What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
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.
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.
The threat facing the global economy — including the Fed’s role in it — is expected to dominate the conversation next week as economists and government officials convene in Washington for the annual meeting of the International Monetary Fund and World Bank.
In a speech at Georgetown University on Thursday, Kristalina Georgieva, the managing director of the I.M.F., offered a grim assessment of the world economy and the tightrope that central banks are walking.
“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” Ms. Georgieva said. “On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”
Noting that inflation remains stubbornly high and broad-based, she added: “Central banks have to continue to respond.”
The World Bank warned last month that simultaneous interest-rate increases around the world could trigger a global recession next year, causing financial crises in developing economies. It urged central banks in advanced economies to be mindful of the cross-border “spillover effects.”
“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” David Malpass, the World Bank president, said.
Trade and Development Report said.
So far, major central banks have shown little appetite for stopping their inflation-busting campaigns. The Fed, which has made five rate increases this year, has signaled that it plans to raise borrowing costs even higher. Most officials expect to increase rates by at least another 1.25 percentage points this year, taking the policy rate to a range of 4.25 to 4.5 percent from the current 3 to 3.25 percent.
Even economies that are facing a pronounced slowdown have been lifting borrowing costs. The European Central Bank raised rates three-quarters of a point last month, even though the continent is approaching a dark winter of slowing growth and crushing energy costs.
according to the World Bank. Food costs in particular have driven millions further into extreme poverty, exacerbating hunger and malnutrition. As the dollar surge makes a range of imports pricier for emerging markets, that situation could worsen, even as the possibility of financial upheaval increases.
“Low-income developing countries in particular face serious risks from food insecurity and debt distress,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a news conference this week.
Understand Inflation and How It Affects You
In Africa, officials have been urging the I.M.F. and Group of 20 nations to provide more emergency assistance and debt relief amid inflation and rising interest rates.
“This unprecedented shock further destabilizes the weakest economies and makes their need for liquidity even more pressing, to mitigate the effects of widespread inflation and to support the most vulnerable households and social strata, especially young people and women,” Macky Sall, chairman of the African Union, told leaders at the United Nations General Assembly in September.
To be sure, central bankers in big developed economies like the United States are aware that they are barreling over other economies with their policies. And although they are focused on domestic goals, a severe weakening abroad could pave the way for less aggressive policy because of its implications for their own economic outlooks.
Waning demand from abroad could ease pressure on supply chains and reduce prices. If central bankers decide that such a chain reaction is likely to weigh on their own business activity and inflation, it may give them more room to slow their policy changes.
“The global tightening cycle is something that the Fed has to take into account,” said Megan Greene, global chief economist for the Kroll consulting firm. “They’re interested in what is going on in the rest of the world, inasmuch as it affects their ability to achieve their targets.”
his statement.
But many global economic officials — including those at the Fed — remain focused on very high inflation. Investors expect them to make another large rate increase when they meet on Nov. 1-2.
“We’re very attentive” to international spillovers to both emerging markets and advanced economies, Lisa D. Cook, a Fed governor, said during a question-and-answer session on Thursday. “But our mandate is domestic. So we’re very focused on inflation as it evolves in this country.”
Raghuram Rajan, a former head of India’s central bank and now an economist at the University of Chicago, has in the past pushed the Fed to take foreign conditions into account as it sets policy. He still thinks that measures like bond-buying should be pursued with an eye on global spillovers.
But amid high inflation, he said, central banks are required to pay attention to their own mandates to achieve price stability — even if that makes for a stronger dollar, weaker currencies and more pain abroad.
“The basic problem is that the world of monetary policy dances to the Fed’s tune,” Mr. Rajan said, later adding: “This is a problem with no easy solutions.”
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FANGLIAO, Taiwan — Lin Chun-lai bought his grouper farm in southern Taiwan about a decade ago with an eye on mainland China’s growing appetite for live fish. In just a few years, the former electrician made enough money to comfortably support his family of four and even open a small inn.
Then China abruptly banned all imports of grouper from the island, in an apparent attempt at turning the economic screws on Taiwan, a self-governed island that Beijing claims as its own territory. The move cut Mr. Lin and other farmers like him off from their main market, putting their livelihoods at risk and dealing a huge blow to a lucrative industry.
