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Baltimore Port’s Closure Threatens Inflation and Bigger Deficits

The Port of Baltimore has been brought to a standstill thanks to the collapse of the Francis Scott Key Bridge, creating risks to the U.S. economy of additional inflation, diminished productive capacity, and larger government deficits.

The Port of Baltimore was the 17th busiest port in the nation ranked by total tons in 2021, according to the latest data available from the Bureau of Transportation Statistics. It is the fifth largest on the East Coast, outsized by the ports of New York-New Jersey; Virginia; Mobile, Alabama; and Savanah, Georgia.

Governor Wes Moore said last year that the port handled a record 52.3 million tons of foreign cargo, worth $80 billion, in 2023. That was a record high.

Moore described the port as”one of the largest economic generators” in Maryland.

It was the first in terms of the volume of automobiles and light trucks (including 847,158 cars and light trucks),roll on/roll off heavy farm and construction machinery, imported sugar, and imported gypsum, the governor’s office said.

It was ninth overall as measured by the volume of foreign cargo handled and ninth in terms of the value of foreign cargo., according to Moore.

The closure of the port could create serious supply chain disruptions for both consumer goods and industrial imports that go into goods manufactured in the U.S. It’s unlikely that all of the lost capacity will be able to be absorbed by the other ports on the Eastern seaboard of the U.S.

This raises the danger of additional inflation in the U.S. Inflation has fallen from the very high levels seen in the first two years of the Biden administration but remains elevated by historical standards and above levels the Federal Reserve considers appropriate for a healthy economy. In the first two months of this year, inflation has come in unexpectedly high, creating worries that disinflation may have faded.

“The worst thing that can happen for the Fed, the worst thing that can happen for the economy, are these kinds of supply side shocks because what they do is they reduce the productive capacity of the US economy boost inflation at the same time,” Citigroup’s Andrew Hollenhorst said on Bloomberg TV’s Surveillance program Tuesday.

In addition to the supply constraints, the clearing of the harbor and the rebuilding of the bridge will require resources that would have otherwise been utilized elsewhere. This could add to pricing pressures.

If the U.S. government steps in to aid in financing the repairs, as is likely, that will increase the budget deficit at a time when federal borrowing is already historically very high. Further government spending could exacerbate inflation.

“This period of deflation in goods that we’ve been in for the last six months or so — we are probably coming out of that,” Hollenhorst said.

Breitbart

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