The Francis Scott Key Bridge collapse has caused the Port of Baltimore to come to a complete halt, posing hazards to the U.S. economy in the form of increased inflation, less productive capacity, and higher government deficits.
According to the most recent information available from the Bureau of Transportation Statistics, the Port of Baltimore was the 17th busiest port in the US in terms of total tonnage in 2021. The ports in New York-New Jersey, Mobile, Alabama, Virginia, and Savanah, Georgia, surpass it in size, making it the fifth biggest on the East Coast.
According to Governor Wes Moore, the port handled 52.3 million tons of international cargo in 2023, totaling $80.8 billion. It was an all-time high.
The port is “one of the greatest economic producers” in Maryland, according to Moore.
According to the governor’s office, it was the first in terms of the quantity of vehicles and light trucks (847,158 cars and light trucks), roll on/roll off heavy agriculture and machinery, sugar, and imported gypsum.
As per Moore, it ranked ninth overall in terms of the value of foreign cargo and ninth in terms of the amount of foreign cargo handled.
Serious supply chain problems for consumer goods and imports that go into items made in the United States might result from the port shutdown. It seems improbable that the remaining ports along the U.S. Eastern Seaboard will be able to accommodate all of the lost capacity.
This increases the risk of more inflation in the United States. Although inflation has decreased from the extremely high levels observed during the first two years of the Biden White House, it is still high by historical standards and more than what the Federal Reserve deems suitable for a robust economy. There have been concerns that disinflation may have waned due to the unusually high inflation rates seen in the first two months of this year.
During Bloomberg TV’s Surveillance program on Tuesday, Citigroup’s Andrew Hollenhorst stated, “These kinds of supply side shocks are the worst thing for the Fed and the worst event that can happen for the economy because what they do is reduce the productive capacity of the US economy and boost inflation at the same time.”
Resources that would have been used elsewhere will also need to be allocated for the clearance of the harbor and the reconstruction of the bridge, on top of the supply limitations. This may increase the pressure on prices.
In a time when government borrowing is already historically high, the budget deficit would rise if the U.S. government intervened to help finance the repairs, as is expected. Increased government expenditures may make inflation worse.
“We are probably moving out of this phase of deflation in goods that we have been in for the last six months or so,” Hollenhorst stated.
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