Taiwan’s unification with China is inevitable, but most of Taiwan’s 23 million people are in favor of maintaining the island’s de facto independence. As Beijing has ramped up pressure on the island, Taiwan has moved to strengthen economic and diplomatic ties with friendlier countries, including the United States, those in the European Union and Japan.
In recent years, Beijing has sent military aircraft toward the island almost daily. It has tried to isolate Taiwan, peeling off its few remaining diplomatic allies and blocking it from joining international organizations. It has also increasingly sought to restrict the island’s access to China’s vast consumer market, banning Taiwanese pineapples, then wax apples, last year after it said the fruits brought in pests.
their ties to forced labor practices could portend trouble for industries that depend on materials from China.
In recent days, Taiwanese agricultural authorities have contacted grouper farmers to discuss ways that the government can help, including by providing low-interest loans and feed subsidies and expanding access to domestic consumers and overseas markets. Another idea being floated is to include the fish in individually packaged meal boxes sold at train stations and on trains by Taiwan’s railway administration. Taiwan’s Fisheries Agency said on Tuesday that the agency would spend more than $13 million to support the grouper industry.
Taiwan’s Council of Agriculture has said it would consider filing a complaint about the grouper ban to the World Trade Organization. Lin Kuo-ping, the deputy director general of the official Fisheries Agency, said the government had reached out to their Chinese counterparts to discuss the inspection process but had not heard back. China’s General Administration of Customs did not respond to an emailed request for comment.
Some grouper farmers said that if the ban was not lifted, they would have to settle for selling the fish on the domestic market at a huge loss. Until then, the fish will remain in the ponds. Mr. Lin, the grouper farmer, said he worried the groupers could die as a result of overcrowding.
He is now pinning his hopes on another kind of fish that he has been farming, the four-finger threadfin fish, which is also popular on the mainland. But he acknowledged that even this backup strategy was vulnerable to geopolitical shifts. Last year, Taiwan’s exports of the fish were worth nearly $40 million — and more than 70 percent went to China.
“Our biggest customer,” he said, “is still China.”
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FRANKFURT — The name MG used to be synonymous with spirited but finicky sports cars from Britain. Nowadays the iconic octagonal badge serves a different kind of motoring ambition: China’s push to become a big player in the global auto market.
SAIC Motor, one of China’s Big Four automakers, bought the MG brand in 2007 and is stamping it on a line of electric sport utility vehicles on sale in Germany and other European markets. MG is an example of how Chinese carmakers are exploiting the shift to electric cars to challenge the American, European and Japanese carmakers that have long dominated the industry.
The Chinese automakers are arriving as electric cars surge in popularity, accounting for almost 10 percent of new car sales in Western Europe, and consumers are in a mood to buy, with savings built up during the pandemic. At the same time, car manufacturers are cutting back production because of shortages of microprocessors.
MG already has 350 dealers in 16 European countries and is still expanding. Two other Chinese automakers, Nio and BYD, are moving into Europe by way of Norway, the world’s most electrified large car market.
Nio, based in Shanghai, opened a dealership in Oslo at the end of September, the company’s first outlet outside China. BYD, based in Shenzhen, delivered an electric S.U.V. called the Tang, to the first Norwegian customer in August.
Polestar, which is based in Sweden but belongs to Geely Holding of China, has been selling a Chinese-made battery-powered model in Europe and the United States since 2020. And many of the Teslas on European roads were imported from the company’s factory in Shanghai. (That will change once the company finishes building a factory near Berlin.)
Foreign automakers like Volkswagen, Mercedes-Benz or General Motors sell millions of cars in China, so they can hardly complain when Chinese automakers encroach on their turf. Even though China is the world’s largest car market, its brands have only a sliver of the international market. Even buyers in China prefer foreign brands, although local carmakers are growing quickly and have captured more than 40 percent of the domestic market.
global semiconductor shortage. The wait time for an MG hybrid is only four weeks, and three months for an all-electric model, “which is pretty much OK compared to other brands right now,” Mr. Stark said.
Waits for many European brands can be much longer, especially for lower-priced models. Carmakers like Renault are allocating scarce chips to higher-end vehicles, which generate more profit.
While the market may be ripe for Chinese electric cars, the political timing may not be so ideal. Many European leaders share their American counterparts’ concern about Chinese trade practices, accusing Beijing of subsidizing companies to give them an unfair advantage in international competition.
are negotiating to form a government that is likely to include the Green Party, which favors a harder line against China than Angela Merkel, the departing chancellor. MG may be particularly vulnerable to concerns about the mingling of government and corporate interests because its parent company, SAIC, is majority owned by the state.
international car show in Munich in September. “Car brands, wherever they are located, have export business.”
