Yellen says lifting output may need protectionist-like steps

Treasury Secretary Janet Yellen said that U.S. reliance on foreign supply chains has proved a vulnerability and that the country needs to produce more critical goods domestically in order to protect both its economic and national security.

“It’s possible that policies that people will describe as protectionist are going to be necessary in order to create the appropriate incentives to produce things at home,” Yellen said in an interview recorded on Monday for an online conference hosted by the Financial Times.

The Treasury chief also said, “certainly we want to work with other countries—with our allies and partners—to address supply-chain resilience on a collective basis,” in remarks aired Tuesday. “So, I don’t think this is just about the United States making everything at home, but in some cases that may be part of the answer.”

Disruptions caused by the Covid-19 pandemic have limited the supply of many goods, including those of semiconductors found in a range of products from electronics to automobiles, leading to frustration for manufacturers and higher prices for consumers. Yellen said it may take “a couple of years” to resolve the bottlenecks for many products.

President Joe Biden ordered a review of such vulnerabilities earlier this year that’s focused on semiconductors, batteries, critical minerals and pharmaceuticals. Yellen said the review is moving to a second phase that will examine supplies necessary for defense, food, public health and communications technologies.

The Treasury chief also repeated her views that elevated inflation was mainly caused by pandemic-related supply issues, and that it would fade as the virus came under control. She said she saw no evidence of a wage-price spiral that could sustain the pace of price increases for an extended period.

While the economy and the jobs market remained strong, she conceded that the continued low supply of labor was “a mystery” amid the high demand for workers.

“I’m not sure I know the answer,” Yellen said, adding that over time a tight labor market and improving health conditions are likely to bring some workers back.