Offshoring of costs allows for low inflation.
Where input costs are low, prices are low, cost of living stays low, wages stay low, inflation stays low, & interest rates stay low.
The low cost of capital & the need to keep prices low b/c wages are low leads businesses to seek scale & economies of scale to achieve more profits through more revenues, in lieu of fatter margins. And ,then, even more offshoring is used to keep input costs low & maintain margins.
Americans may be underestimating the onshoring impulses coming to prices.
We are in the process of reversing some onshoring of critical products & tech manufacturing. This requires the building of facilities (commodities), domestic construction labor (labor supply), & then long term employees (higher input costs). It’s inflationary.
De facto onshoring:
There is also a de facto onshoring taking place through govt. manufacturing (i.e., building) things domestically (infrastructure plan). Domestic labor & metal and concrete costs can’t be offshored or lowered w/ economies of scale. It’s inflationary.
In the former case above, input costs rise for consumer goods. In the latter case above, consumers don’t buy the bridge that the govt., manufactured- but the govt. pays higher wages & input commodities’ prices rise, & even China can’t make that go lower. Govt. commodity demand will raise prices for other businesses. Plus, the govt. will not only hire U-3 & U-6 people for infrastructure projects. It will need employees w/ skills from all across the skills spectrum- including presently employed people.
Even w/ trillions in fiscal and zero rates, we’d still need higher unit costs- higher input costs- to get inflation. Stimuli can be “dis”inflationary w/o higher input costs. When we maintain low input costs we get low inflation. Low rates can even “cause” this by encouraging scale and inducing overcapacity.
When input costs go up, we get higher PPI inflation and can get CPE inflation- or stagflation, depending on the impulse.
Offshoring vs. onshoring (including de facto onshoring), singularly, determines if we have more inflation, or less.