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In delivering vaccines, pharmaceutical companies aided by monumental government investments have given humanity a miraculous shot at liberation from the worst pandemic in a century.
But wealthy countries have captured an overwhelming share of the benefit. Only 0.3 percent of the vaccine doses administered globally have been given in the 29 poorest countries, home to about 9 percent of the world’s population.
Vaccine manufacturers assert that a fix is already at hand as they aggressively expand production lines and contract with counterparts around the world to yield billions of additional doses. Each month, 400 million to 500 million doses of the vaccines from Moderna, Pfizer and Johnson & Johnson are now being produced, according to an American official with knowledge of global supply.
But the world is nowhere close to having enough. About 11 billion shots are needed to vaccinate 70 percent of the world’s population, the rough threshold needed for herd immunity, researchers at Duke University estimate. Yet, so far, only a small fraction of that has been produced. While global production is difficult to measure, the analytics firm Airfinity estimates the total so far at 1.7 billion doses.
dangerous new variants emerge, requiring booster shots and reformulated vaccines, demand could dramatically increase, intensifying the imperative for every country to lock up supply for its own people.
The only way around the zero-sum competition for doses is to greatly expand the global supply of vaccines. On that point, nearly everyone agrees.
But what is the fastest way to make that happen? On that question, divisions remain stark, undermining collective efforts to end the pandemic.
Some health experts argue that the only way to avert catastrophe is to force drug giants to relax their grip on their secrets and enlist many more manufacturers in making vaccines. In place of the existing arrangement — in which drug companies set up partnerships on their terms, while setting the prices of their vaccines — world leaders could compel or persuade the industry to cooperate with more companies to yield additional doses at rates affordable to poor countries.
Those advocating such intervention have focused on two primary approaches: waiving patents to allow many more manufacturers to copy existing vaccines, and requiring the pharmaceutical companies to transfer their technology — that is, help other manufacturers learn to replicate their products.
more than 100 countries in asking the W.T.O. to partially set aside vaccine patents.
But the European Union has signaled its intent to oppose waivers and support only voluntary tech transfers, essentially taking the same position as the pharmaceutical industry, whose aggressive lobbying has heavily shaped the rules in its favor.
Some experts warn that revoking intellectual property rules could disrupt the industry, slowing its efforts to deliver vaccines — like reorganizing the fire department amid an inferno.
“We need them to scale up and deliver,” said Simon J. Evenett, an expert on trade and economic development at the University of St. Gallen in Switzerland. “We have this huge production ramp up. Nothing should get in the way to threaten it.”
Others counter that trusting the pharmaceutical industry to provide the world with vaccines helped create the current chasm between vaccine haves and have-nots.
The world should not put poorer countries “in this position of essentially having to go begging, or waiting for donations of small amounts of vaccine,” said Dr. Chris Beyrer, senior scientific liaison to the Covid-19 Prevention Network. “The model of charity is, I think, an unacceptable model.”
halting vaccine exports a month ago. Now, as a wave of death ravages the largely unvaccinated Indian population, the government is drawing fire at home for having let go of doses.
poses universal risks by allowing variants to take hold, forcing the world into an endless cycle of pharmaceutical catch-up.
“It needs to be global leaders functioning as a unit, to say that vaccine is a form of global security,” said Dr. Rebecca Weintraub, a global health expert at Harvard Medical School. She suggested that the G7, the group of leading economies, could lead such a campaign and finance it when the members convene in England next month.
Pfizer expects to sell $26 billion worth of Covid vaccines this year; Moderna forecasts that its sales of Covid vaccines will exceed $19 billion for 2021.
History also challenges industry claims that blanket global patent rights are a requirement for the creation of new medicines. Until the mid-1990s, drug makers could patent their products only in the wealthiest markets, while negotiating licenses that allowed companies in other parts of the world to make generic versions.
Even in that era, drug companies continued to innovate. And they continued to prosper even with the later waivers on H.I.V. drugs.
“At the time, it rattled a lot of people, like ‘How could you do that? It’s going to destroy the pharmaceutical industry,’” recalled Dr. Anthony S. Fauci, President Biden’s chief medical adviser for the pandemic. “It didn’t destroy them at all. They continue to make billions of dollars.”
