Woe to the American consumer. The price of groceries, gas, housing, and other goods and services jumped 0.5 percent from December to January; the cost of car insurance is up 12 percent year over year and the price of eggs is up 53 percent. “On day one, we will end inflation and make America affordable again,” President Donald Trump promised on the campaign trail. That is not happening. Worse, the White House’s early policies are making it more likely that the country’s cost-of-living crisis will endure for years to come.
Voters’ dissatisfaction with inflation delivered the White House to Trump; Americans cited the economy as their No. 1 issue, inflation as their No. 1 economic concern, and Trump as their preferred candidate to handle it. On his first day in office, Trump ordered the government to deliver “emergency price relief” by figuring out ways to expand the housing supply, streamline the health-care system, eliminate climate rules on home appliances, and expand energy production.
Each of those policies would bring down costs, if enacted, as would Trump’s deregulatory agenda. But as a general point, the White House has fewer ways to quickly temper consumer prices than it does to, say, bolster or lower demand—a problem that bedeviled the Biden administration too. The Federal Reserve controls borrowing rates. The housing and child-care shortages are the products of decades of underinvestment, the former also heavily influenced by municipal policies that Washington has no say in. The trillions of dollars spent by billions of consumers on billions of products generated by millions of firms—the gravitational forces of supply and demand, settled on liquid international markets and affected by government policies only on the margin—are what determine how much people pay at big-box stores and the gas station.
The policies the Trump White House has enacted are likely to make the cost crisis worse. Trump has described the word tariff as “the most beautiful” one to appear in the dictionary. He insists that adding levies to the goods produced by foreign companies will boost national industry and keep American households from getting ripped off. But economists from across the political spectrum agree that tariffs are taxes paid by domestic consumers. They increase prices.
Trump has backed away from the tariffs he proposed on Mexico and Canada in his first weeks in office. Yet he has implemented new levies on Chinese goods, spurring Beijing to retaliate with levies on American natural gas, oil, and farm machinery. This week, Trump also announced new steel and aluminum tariffs, raising costs for American automakers, energy companies, construction firms, and other businesses working in heavy industry. If Trump ends up implementing trade restrictions on Canada and Mexico as originally proposed, or ones of similar scale, the effective tariff rate on American imports would increase from 3 percent to 10 percent—the highest in seven decades.
Studies of the tariffs Trump implemented in his first term demonstrate what will happen. By the end of 2018, Trump’s trade policies were costing Americans an additional $3.2 billion a month at grocery stores and malls, while also reducing the variety of goods American consumers could purchase. And those tariffs were far more limited than the ones he has promised to impose this time.
On top of making imports more expensive, Trump is raising the cost of hiring workers and doing business in the United States by cracking down on the flow of migrants. Immigration and Customs Enforcement has amped up its raids; Trump is also attempting to end birthright citizenship and close the borders. Fewer undocumented workers will enter the country, and fewer will remain.
Undocumented workers, and immigrants in general, are crucial to millions of American businesses, particularly farms, construction firms, child-care providers, and delivery services. If you get rid of workers, production will go down and prices will spike. One new study found that the increase in deportations during the Obama administration led each average-size county in the country to forgo “the equivalent of an entire year’s worth of additional residential construction”—meaning 1,994 new homes—over three years. As a result, home prices jumped 10 percent.
At the same time, Trump is silencing the country’s contagion-monitoring system during a bird-flu outbreak, meaning farmers might end up culling millions more chickens and dairy cows. (Bird flu is the reason egg prices are up so much to begin with.) He is also rattling the markets, leading companies to pull back on the kind of investments that would increase domestic production—presenting “a compelling case for taking some chips off the table,” as Tiffany Wilding and Andrew Balls of Pimco put it in a note to investors.
All in all, Trump’s policies should add 0.5 percent to consumer costs this year, Mark Zandi of Moody’s Analytics told me, slowing GDP growth by 0.2 percent this year and 0.5 percent next year. He said he did not expect the country’s growth to be “derailed, given the economy’s strong underlying fundamentals and Trump’s willingness and ability to pivot on policy.” But it “will be meaningfully diminished.”
America is lucky that its underlying fundamentals are strong. The stock market is high; unemployment is low; wages are going up; businesses are generating big profits. Still, people are struggling with a dire housing shortage, bruising out-of-pocket medical costs, and a severe undersupply of early-childhood-education options—as well as expensive eggs and unaffordable car and home insurance. Trump has yet to put out a policy agenda that would tackle those problems in the long term, and is backing away from his campaign promise to make America affordable again in the near term too.
He seems to be betting that voters don’t care as much about the economy as they said they did. “They all said inflation was the No. 1 issue,” Trump said after his inauguration. “I said, I disagree. I think people coming into our country from prisons and from mental institutions is a bigger issue.” He added: “How many times can you say that an apple has doubled in cost?”
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