U.S. President Joe Biden may say that he repudiates former President Donald Trump’s “America first” agenda. But the Biden administration should be judged not by its words but by its actions, and it continues to pursue U.S. interests in a way that hurts the rest of the world.
Some of the stiff-arming is done wittingly, such as the administration’s refusal to allow the export of all but a few doses of COVID-19 vaccine, including the ones the United States receives from manufacturing facilities in the European Union. Biden’s flashy posturing on waiving vaccine patents obscures the very inconvenient fact that it’s actual shipments of doses that save lives. The EU has shipped about 200 million doses to non-EU countries around the world—approximately as many as it has distributed to its own citizens—while the United States under Biden has hoarded vaccines, sharing a miserly 3 million doses.
But other costs, even if not imposed deliberately like Biden’s vaccine nationalism, are no less harmful to the rest of the world. The administration’s economic policies, though they are designed to boost growth at home, have already caused historic increases in the global price of critical commodities, including and especially food. Poised to hit the world’s poor the hardest, this bout of global food inflation is already forcing policymakers abroad to choose between mitigating hunger and mitigating the economic fallout from COVID-19.
The connection between Biden’s economic agenda and the food budgets of households abroad runs through the dollar’s role in global commodity markets. When the U.S. Federal Reserve explodes its balance sheet and prints dollars, as it has been doing, it’s usually followed by increases in the price of such food commodities as corn, soybeans, and wheat. This is because transactions in these markets, as they are for most global markets, are typically denominated in U.S. dollars. And if the Fed is pumping trillions of new dollars into the financial system, there are more dollars to buy the same bundle of stuff—and food commodities are stuff. It’s why so many prices have been skyrocketing, including not just of food but of lumber, copper, U.S. residential real estate, and U.S. stocks.
Under normal circumstances, flooding the world with dollars would lower the value of the dollar relative to foreign currencies. A stronger euro, yen, peso, or rupee typically cushions the extent to which increases in U.S. dollar prices of food commodities in global markets flow through to household bottom lines abroad, including in the developing world. If the global price of, say, corn rises by 5 percent in dollar terms, but the dollar falls 5 percent relative to your local currency, your spending in local currency is unchanged.
Biden’s proposed $1.9 trillion stimulus has ignited global food inflation for the world’s poor—who spend a large part of their meager incomes just on food—by preventing any such rise in local currencies relative to the U.S. dollar from offsetting the rise in food commodity prices wrought by the Fed.
As soon as it became clear that the Georgia runoff elections held on Jan. 5 would hand control of the U.S. Senate to the Democrats, paving the way for the Biden administration’s fiscal policy, the dollar ended the steady slide that began in March 2020 with the Fed’s return to massive monetary easing. The change in January corresponded to a rise in U.S. interest rates, a consequence of market participants anticipating both rising inflation and higher growth from Biden’s agenda, as well as the need to issue more debt to finance it. That higher interest rates and a rising dollar went hand in hand is no coincidence: The boost in rates raised the attractiveness of parking your money in U.S. dollars relative to other currencies, where interest is in many cases close to zero or negative. And so the market dynamic induced by the Biden economic agenda is what has prevented the dollar from falling in 2021, even though the Fed has printed over $3.2 trillion since March 2020.
This sets the stage for today’s departure from the usual script regarding how food prices for households abroad usually adjust to expansionary U.S. policy. The Fed’s money printing keeps sending dollar-denominated food prices higher, just as expected. Unusually, however, no fall in the value of the dollar relative to their local currencies is here to cushion the impact on their household budgets.
Consider Mexico. The country now imports much of its culinary staple, corn, from the United States. Given the enormity of the Fed’s stimulus, the 46 percent increase in the dollar price of corn since February 2020, the last month before the stimulus began, shouldn’t be surprising. The problem for Mexico, and especially its poor, is the 60 percent increase in the local peso-denominated price of corn over the same timeframe. If these were normal times, a rise of the peso relative to the dollar would have offset some of the price rise for Mexican households. But this time is different. Even Americans may soon feel the consequences: Prices for tortillas and tortilla chips, often made in Mexico with corn imported from the United States, are poised to rise.
Mexico is no outlier. A gauge of global food prices calculated by the United Nations Food and Agriculture Organization recently registered its largest year-on-year increase in over a decade. In Turkey, reports indicate that households have preemptively stockpiled essential food items such as baby formula—not a case of pandemic-induced panic buying like last year, but in apparent anticipation of even higher food inflation than the most recent official rate of 17 percent. In Russia, authorities are imposing export restrictions on such food commodities as wheat and sunflower seeds to boost domestic supplies and keep domestic prices down. Considering that Russia is one of the world’s largest exporters of agricultural products, that creates a whole new set of potentially disastrous knock-on effects throughout the developing world.
Russia’s situation illustrates the fraught and agonizing choice now confronting many economic policymakers. The head of the Central Bank of Russia, Elvira Nabiullina, has raised interest rates in an effort to combat, among other things, food inflation running north of 7 percent. The move is likely to prolong Russia’s return to its pre-pandemic level of economic output. But even Nabiullina has publicly criticized the export restrictions and other measures designed to help consumers as excesses likely to generate too much harm to production and output. If conducting monetary policy in the emerging world was difficult before, it’s even harder now. The head of Turkey’s Central Bank, ousted by Turkish President Recep Tayyip Erdogan shortly after raising interest rates, may have been the first central bank chief to be axed as a result of Biden’s economic policies, and as developing-world policymakers are forced to choose between relieving hunger and expanding economic growth. He seems unlikely to be the last.
If central bank officials everywhere feel some pressure from rising food prices, the pain is sharpest in developing countries. The share of consumer spending on food, for instance, is less than 10 percent in the United States, but about 25 percent in Russia and about 50 percent in Nigeria. This is because poorer households spend bigger shares of their budgets on food. While poorer Americans also spend more on food, generally higher income levels and the ubiquity of processed foods where only a small part of the cost stems from raw materials largely insulate developed-country consumers from food inflation. Of all the world’s central bankers, then, Federal Reserve Chairman Jerome Powell can afford to care the least about the food inflation unleashed by the Biden administration.
If past is prologue, Biden is likely eventually going to feel geopolitical blowback from the unintended consequences of his “America first” fiscal policy. U.S. Treasury Secretary Janet Yellen should know—she was vice chair of the Federal Reserve when governments in emerging-market countries like Brazil complained that the Fed’s quantitative easing at the time had the effect of devaluing the dollar and harming their exports. Now, in a new twist to this familiar tale, Yellen can expect to hear complaints about the opposite side effect: a dollar that’s destructively high for these economies rather than too low.
Many criticized the Trump administration’s embrace of “America first” on the grounds that, paradoxically, it undermines the United States’ own interests by making the country disliked around the world, thus achieving the opposite of putting America first. Some of these critics now support Biden’s fiscal stimulus for its expected benefits for the United States. If they were consistent, those who criticized Trump should stop applauding Biden for a stimulus program that ultimately starves the hungry.
On behalf of my former colleagues in the Trump administration, then, I have to say it: Thank you, President Biden. In a way that we never could, you’re testing whether the critics of “America first” were—contrary to what they claim—really just critics of Trump, not of policies that put America first.
