Trump’s policy promises versus cost of living

The US economy can look forward to higher prices with the Trump protectionist and isolationist agenda. Trump seeks to protect US manufacturing jobs ‘America First’ and dismiss US trade partners as outlined in his recent speech at the World Economic Forum in Davos.

It is predicted that inflation with increase by 2.6% (up from 2.2% pre election). The cost of living could increase with his policy promises:

• Mass deportations: less labour especially in construction and agriculture = higher wages required to attract workers = higher prices

• Tax cuts: more disposable income = more demand = higher prices

• Tariffs: high cost of imports = higher prices domestic producers can charge and higher production costs if importing materials. One economist has suggested that a 10% tariff = 1% increase in price. However a stronger dollar could lower import costs.

• Reducing bureaucratic hurdles: There is limited research demonstrating that deregulation significantly affects inflation. While issuing more drilling permits could boost domestic oil and gas supply, the industry may hesitate to increase production beyond global market absorption capacity, potentially causing price declines – see graph from FT.

These policies will keep the US Fed busy maintaining interest rates of around 4.25% to 4.5% to keep inflation in check. As for reducing the cost of living for US citizens, it is wait and see.

Source: FT The Trump economy: inflation versus isolationism. 28-1-25

For more on Inflation view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.