Former President Donald Trump routinely blames President Joe Biden for higher prices at the grocery store and everywhere else Americans shop, and promises to “fix it.”
But Trump has offered little explanation about how his plans would lower prices. And several of his policies — whatever their merits on other grounds — would instead put new upward pressure on prices, according to interviews with half a dozen economists.
Trump says he plans the “largest domestic deportation in American history,” which would most likely increase the cost of labor. He intends to impose a new tariff on nearly all imported goods, which would probably raise their prices and those of any domestically made competitors.
And he not only wants to make permanent the entire deficit-financed tax cut law he and congressional Republicans enacted in 2017 but also wants to add some kind of new “big tax cut” for individuals and businesses, which would stimulate an economy already at full employment.
As a matter of textbook economics, each of those three signature Trump policy plans would be likely to raise prices. Some could even cause continued, rather than one-time, price increases — adding to the possibility of inflation.
“I think we can say with a lot of confidence that President Trump’s trade policies and immigration policies would result in price spikes,” said Michael Strain, the director of economic policy studies at the right-leaning American Enterprise Institute.
The post-pandemic inflation wave has subsided, but unhappiness over the elevated cost of living it left behind is dragging down assessments of the economy and of Biden’s performance.
Inflation surged globally as the pandemic receded, not just in the United States. But many economists believe the Biden administration’s March 2021 stimulus package was too big, and while it may have contributed to a faster recovery in growth than comparable countries have experienced, it also added fuel to the domestic version of the inflation problem.
In response to questions, the Trump campaign’s policy director, Vince Haley, disputed the notion that Trump’s second-term policy plans could raise prices further or even restoke inflation, saying that Trump would also increase energy production, cut regulations and reduce federal spending.
“The sad fact,” Haley added, “is that Joe Biden doesn’t have a plan to reduce inflation; he has a plan to continue his inflationary policies, laying waste to the wallets and pocketbooks of hardworking Americans all while blaming the size of Snickers bars.”
Getting energy prices ‘down so low’
Trump has not released a detailed economic plan, so it is impossible to model the overall effects of what he might do.
But to the extent that Trump offers any specifics when railing about inflation, his primary pitch is to denounce Biden administration policies aimed at curbing climate change by expanding renewable energy. Trump says he would instead promote more fossil fuel extraction to make gasoline and electricity cheaper.
“We’re going to get your energy prices down so low, and that’s going to knock the hell out of the inflation,” he declared in remarks at a rally in Iowa in December.
Trump has also repeatedly — and falsely — claimed that the United States has “ended oil exploration and production.” While Biden did expand limits on new drilling in the Alaskan wilderness, his administration issued thousands of new permits to drill on other federal lands — outpacing Trump’s record. The United States is producing oil and natural gas at record highs.
Extracting even more oil from domestic soil would put some downward pressure on energy prices, said N. Gregory Mankiw, a Harvard University professor who served as chair of the Council of Economic Advisers during George W. Bush’s presidency. But, he added, “since it’s a global market for oil, that effect would be fairly muted.”
Haley said if Trump returned to office, he would revive and expand his first-term deregulatory efforts and roll back new environmental rules imposed by the Biden administration. That, he argued, would also push prices down.
Economists agree that whatever the other benefits to society government rules may bring, complying with regulations usually increases businesses’ production costs.
And, Haley said, Trump would be “working with a Republican Congress to rein in federal spending.” Another way Trump plans to cut back on spending, he added, is through impoundment, the Richard Nixon-era tactic of a president refusing to spend money Congress appropriated for programs he does not like.
Economists also say that cutting back on federal spending would reduce overall demand for goods and services, which could help keep prices down.
But while Republicans often decry spending and budget deficits when Democrats are in charge, they tend to behave differently when they control the government. Trump already worked as president with a Republican Congress in 2017 and 2018, and federal spending and budget deficits rose both of those years. During Trump’s four years in office, the national debt grew by around $8 trillion despite his 2016 campaign promise to eliminate the entire national debt within eight years by renegotiating trade deals and promoting economic growth.
And it is far from clear that Trump would succeed in his goal of reviving impoundment. Congress outlawed that tactic in 1974.
Disruptions and shortages
Inflation — a decrease in the purchasing power of money — increases when too much money is chasing too few goods and services. Prices are almost always rising a little, and deflation is associated with economic calamity. But during the COVID-19 pandemic and its aftermath, prices rose much faster.
With people hunkering down at home and huge numbers of workers laid off, governments and central banks tried to mitigate the devastation with both fiscal and monetary stimulus — including by directly spending more and by slashing interest rates to encourage borrowing. Then, as vaccines became available, people started spending the money they had saved by not traveling and going out. The job market rapidly recovered.
This surge in economic activity, along with supply chain disruptions, led to shortages of goods. Around the world, prices for available goods started to rise more quickly in mid-2021, as did energy prices that had been severely depressed when few were going out. Then, in early 2022, Russia invaded Ukraine, causing global oil and food prices to surge further. An outbreak of bird flu caused a shortage of eggs, the price of which soared.
In the United States, inflation peaked in June 2022, at 9.1% — a level not seen since the early 1980s. But the Federal Reserve lifted interest rates, supply chain problems were fixed, and the inflation rate fell. In April, prices were 3.4% higher than they were a year earlier — still higher than the Fed’s ideal rate of price growth, but closer to normal.
Inflation on groceries has dropped particularly steeply: Prices at the supermarket rose only 1.1% between April 2023 and April 2024. And wage growth for workers has outpaced price increases over the past year.
