p.a.. These, however, are only available in the countries of America’s European allies. How can this strategic approach succeed?
Asia, in the meantime, has experienced much success in the last 4 decades for its population of over 4 billion, in large part thanks to peaceful growth in China. If Biden’s administration would stop following Trump’s confrontation against China, it would guarantee continuous success in the future.
In an insightful interview, Singaporean Professor Kishore Mahbubani says that he is hopeful that Asia can guide Biden on China, and convinced that America can’t stop the rise of China/Asia, except with a war that would be devastating for all.
In conclusion, the FED is right. “Buy American” is just not feasible in a globalised free-market economy, where we can enjoy private ownership and sustainably provide competitive, high-income jobs. Even Senator Kennedy expressed disappointment in his former colleague: “I didn’t know he’d be left of Lenin.” [Source] It is worth remembering that neither the economy or the military of the Soviet Union were sustainable.