The US Is Exporting Inflation

Americans’ pandemic spending and a strong dollar are boosting prices abroad

- Cristina Lindblad

For decades, US households bailed out the global economy when it needed a consumer of last resort. America’s latest spending spree has come with a sting in the tail.

Stuck at home in the pandemic, people all over the world bought more goods—TV sets, laptops, and exercise bikes, to name a few—at the expense of services such as hotel rooms and gym memberships. The shift was significantly bigger in the US than in other rich countries. It’s been amplified by such retailers as Target Corp. and Walmart Inc., which piled even more stuff in their inventories than Americans wanted to buy. And since these goods are traded globally—with supplies constrained by Covid-19—US demand pushed up prices in other countries, too.

In effect, the US has been exporting inflation during its pandemic rebound. That underscores a profound change in the global economy. In the pre-Covid world, goods were abundant and the challenge was finding buyers. Countries such as Germany and China, which ran big trade surpluses, often got blamed for free-riding on demand generated elsewhere and not chipping in enough of their own. By contrast, America’s trade deficits were seen as a boon for other economies.

In the new age of scarcity, that story has been flipped on its head. “Everything is the opposite now,” says Jason Furman, an economics professor at Harvard. “There used to be too little demand. Now there’s too little supply. And in a world of too little supply, the country doing the most to generate demand, which is the US, is exporting its problem—its problem being inflation.”