President Joe Biden outlined his administration’s plan to combat inflation and rising consumer costs during his first State of the Union Address on Tuesday.
“The pandemic has been punishing,” Biden said, noting that people in the U.S. have “lived through two of the hardest years this nation has ever faced.” Many families now struggle to keep up with their expenses, given the “the rising cost of food, gas, housing and so much more,” he said.
Despite the U.S. economy’s strongest growth in nearly four decades last year, supply chain bottlenecks wreaked havoc at retail as apparel, footwear, furniture and homewares all surged in price on a supply-demand mismatch.
“Inflation is robbing [Americans] of the gains they thought otherwise they would be able to feel,” Biden said. “I get it. That’s why my top priority is getting prices under control.”
The president’s plan for driving down pricing on commodities centers on reducing dependence on foreign adversaries like Russia and China. Pushing for the passage of his infrastructure bill, Biden promised to make record investments in American manufacturing, especially to facilitate emerging technologies. “We used to invest 2 percent of our GDP in research and development,” he said. “We don’t now—China is.”
Praising giants like Intel, General Motors and Ford for their multi-billion-dollar investments in building new American factories, Biden noted that companies created 369,000 new manufacturing jobs in the U.S. in 2021 alone. “Economists call it ‘increasing the productive capacity of our economy,’” he said. “Instead of relying on foreign supply chains, let’s make it in America.”
Doing so will mean confronting the labor shortage, he added, reiterating why the nation needs a pathway to citizenship for essential workers, immigrants on temporary status and the Dreamers—undocumented persons who entered the country as minors. Revising immigration laws would help supply businesses with the workers they need. “It’s not only the right thing to do—it’s the economically smart thing to do,” Biden said.
Addressing the global supply chain breakdown, Biden referenced the price-gouging phenomenon that sent overseas shipping container prices skyrocketing over the past 12 months. “During the pandemic, about half a dozen or less foreign-owned companies raised prices by as much as 1,000 percent and made record profits,” Biden said of ocean carriers and his plan to penalize companies for price gouging.
Industry trade groups weigh in
American Apparel and Footwear Association (AAFA) president and CEO Steve Lamar praised Biden for “highlight[ing] the way in which foreign carriers have unfairly raised prices on American businesses and every American consumer to achieve record profits.”
“The anti-competitive behavior of carriers remains an existential threat, and we urge the new interagency enforcement to ‘crack down’ on these corrosive practices soon before they sink American businesses and the American economy,” he added.
“It’s not very often that the President addresses ocean cargo issues in the State of the Union, so that certainly got our attention,” echoed David French, senior vice president of government relations at the National Retail Federation, noting that the group has been lobbying for the passage of the Ocean Shipping Reform Act, which would “update and modernize the way that ocean carriers and their customers interact.” Such legislation is needed to “strengthen the hand of customers in dealing with these carriers, and bring more balance into the relationship,” he said. Though it passed in the House of Representatives, the bill is under reviewed by the Senate, which will craft its own response.
Footwear brands are also hoping to see the bill signed into law in the coming months, according to Thomas Crockett, vice president of public affairs at the Footwear Distributors and Retailers of America (FDRA). “I think it was good that he highlighted the problem,” Crockett said, and while Biden declined to detail how he plans to regulate these foreign companies, the unexpected mention of ocean freight costs might serve to put firms on notice. “This is a priority for the president, and they’re looking at ways to address this through different policy options.”
AAFA’s Lamar, however, said Biden’s speech failed to address one of the industry’s most glaring pain points: trade. The Section 301 punitive tariffs on China-made goods have contributed to higher prices at retail, he said, urging the president lower or eliminate them.
“Persistent inflation, supply chain disruptions, harmful tariffs and talent shortages are all obstacles to sustained and stable economic growth,” Michael Hanson, senior executive vice president of the Retail Industry Leaders Association (RILA), said Wednesday. Speaking of the Trump-era tariffs, Hanson said RILA favors “removing trade barriers that penalize U.S. businesses and drive-up prices for consumers” in order to address “foreseeable hurdles in the supply chain.”
During a time when companies face ballooning logistics costs, eliminating, pausing or lowering tariffs should be a top-of-mind first step toward alleviating the pressure, Crockett added. Consumers are seeing higher prices at retail because of the added cost of doing business with China, he said, noting that the FDRA has reported tariff rates on children’s footwear above 48 percent. “He has something he could do immediately, and it could have a real, tangible result.”
The FDRA had also been hoping to hear more about new trade agreements, Crockett said. “You have a global supply chain because it helps lower cost for consumers,” he said. On the other hand, building domestic manufacturing infrastructure could take years and wouldn’t do much to lower the cost of doing business or MSRPs, he added.
French, meanwhile, described Biden’s speech as an “emotionally appealing cocktail of solutions.”
“The problem was that he got his economics caught in the blender,” he said. “There are many folks out there who are constantly reevaluating where their supply chains are located, and while re-shoring is certainly one option that is always on the table, it might not be the most anti-inflation tactic out there.”
Retailers “operate complex supply chains, and work really hard to drive costs out of the system to keep their prices low,” French continued. “They’re fighting inflation every day in the real world, and if it was effective, efficient, timely and less costly to source in the United States, that decision would have been made years ago.”
Addressing the issue of immigration reform would “constructively improve a lot of elements of the U.S. economy,” French said, describing how the Trump administration’s stance on visas “constricted the supply of labor in certain key areas” like retail and skilled technical work.
“We have too many unfilled jobs at the moment,” he said, noting that the economy would grow and recover more quickly “if we added to the workforce in a smart way.”