US export inflation slows global recovery

SHI YU/CHINA DAILY

The Federal Reserve recently raised its benchmark interest rate an additional 75 basis points, marking the fifth time the US monetary policymaker has made interest rate hikes. These consecutive increases are the largest since the early 1980s.

The drastic hikes in interest rates have caused widespread concern in international society. While the world is still troubled by resurgences of COVID-19 and the slow economic recovery, the United States, by transferring the pressure and the risks of inflation to the rest of the world, will only hinder the global recovery.

For some time, the United States has been experiencing increasingly severe inflation, which has even reached a new high in 40 years. This reflects the country’s structural problem in the failing economy and policies.

In recent years, the United States has followed trade protectionism and arbitrarily raised tariffs, driving up the price of imported goods and services. However, the cost is borne by American businesses and consumers.

To cope with the impacts of COVID-19, the US government has launched a large number of fiscal policies and ultra-loose monetary policies, which have led to an overheating of the economy and an imbalance between supply and demand. . As a result, the recovery of production has lagged behind that of consumption.

As in the 1970s, persistent and repeated negative supply shocks will combine with loose monetary, fiscal and credit policies to produce stagflation, said Nouriel Roubini, professor emeritus of economics at New York University.

In addition, since the Ukraine crisis, the unilateral sanctions launched by the United States against Russia have had enormous repercussions on the global energy, financial and food sectors, which have further disrupted supply and industrial chains and exacerbated inflation.

The United States must adopt problem-oriented strategies to solve the inflation problem. However, the Federal Reserve wants to dampen the overheating of the economy and inflation by raising interest rates. What the United States has done only casts a shadow over its economic growth.

Consecutive interest rate hikes have pushed up the cost of borrowing, limiting investment expansion and business consumption, affecting the labor market and putting enormous downward pressure on the US economy.

Spanish newspaper Rebelion said in an article that the Federal Reserve is holding back inflation at the sacrifice of the whole economy, which will reduce economic growth, accelerate recession and trigger a debt crisis. In addition, the US practice cannot stop the price increase caused by the affected supply chain.

The countries of the world are interdependent in the era of economic globalization. However, the United States only cares about its own short-term interests when making monetary and fiscal policies, which could drag the world into an even deeper crisis.

CNN called the interest rate hikes a “dollar smile,” but the smile only chills the world. The US dollar often appreciates when the US economy is very strong or very weak, and this appreciation drives capital back into the United States, causing hyperinflation and capital flight to other countries. Emerging markets and developing countries have been the biggest victims every time the US has raised interest rates since the Latin American debt crisis.

There is no doubt that the further rise in interest rates will bring capital back to the United States, and developing countries will face a number of challenges such as stock market fluctuations, national currency depreciation, rising interest on their US dollar debt, as well as soaring costs of raw material imports.

James Morrison, an associate professor at the London School of Economics and Political Science, noted that interest rate hikes will certainly have negative impacts on the world and aggravate the financial distress of developing countries, as the US dollar is at the center of the international financial system. .

Interest rate hikes by the Federal Reserve also weighed on Europe, Japan and other developed economies. The French newspaper Les Echos said on its website that the increase in the benchmark interest rate will force other central banks to follow, which will depreciate the euro and exacerbate inflation. As a result, the European economy, already impacted by the Ukrainian crisis, will come under increased pressure.

As the world’s largest economy, the United States should adopt responsible economic and financial policies and control their ripple effects, in order to avoid exporting the risks of inflation and recession to the rest of the world.

Facing the economic hegemony of the United States, emerging markets and developing countries should adopt a long-term perspective, improve the system and rules of international economic governance, and make global governance fairer and more equitable.

Zhong Sheng is a pseudonym often used by People’s Daily to express his views on foreign policy and international affairs.

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