For inflation relief, the United States should look to trade liberalization

Gary Hufbauer, Megan Hogan and Yilin Wang ()
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Yilin Wang: Peterson Institute for International Economics

No PB22-4, Policy Briefs from Peterson Institute for International Economics

Abstract: With US inflation running at 40-year high rates, the Federal Reserve is signaling more interest rate hikes in 2021 and 2022. President Joseph R. Biden Jr. has also vowed to act against what he calls anticompetitive behavior by corporations. But policymakers are overlooking one set of actions that could make a meaningful contribution to taming inflation: trade liberalization. The data cited in this Policy Brief indicate that a feasible package of liberalization could deliver a one-time reduction in consumer price index (CPI) inflation of around 1.3 percentage points, amounting to $797 per US household, about half the size of pandemic relief in 2021. As a bonus, the embrace of trade liberalization would curb inflationary expectations taking hold in American firms now protected by trade barriers from foreign competition.

Date: 2022-03
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