President Trump inherited a strong economy from President Biden, far stronger than what Biden inherited from Trump in 2020. The Economist Magazine, far from a liberal forum, proclaimed the Biden economy the envy of the world. The business-friendly Wall Street Journal also praised the Biden economy, although not praising Biden himself.
The inflation rate, a hangover from Trump’s colossal failure in dealing with the Pandemic, had declined more in the U.S. than in the rest of the world. But that wasn’t enough for a plurality of voters who blamed inflation on Biden and elected the candidate who incited an unruly crowd to invade the Capitol, the crowd that had already constructed a gallows intended for VP Mike Pence who would not go along with Trump’s failure to concede Biden’s clear victory.
Analysists of all stripe give multiple reasons for Trump’s 2024 victory, each of which merit more discussion than space allows here. Let’s take a closer look at one of them, inflation and prices.
Many voters tell us that they voted for Trump because he promised to reduce grocery prices on day one. Of course that didn’t happen, mainly because it couldn’t. Yet these same voters express deep disappointment, even anger that it didn’t happen.
Let’s get real. No president, including Kamala Harris had she been elected, has a magic wand that can be waved with the order that grocery prices go down on day one. So give him some slack. Even with days, weeks, or even months, presidents don’t have the tools with which to significantly decrease grocery prices in the short run. Trump should never have made such a promise. More significantly, voters should not buy into such outlandish, impossible to keep, promises.
The art of persuasion is not one of Joe Biden’s strong suits. In contrast, Trump is an accomplished carnival barker who is perfectly willing to promise the impossible. He does it because, for him, it works. In a close election, even a few who believed his promise to reduce prices on day one are enough to win a plurality of votes for him.
Grocery prices are determined by a complex of market forces that include commodity prices, labor and transportation costs, and market power of monopolistic firms with pricing power and gimmicks such as “shrinkflation,” shrinking packaging without apparent price changes. Of these, politicians have little control over the short run. As commodity prices are largely influenced by supply and demand, and tend to fluctuate, there is good reason why the Bureau of Labor Statistics computes a “core” consumer price index omitting the relatively volatile prices of food and energy.
This much is not all that complex. It does not require a degree in law, political science, or economics to understand that there is no easy, uncontroversial way to reduce grocery prices. We late stage octogenarians who were in elementary school during the 1940s recall our teachers instructing us to “put your thinking caps on.”
Although there isn’t much that a president can do in the short run to control inflation, he will be held responsible for inflation that occurs. There are at least some things that you don’t do to make it worse. During an egg shortage it is sheer stupidity, incompetence, and hubris to sack USDA scientists who were working on the bird flu, for example.
Which brings us to tariff policy that when incompetently handled will cause prices to rise. Trump has long seen international trade as a win-lose situation instead of a win-win situation in which world resources are used more efficiently. Importing products, whether it is electronics or lumber, in which we pay money for using the labor and resources of other countries instead of our own, is not a loss for us. The objective is to buy those products that we either can’t produce at all, or can’t produce sufficiently at low cost, while selling products of which we have in abundance, such as agricultural products, and products that require our own higher skilled labor.
Critics have long complained of unfair trade practices of China and some other countries, with Trump even complaining that we have been “ripped off” by Canada, our largest trading partner. It is gross incompetence to address such issues by issuing huge blanket tariffs and then jerking them back and forth creating uncertainty that threatens small businesses and complicates planning of large business that require huge investments to start new production.
Many small businesses with small margins depend on low cost imports. Tariffs on those goods stand to eliminate those margins and drive firms out of business. Even the threat or possibility of tariffs is enough to drive marginal firms out of business.
Trump’s assertion that “We don’t need Canada” is pure idiocy. Sure, we could produce more lumber if we clear cut our National Forests and are willing to increase lumber prices while causing environmental damage. But why do that when we can buy from Canada that has lumber in abundance, all while selling goods ranging from manufactured goods to bourbon from Kentucky.
Commerce Secretary’s recent assertion that he envisions millions of Americans pounding nails into electronic devices is another assertion of sheer idiocy, aimed to please his boss. We have our own labor shortages, especially for those low paid drudgery jobs. Trump’s recently proposed high tariffs on Chinese electronic goods created such a fright in this country that he had to immediately retract it. The hard fact is that we need China and China needs us.
As of this writing, Walmart has announced price increases attributable to tariffs, which brings us to Fed policy. With a strong economy and reduced inflation, the Fed was poised to gradually reduce interest rates during 2025. But now, with the threat of inflation due to Trump’s on again, off again record, the Fed is on pause.
Trump threatened to sack Fed Chair Powell for refusing to ease monetary policy. The impersonal stock market, and especially the bond market, breathed a sigh of relief when Trump decided to let Powell complete his four year term. But that term ends May 15, 2026 when Trump can name a new chair.
The entire world financial system depends on an independent Fed Chair. With inflation-producing tariffs and an independent Fed Chair at risk, there are plenty of pricing issues left to worry about.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears monthly in the Monroe Times.
