"I'm Leaving" Biden Leaves 'Inflation' for Trump

Oil Prices Surge 7.5% Due to Russian Oil Export Sanctions

"Sanctions Mean Higher Oil Prices... Biden Isn't Worried"

$183.6 Billion Disappears with Student Loan Forgiveness

Last-Minute Subsidy Rush... IRA Becomes Inflation-Inducing Law

As President Joe Biden prepares to leave office, he is leaving President-elect Donald Trump with the significant challenge of inflation. This is due to Biden's last-minute implementation of Russian oil sanctions, student loan forgiveness, and semiconductor law support, which he couldn't execute earlier for domestic political reasons.

"Russian Sanctions Lead to Rising Oil Prices and Inflation"

According to foreign media on the 14th, Biden's Russian oil export sanctions are contributing to rising prices in the U.S.

Ten days before leaving office, on the 10th (local time), President Biden announced large-scale sanctions against Russia's state-owned energy companies, over 180 tankers, and 12 energy officials.

Daleep Singh, U.S. National Security Advisor, described the sanctions as "the most significant sanctions ever on Russia's energy sector." Market evaluations are similar. A domestic commodity research analyst noted, "Until now, the U.S. has taken a lukewarm approach to Russian sanctions compared to the European Union (EU), but this sanction aims to block Russia's detour oil exports to India and China."

According to maritime information company Lloyd Intelligence, 35% of the so-called 'shadow fleet' of 669 ships used for smuggling Russian, Venezuelan, and Iranian oil will be subject to Western sanctions due to this measure.

Oil prices have surged due to this measure. According to the New York Mercantile Exchange, on the 13th (local time), the February contract for Western Texas Intermediate (WTI) closed at $78.82 per barrel, up 2.94% from the previous trading day. Since the sanctions were implemented, prices have risen a total of 7.5%. Frank Walbaum, a strategist at FXStreet, predicted, "U.S. Treasury sanctions on Russia could continue to drive up oil prices and inflation data."

Foreign Policy (FP) explained that the reason Biden imposed sanctions at the end of his term is that "Russian sanctions mean higher oil prices and inflation for Americans, and President Biden is not worried about it now." The analysis is that he could deliver a strong blow to Russia because he didn't consider the aftermath, especially domestic political considerations.

There is also an evaluation that this measure is Biden's consideration for President-elect Trump. Edward Fishman, a researcher at Columbia University's Global Energy Policy Institute, diagnosed, "Biden is doing the dirty work (raising prices) and providing the next administration with more leverage to bring Russian President Vladimir Putin to the negotiating table."

Student Loan Forgiveness for 5 Million

The second inflation box prepared by President Biden is 'student loan forgiveness.' On the 13th, President Biden announced the forgiveness of student loans for 150,000 college students. The beneficiaries include 85,000 victims of student loan fraud, 61,000 disabled individuals, and 6,100 public institution workers. The White House added that this measure has forgiven a total of $183.6 billion (about 268 trillion won) in student loans for 5 million people.

Conservatives are opposing this student loan forgiveness, arguing that it causes inflation. The conservative think tank American First Policy Institute criticized in September last year, "If universities are subsidized by canceling student loans without strong accountability measures, tuition fees may rise, and the increased costs will be passed on to taxpayers." The think tank also pointed out that universities could increase wasteful spending on amenities and raise management fees.

The Richmond Federal Reserve Bank explained in a 2022 report, "Student loan forgiveness does not eliminate debt but transfers it from an individual's balance sheet to the federal government's (taxpayers') balance sheet," and "If there is no additional future income to offset this debt, it will be balanced through rising prices."

U.S. Investment Heats Up with Various Subsidies

The core policies of Bidenomics, such as the Semiconductor Support Act, are being implemented one after another at the end of the term, stimulating prices.

The Economist reported on the 11th, "Although most of the administration is effectively in the final stages at the end of President Biden's term, the Department of Commerce is signing large funding agreements with semiconductor manufacturers almost daily, rushing to disburse cash before President-elect Trump enters the White House."

According to the Economist, the Semiconductor Act has so far stimulated $450 billion (about 663 trillion won) in private investment. According to Moody's Analytics, the Department of Commerce has decided to provide a total of $30 billion (about 44 trillion won) in subsidies to 12 companies, including Intel, Micron, TSMC, and Samsung, starting at the end of 2023. As a result, U.S. factory construction spending is at its highest level in over 50 years.

Contrary to its name, the IRA has become an 'Inflation-Inducing Act.' The American Automobile Research Center expects that a total of $113 billion (165.2 trillion won) will be invested in the 'Battery Belt' from Georgia to Michigan through the IRA, creating 109,000 jobs.

Economic growth through the Semiconductor Act and IRA is welcome news for President-elect Trump, but the problem is the resulting surge in prices. U.S. inflation, which was thought to be under control due to the Federal Reserve's tightening policy, is rising again.

The U.S. Consumer Price Index (CPI) growth rate (year-on-year) fell from a peak of 9.1% in July 2022 to 2.4% in October last year, but rose to 2.6% in November and 2.7% in December, drawing a 'U-shaped' upward curve. The Producer Price Index (PPI) growth rate, which indicates wholesale prices, also rebounded from 1.8% in September last year to 2.4% in October and 3% in November.

Kim In-yeop Reporter inside@hankyung.com