Commentary: Brewing labor fight could soon make inflation worse

It’s a choice he would probably rather not make, but he might have to soon. That’s because the labor contract for 29 West Coast ports, which covers 22,000 dockworkers, lapsed over the weekend.

For now, talks continue. But if a major work stoppage or slowdown results, it could wreak havoc on the country’s already-fragile supply chains, with potentially catastrophic consequences for inflation and the economy.

Also, of course, for Democrats’ chances in the midterms.

This isn’t some remote risk. The last time this contract was being renegotiated, starting in 2014, talks broke down and work slowdowns led to expensive shipping delays. The Obama administration had to intervene. Labor disruptions (strikes, lockouts, slowdowns) also occurred during West Coast port contract negotiations in 2002, 2008 and 2012.

Today, the stakes are even greater, with inflation at 40-year highs. Both sides in the negotiations presumably know additional port disruptions could be disastrous – a reality that strengthens labor’s hand. Truckers, retailers, farmers and others reliant on these ports for their livelihoods are already deeply worried about the prospect of more logjams.

And it’s still not clear how Biden might react if things go awry. He’s said that curbing inflation is his “top domestic priority.” So, will he still stand by his long-time political allies if they play hardball and take actions that make inflation worse?

Biden often promises to be the “most pro-union president in American history,” including at a recent speech to the AFL-CIO. He touts his support for unionization efforts among congressional staffers and workers at major corporations, and his efforts to pass the Protecting the Right to Organize Act, among other attempts to improve working conditions and wages for American laborers.

Biden also often mentions his debt of gratitude to organized labor for backing him over the years. As he says nearly every time he speaks before union crowds, including audiences of longshoremen: “Folks, there’s an expression where I come from: ‘You go home with them that brung you to the dance.’ You all brought me to the dance.”

Sometimes, there is no tension between Biden’s support for unions and his efforts to bring down the cost of living. For example, his efforts to lower drug prices would help most Americans, including union members.

But lately, as might be the case if there’s a blowup at the ports, those goals have often been at odds. Almost every time, the Biden administration has sided with labor.

For example, unions generally want more trade protectionism, including the Trump-era tariffs on steel and aluminum, washing machines, solar panels and Chinese consumer goods. Unions have also pushed for tighter “Buy America” requirements, which force the government to source goods and services from U.S. suppliers even when they’re much more expensive than foreign-made alternatives.

Both these kinds of measures end up raising prices. The Peterson Institute for International Economics recently estimated that a “feasible” trade-liberalization package, including measures such as tariff repeal and relaxation of “Buy America” requirements, could reduce inflation by as much as 2 percentage points.

So far, though, Biden has chosen to keep President Donald Trump’s tariffs in place, or has swapped them out for different trade restrictions. He has also tightened “Buy America” requirements.

There are other tools the administration could deploy to modestly reduce pricing pressures. However, they’re also things that unions fervently oppose; so far (coincidentally or otherwise) the administration has chosen not to pursue them.

Those include, for instance, suspending the Jones Act, which requires that any ships carrying goods between U.S. ports be U.S.-built, -owned, -crewed and -flagged. Because these vessels are in short supply, the restrictions raise prices for maritime shipping - including, by the way, for oil and petroleum products. JPMorgan recently estimated that suspending the law would shave about 10 cents per gallon off gas prices.

Similarly, the administration could fix the bottlenecks in the legal work-based immigration system, or increase the number of seasonal-worker visas available to employers. Both of these measures could help alleviate labor shortages, which are contributing to inflation. Again, organized labor has generally opposed increases in employment-based visas.

To be clear: We don’t necessarily know that the administration is choosing not to use these inflation-fighting tools because it’s deferring to organized labor. But if the port negotiations go south, the choices Biden faces – between an important political ally and a broader economic crisis – could be much starker and more painful, for him and for the country.