Leaders in the wealthiest Western nations have endorsed more equitable distribution of vaccines for this latest scourge. But the imperative to ensure ample supplies for their own nations has won out as the virus killed hundreds of thousands of their own people, devastated economies, and sowed despair.
The drug companies have also promised more support for poorer nations. AstraZeneca’s vaccine has been the primary supply for Covax, and the company says it has sold its doses at a nonprofit price.
stumbled, falling short of production targets. And producing the new class of mRNA vaccines, like those from Pfizer-BioNTech and Moderna, is complicated.
Where pharmaceutical companies have struck deals with partners, the pace of production has frequently disappointed.
“Even with voluntary licensing and technology transfer, it’s not easy to make complex vaccines,” said Dr. Krishna Udayakumar, director of the Duke Global Health Innovation Center.
Much of the global capacity for vaccine manufacturing is already being used to produce other lifesaving inoculations, he added.
But other health experts accuse major pharmaceutical companies of exaggerating the manufacturing challenges to protect their monopoly power, and implying that developing countries lack the acumen to master sophisticated techniques is “an offensive and a racist notion,” said Matthew Kavanagh, director of the Global Health Policy and Politics Initiative at Georgetown University.
With no clear path forward, Ms. Okonjo-Iweala, the W.T.O. director-general, expressed hope that the Indian and South African patent-waiver proposal can be a starting point for dialogue.
“I believe we can come to a pragmatic outcome,” she said. “The disparity is just too much.”
Peter S. Goodman reported from London, Apoorva Mandavilli from New York, Rebecca Robbins from Bellingham, Wash., and Matina Stevis-Gridneff from Brussels. Noah Weiland contributed reporting from New York.
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Katherine Tai, the United States trade representative, made a case on Thursday for using trade policies to fight climate change, devoting her first speech in her new position to addressing one of President Biden’s top priorities.
“For too long, the traditional trade community has resisted the view that trade policy is a legitimate tool in helping to solve the climate crisis,” Ms. Tai said at a virtual event held by the Center for American Progress.
“As we have so often seen with labor issues, there is a certain refuge in arguing that this is all a question of domestic policy and that we need not tackle the daunting task of building international consensus around new rules,” she said. “But that dated line of thinking only perpetuates the chasm that exists between the lived experiences and expectations of real people on the one hand and trade experts on the other.”
In her remarks, Ms. Tai spoke of the need to address illegal logging and overfishing, and she promised to enforce environmental rules in the United States-Mexico-Canada Agreement.
blocked a deal to import liquefied natural gas from the United States because of concerns around emissions of methane, a potent heat-trapping gas. Recent investigations have found that China’s production of cheap solar panels, a technology widely seen as crucial for cleaning up America’s electric grid, may be linked to forced-labor practices in China’s Xinjiang region.
This year, a dispute over intellectual property rights between two South Korean battery manufacturers threatened to disrupt plans to expand electric vehicle manufacturing in the United States. The two companies, LG Energy Solution and SK Innovation, finally reached a $1.8 billion settlement this month before the Biden administration had to decide whether to formally intervene.
In her speech, Ms. Tai called the settlement “a big win for American workers, the environment and our competitive future.”
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Like Ms. Tai and Mr. Lighthizer, many past presidents and trade officials emphasized fair trade and the idea of holding foreign countries accountable for breaking trade rules. But many also paid homage to the conventional wisdom that free trade itself was a worthy goal because it could help lift the economic fortunes of all countries and enhance global stability by linking economies.
That idea reached the height of its popularity under the presidencies of George H.W. Bush, Bill Clinton and George W. Bush, where the United States negotiated the North American Free Trade Agreement, led the talks that gave the World Trade Organization its modern format, granted China permanent normal trading relations, and sealed a series of trade agreements with countries in Latin America, Africa and the Middle East.
President Barack Obama initially put less emphasis on free trade deals, instead focusing on the financial crisis and the Affordable Care Act. But in his second term, his administration pushed to sign the Trans-Pacific Partnership, which came under criticism from progressive Democrats for exposing American workers to foreign competition. The deal never won sufficient support in Congress.
For Democrats, the downfall of that deal was a turning point, propelling them toward their new consensus on trade. Some, like Dani Rodrik, a professor of political economy at Harvard, argue that recent trade deals have largely not been about cutting tariffs or trade barriers at all, and instead were focused on locking in advantages for pharmaceutical companies and international banks.
