Assoc. Prof. Jarrod Hayes Says Unstable Supply Chains and Climate Change Will Keep Costs Rising
By Marlon Pitter
While Americans continue to grapple with the effects of inflation, the ability of the United States to stabilize its international supply chain and mitigate climate change will help determine the nation’s economic outlook in the coming years, says Assoc. Prof. Jarrod Hayes.
Hayes, who teaches political science and studies international relations between the U.S. and China, says the changing relationship between the two countries will have significant impacts on the supply chain for American goods and services. A political power struggle between the U.S. and China could result in disruption of the supply chain, which would not bode well for consumers.
“U.S. policymakers are putting pressure on Western corporations to diversify their supply chains away from China, and they are doing so,” Hayes said when discussing the topic with a crowd of alumni at a recent faculty showcase event. “But that diversification of supply chains is not stability. It’s instability. All of these inefficiencies that corporations spent decades working out of their supply chains with the PRC (People’s Republic of China) are going to come back in, and goods are going to be more expensive.”
Climate change is a key factor affecting United States supply chains and inflation, particularly in agriculture. Hayes says the U.S. and international trade partners need to severely reduce their carbon emissions to minimize their impact on the planet’s rising temperatures.
Hayes adds that consumer spending choices will have little impact on climate change or inflation, however. While consumers should be informed about what they buy, he says, Americans should be politically engaged and elect policymakers who will encourage corporations to choose more carbon-friendly practices.
Hayes expanded on his views and shared his perspective on what consumers need to know about inflation moving forward.
Q: Inflation typically stems from too little supply or too high demand for a product. In relation to the U.S. and its international trade partners, which seems to be the bigger issue and why?
A: It’s difficult to say in the long term. In the short term, both have been present. Economists argue that various economic injections by the federal government in response to the COVID-19 pandemic provided a lot of liquidity for the average American consumer, who then turned that into demand. That demand moved as the pandemic proceeded. As demand has been destabilized and moved around within the economy, demand has spiked, and supply has fallen short.
Simultaneously, there are supply-side constraints as well. The pandemic disrupted supply chains and shut down factories. All of that impacts supply. Also impacting supply is the availability of labor. The U.S. is at multidecade lows in terms of the percentage of the population that is of working age, and labor force participation is relatively low. You have baby boomers retiring, and you have some people sitting on the sidelines. As a consequence, people aren't able to make widgets or supply services in the way that they could previously, so there are both supply and demand (issues) occurring right now.
Over the long term, I suspect that with respect to U.S. competition and potential security conflict with China, there would be a more supply-side-driven dynamic (regarding) access to raw materials or processed materials from China. China is a very large global producer of batteries and refined rare earth metals, which are required for the magnets in electric motors, among other things. Taiwan is the leading producer of semiconductor chips for a massive array of applications. Those are supply-side issues that could become a factor in security conflicts with China. In the long term, I think there will be more supply-side than demand-side surges. But at any given moment, it could be either or both.
Q: What can the U.S. and international trade partners do to mitigate climate change?
A: What the United States and its trade partners can do is cut carbon emissions. Essentially, we're in for a rocky ride, and the rockiness of that ride entirely depends on the decisions that we make in the next 10 to 20 years. Do we limit (global) warming to 1.5 (degrees) average? Do we go to 2? Do we go to 2.5? It's a sliding scale of awfulness. This is politically difficult, but the thing you do is cut emissions and ride it out.
Q: What influence can consumers have on the economy and on climate change, based on where they're spending their money?
A: One of the points I make to my students in my Global Environmental Policy class is that, particularly in the United States, we have this idea that consumers can move markets through the sheer power of their choice. Markets do function as a collective action resolution mechanism, but it is extremely difficult, particularly in large markets, for consumers to have the effect that we tell them that they can – “If you would just buy less meat or buy an electric car, then your consumer choices will move the market in a direction that will be more stabilizing in the case of climate change.”
Consumers just don't have the kind of capacity to drive that change, except for how they engage politically. If consumers elect policymakers who promise to take action on these things and hold those policymakers to account, that is one of the primary mechanisms by which these kinds of changes can be manifested.
Individual consumers’ ability to have an impact on these things through their own decisions is highly limited. Putting the onus on the consumers isn't going to address these challenges or their inflationary effects. Policymakers have to step up and take ownership of these policy problems and deal with them.
Q: What should American consumers be aware of in the global economy going forward?
A: Inflation is going to continue to run higher than it has in the last couple of decades, and we have to accommodate ourselves to that. There will be a series of follow-up consequences from that. State governments will have to pay their employees more and provide more regular raises, and taxpayers will have to reconcile themselves to that.
Consumers have to reconcile themselves to higher prices because corporations are going to need to build in additional redundancies and resiliency in their supply chains to account for potential disruptions, and that's going to make products more expensive. The era of maximal economic efficiency and minimal economic inefficiency or waste is probably in the rearview mirror if you want to deal with these issues. If you want to ignore them and continue on as you are and then be surprised someday when you don't have access to microchips, or when the food supply crashes because climate change has dried out the Midwest, then proceed on your way. But don't say nobody warned you when that happens.