But the inflation surge left behind higher prices — and lingering discontent. And while inflation plagued economies around the world, and many of its contributing factors were outside the control of U.S. policymakers, leaders also made choices.
Congress passed emergency spending bills in March 2020 and December 2020 under Trump and in March 2021 under Biden. The Federal Reserve, under Jerome Powell — who was appointed its chair by Trump and then was reappointed by Biden — bought up bonds and kept interest rates low to boost growth.
Many economists now think Biden’s $1.9 trillion stimulus bill in March 2021 was too big for an economy that was already starting to recover, and that the Fed kept interest rates low for too long, Mankiw said.
Kevin Warsh, a former Fed governor and possible chair nominee if Trump wins the election, echoed Mankiw’s criticisms of the Fed under Powell. He also argued that Biden and Treasury Secretary Janet Yellen shared blame for the inflation wave, citing the administration’s regulations and “massive new government spending at full employment.”
But Jared Bernstein, the chair of the Council of Economic Advisers under Biden, defended the administration’s performance. He pointed to data showing that inflation spiked all around the world amid the pandemic supply shocks before sharply decelerating, but economic growth and jobs have recovered faster in the United States than in other advanced economies.
“And part of that,” he said, “has to do with precisely the policies that they are criticizing.”
Still, many Americans remain anxious about high prices, and polls indicate that many people likely to vote in November are penalizing Biden for higher prices.
Mass deportations
One of Trump’s most concrete policy plans is a massive crackdown on illegal immigration. Where the government in recent administrations has generally deported a few hundred thousand unauthorized people per year, Trump is aiming for a tenfold increase in that rate.
The deportation of millions of people would reduce demand for the goods and services they currently consume and could bring down prices for rental housing as their removal frees up supply. But mass deportations would cause a severe supply shock to the labor market, which could increase the overall cost of living, Strain said.
There would be an accelerating shortage of workers for the low-wage jobs that are often performed by immigrants living in the country without legal permission — from picking crops and working construction jobs to washing dishes in restaurants and cleaning houses and hotel rooms. In many cases, such workers make less than minimum wage with no benefits.
Employers would try to find replacement workers, but it would not be easy. Because the job market is already strong — the unemployment rate is below 4% — there are not large numbers of Americans in search of low-wage jobs.
Basic economics say the result would be higher prices as production falls and labor costs go up. For example, if farmers could not find enough workers to pick all their crops, there would be a smaller supply of produce, and it would get more expensive. And businesses would be forced to offer higher wages to attract or retain workers — passing on some of their higher costs to consumers.
Indeed, Stephen Miller, Trump’s top immigration policy adviser, told The New York Times last year that “mass deportation will be a labor-market disruption celebrated by American workers, who will now be offered higher wages with better benefits to fill these jobs.”
High tariffs
Trump, who as president imposed targeted tariffs on certain products like steel and washing machines, is planning to greatly expand such duties if he returns to the White House. He has floated imposing a 10% across-the-board import tax for most products made abroad — the source of many of the goods lining the shelves of stores like Target and Walmart, including electronics, machinery, clothes and toys.
He plans to impose particularly high tariffs on products manufactured in China, with which he started a trade war when president. There is bipartisan support for erecting some barriers to trade with China; Biden kept Trump’s tariffs in place and added a few more on targeted industries, such as electric cars and semiconductors.
Trump typically denies that import taxes raise prices. But R. Glenn Hubbard, a Columbia University economist who also served as chair of the Council of Economic Advisers under George W. Bush, said multiple studies using different methodologies had confirmed that the tariffs Trump imposed were “completely passed on to consumers.”
When the government taxes foreign-made goods, importing businesses raise the prices at which they are willing to sell them to consumers — helping domestic producers of rival goods by allowing them to raise their prices, too.
Robert Lighthizer, Trump’s top trade policy adviser, told the Times for an article about Trump’s tariff plans that the priority should not be cheaper goods but fostering manufacturing jobs for Americans, saying, “You should be willing to pay a price for that.”
Deep tax cuts
A third major policy proposed by Trump that could have implications for inflation and prices involves taxes.
The individual and estate tax cuts from Trump’s 2017 tax law are set to expire after 2025. While Biden wants to extend the cuts for lower- and middle-income people, he wants to let them expire for higher levels of income and for large inheritances. By contrast, Trump wants to extend the law in its entirety. He has also vaguely indicated that he wants to go further with some kind of additional tax cut.
When Trump and congressional Republicans enacted the 2017 tax cut law, they made up the resulting gap in revenue by adding to the national debt. If they repeated that move, extending the expiring tax cuts would amount to fiscal stimulus, with more spending money in the pockets of especially wealthier consumers than would otherwise be the case.
More spending would mean higher demand for goods and services, straining prices when compared with a world in which the tax cuts expired as scheduled, Mankiw said.
He also said the potential inflationary aspects of Trump’s policies could be offset if the Federal Reserve were to further raise interest rates.
But such a move would be anathema to Trump, who loved low interest rates as a real estate mogul, openly demanded them as president and has promised that his reelection would restore them.
How the Fed would operate in a second Trump term would depend in part on whom he chose to replace Powell, whose term ends in May 2026. It would also depend on whether the Fed retained its independence in setting monetary policy without interference by Trump.
Congress established the Federal Reserve as an independent agency, run by a board whose members cannot be fired by presidents without cause. But the conservative legal movement has pushed a theory by which such arrangements are seen as unconstitutional, and Trump has vowed to bring independent agencies under presidential control.
This article originally appeared in The New York Times.
