Everything Trump Wants to Do Causes Inflation

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Just call it the Five-Grand Old Party. This week, at the Republican Party’s midterm faux-convention, President Trump announced something called (inevitably) the “Trump Dividend.” The premise is simple. “If the Republicans win the House of Representatives and the United States Senate, both of them,” Trump said, “I will issue a dividend to every adult citizen in the United States of America for $5,000.”

Problems abound. First, this is wildly inappropriate, for obvious reasons: It’s an attempt at using taxpayer money to bribe voters into supporting the president’s party. Because Trump is not premising the supposed payout on individuals’ votes, it might be legal, though the White House would presumably require congressional approval for the estimated $1.3 trillion cost. A Republican Congress might sign off; a Democratic one might be more inclined to start impeachment proceedings.

Second, the payments almost certainly won’t happen. (If you disagree, I’d be happy to sell you a nice bridge in Brooklyn if you sign your Trump Dividend over to me.) Trump has promised to cut checks to Americans before and not followed through, and this proposal appeared to catch many of Trump’s advisers, as well as Republican lawmakers, by surprise. Florida Governor Ron DeSantis, Trump’s rival for the 2024 GOP nomination, quickly criticized the pledge.

Third, injecting more than $1 trillion into the economy wouldn’t just blow up the deficit and national debt—it would also drive up prices. Giving every American $5,000 to spend would create demand that couldn’t immediately be met, encouraging sellers to raise prices. I could quote lots of economists from left, right, and center who have already said that the payouts would be inflationary, but you could also just take it from Trump himself, who has repeatedly blamed inflation on high spending during the Biden administration—including in the same speech where he floated the dividend.

A paradox of this moment is that inflation is a big reason for Trump’s cratering approval and his party’s sinking odds in the midterm elections, but nearly every one of his signature policy ideas is inflationary. The basic challenge is not novel to this president—voters hate inflation, yet most anti-inflation measures the government can take will hurt the economy, which voters also hate. But Trump’s strategy seems to be to commit to new proposals that would drive up costs.

In some cases, inflation is incidental to the president’s goal. When Trump launched the war in Iran, he apparently believed that it would end quickly—and might even result in the United States gaining control over Iran’s huge oil reserves. Instead, the war is dragging on into its seventh month, with no end in sight. The de facto closure of the Strait of Hormuz, as well as attacks in the Bab el-Mandeb Strait, have strangled shipping of oil as well as other goods, driving prices higher. The average price of a gallon of diesel fuel in the U.S. topped $6 today for the first time, and because so many goods move via diesel trucks, the rise drives further inflation.

Trump’s efforts to crack down on immigration also have the collateral effect of pushing prices up. The administration has not only tried to secure borders and deport unauthorized immigrants; it has also revoked legal status from more than 1 million people who were permitted to live and work in the United States under Temporary Protected Status. Many of these people were employed in industries such as construction and health care that are difficult and low-paid; for example, more than 20,000 Haitians with TPS worked in caregiving last year. Housing shortages plague many parts of the country, and more building could alleviate them. Perhaps Americans will be willing to take these difficult jobs, but with unemployment rates already low, that will likely require higher salaries—which will mean higher costs, and therefore higher prices.

Other Trump policy ideas are directly and explicitly inflationary. For decades, Trump has espoused protectionism, saying that the United States should impose tariffs in order to close trade deficits with some partners. Regardless of the other merits of this plan (and they are dubious at best), tariffs are by definition inflationary. The goal is to raise prices on certain products. A tariff is a tax on goods, and someone has to pay it.

Faced with economic headwinds and voter dissatisfaction, Trump has at many times dismissed voter concerns, but he has also pressured the Federal Reserve to lower interest rates. Trump attempted to oust former Fed Chair Jerome Powell and the board member Lisa Cook, and made clear that he expects his newly appointed chair, Kevin Warsh, to lower rates. By law, the Fed is required to promote maximum employment and stable prices. (It aims for 2 percent inflation.) Trump wants lower interest rates because they encourage economic growth, but they drive inflation for the same reasons: Lower rates encourage borrowing, which produces spending, which has a similar effect on prices as sending every American adult a $5,000 check.

Writing off Trump’s pursuit of inflationary ideas as cynical is tempting, if only because so much of what he does is cynical, but years of evidence suggest that Trump actually has little idea how economics works, as the journalist Steve Benen recently noted. The president’s obsession with trade deficits is nonsensical; Senator Rand Paul memorably quipped that because he gives money to his grocer and gets food in return, he’s running a trade deficit with the supermarket. Last week, Trump perplexingly suggested that the United States could simply cut off commerce entirely: “We could do tremendous good for ourselves by just not trading with countries.”

Perhaps Trump doesn’t understand that his ideas will drive up prices. Perhaps he does, but concludes that dangling free money in front of voters is worth the hit. Either way, new numbers released today show that inflation rose 3.4 percent from one year ago. Trump’s policies are working.

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