Good morning. Donald Trump talks a lot about inflation while campaigning. Today, my colleague Jeanna Smialek looks at how his policies might affect inflation if he wins. — David Leonhardt
We're also covering Gaza, NATO and the moon.
The up and upIf there is a simple political truth, it's that voters hate inflation. If there's another, it's that they also hate the policies that snuff it out. Donald Trump's 2024 presidential campaign highlights the tensions between these two truths. The former president has blasted President Biden for the rise in prices over the past few years. But Trump also criticizes high interest rates — the Federal Reserve's key tool for lowering inflation. And the second-term agenda he is proposing contains few policies that economists believe would reduce inflation. In fact, some would risk pushing prices higher. Those include higher tariffs, which could raise costs for American consumers. Trump has also pledged to deport many undocumented immigrants, which could cause labor shortages that lift prices on food and other items. And while Trump has not laid out his plans in sufficient detail for economists to judge how his agenda as a whole would affect inflation, there's little to suggest that his policies would stamp out price increases. "I certainly don't think it's a disinflationary agenda," said Michael Strain, director of economic policy studies at the conservative American Enterprise Institute. Inflation solutions?The White House is not primarily responsible for controlling inflation. That's the Fed's job. The central bank uses interest rates to keep inflation low: Higher rates can cool the economy and bring down prices, and vice versa. Fed officials make decisions independently of a president's administration. But government taxing, spending and regulatory decisions can influence how quickly prices rise, partly by stoking — or slowing — demand. Research suggests that pandemic relief packages contributed to the recent inflation burst by elevating consumption, for instance. Trump has said that inflation would be lower under his watch and that more gas production could curb inflation, suggesting that America should "drill, baby, drill." But U.S. crude oil production already reached record levels last year, and oil drilling permitted on public land is up under Biden. Beyond that, pump prices are driven by big global forces rather than by administration policy. "The president doesn't have a lot to do with what happens in the oil patch," said Tom Kloza, a founder of Oil Price Information Service. Inflationary plansSome of Trump's plans could push prices up. Take tariffs. Trump has floated tariffs of 60 percent or more on Chinese goods, along with a 10 percent markup for imports from around the world. It's hard to guess exactly how tariffs would act on consumer prices: Foreign producers could eat some of their cost, and currency adjustments could dim their impact. But if U.S. importers bear cost increases — which seems to have happened during the first Trump administration — they could pass them onto consumers by raising prices on affected goods. Trump's proposed tariffs are much more extensive than those imposed during his presidency, making them a big economic wild card. Still, they could bring just a one-time price bump, some economists said, rather than ongoing increases — which is what we mean when we say "inflation." Another Trump campaign pledge risks a more ongoing effect: "the largest domestic deportation operation in American history." The details and feasibility of the plan remain unclear, but the disruption could be big. An estimated eight million undocumented workers in the U.S. make up a substantial chunk of the work force in sectors like field work and hospitality. If companies encountered sudden and gaping labor shortages, they would face a choice: either produce less (which would lift prices as consumers competed for fewer goods) or raise wages to attract employees (which could in turn prod companies to charge more). "This would definitely have an inflationary impact," said Thierry Wizman, an economist at Macquarie, though how much "really depends on the extent." Silver liningIf there's one way Trump could reduce inflation, it could be through deregulation, a few Republican economists told me. Businesses facing less red tape might pass their cost savings along to consumers. But it's unclear how much of an impact that would have, because regulation cost estimates vary and Trump's plans are not fleshed out. His campaign did not respond to a request for comment. If there's good news here, it's that inflation is already receding: After jumping to 9.1 percent in the summer of 2022, consumer prices climbed a much more modest 3.1 percent in the year that ended last month. American consumers may not be as spooked by inflation when November's winner takes office. But based on what Trump has proposed so far, there's little to suggest that his policies would alleviate price increases — and some reason to think that they could exacerbate them. For more
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