David Autor, an economist at the Massachusetts Institute of Technology, said economic theory had never claimed that trade made everybody better off — it had said trade would raise overall economic output, but lead to gains and losses for different groups.
But economists and politicians alike underestimated how jarring some of those losses could be. Mr. Autor’s influential research shows that expanded trade with China led to the loss of 2.4 million American jobs between 1999 and 2011. China’s growing dominance of a variety of global industries, often accomplished through hefty government subsidies, also weakened the argument that the United States could succeed through free markets alone.
Today, “people are much more sensitive to the idea that trade can have very, very disruptive effects,” Mr. Autor said. “There’s no amount of everyday low prices at Walmart that is going to make up for unemployment.”
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That’s essentially what has happened in the last few decades as China has gone from being isolated to being deeply integrated in the world economy. When the country joined the World Trade Organization in 2001, its population of 1.28 billion was bigger than that of the combined 34 advanced countries that make up the Organization for Economic Cooperation and Development (1.16 billion).
But that was a one-time adjustment, and wages are rising rapidly in China as it moves beyond low-end manufacturing and toward more sophisticated goods. India, the only other country with comparable population, is already well integrated into the world economy. To the degree globalization continues, it should be a more gradual process.
9. There’s only one Mexico
For years, American workers were also coming into competition with lower-earning Mexicans after enactment of the North American Free Trade Agreement in 1994. As with China, the new dynamic improved the long-term economic prospects for the United States, but in the short run it was bad for many American factory workers.
But it too was a one-time adjustment. Even before President Trump, trade agreements under negotiation were for the most part no longer focused on making it easier to import from low- labor-cost countries. The main aim was to improve trade rules for American companies doing business in other rich countries.
10. The offshoring revolution is mostly played out
Once upon a time, if you were an American company that needed to operate a customer service call center or carry out some labor-intensive information technology work, you had no real choice but to hire a bunch of Americans to do it. The emergence of inexpensive, instant global telecommunication changed that, allowing you to put work wherever costs were the lowest.
In the first decade of the 2000s, American companies did just that on mass scale, locating work in countries like India and the Philippines. It’s a slightly different version of the earlier analogy involving the farm; a customer service operator in Kansas was suddenly in competition with millions of lower-earning Indians for a job.
But it’s not as if the internet can be invented a second time.
Sensing a theme here? In the early years of the 21st century, a combination of globalization and technological advancements put American workers in competition with billions of workers around the world.
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The United States and European Union agreed to temporarily suspend tariffs levied on billions of dollars of each others’ aircraft, wine, food and other products as both sides try to find a negotiated settlement to a long-running dispute over the two leading airplane manufacturers.
President Biden and Ursula von der Leyen, the president of the European Commission, agreed in a phone call on Friday to suspend all tariffs imposed in the dispute over subsidies given to Boeing and Airbus for “an initial period of four months,” Ms. von der Leyen said in a statement.
“This is excellent news for businesses and industries on both sides of the Atlantic and a very positive signal for our economic cooperation in the years to come,” she said.
In a statement, the White House said Mr. Biden had “underscored his support for the European Union and his commitment to repair and revitalize the U.S.-E.U. partnership.”
had authorized both the United States and Europe to impose tariffs on each other as part of two parallel disputes, which began almost two decades ago, over subsidies the governments have given to Airbus and Boeing. The E.U. had imposed tariffs on roughly $4 billion of American products, while the United States levied tariffs on $7.5 billion of European goods.
The aircraft dispute is an early test of the Biden administration’s ability to rebuild America’s relationship with Europe, which U.S. officials see as crucial for accomplishing other trade and foreign policy goals.
Former President Donald J. Trump took a more adversarial and aggressive stance toward the bloc. He accused it of cheating the United States on trade and imposed tariffs on European metals, aircraft and other products. He also threatened further tariffs against European automakers.
The Biden administration has said it would restore ties with the E.U., formerly a close ally, as it seeks to form coalitions to take on bigger global problems, like China’s unfair trade practices. And it has committed to pressing Europe for a settlement on the aircraft dispute, as well as other continuing trade spats over metals, digital service taxes and other issues.
temporarily suspend tariffs levied against the United Kingdom, including on Scotch whisky, as part of the dispute for a period of four months.
Monika Pronczuk and Liz Alderman contributed reporting.
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