WASHINGTON — On his first day in office, Donald Trump is choosing to hold off on implementing tariffs, banking on the effectiveness of his executive orders to lower energy costs and manage inflation. The potential impact of these orders on the U.S. economy remains to be seen.
In his inaugural speech, Trump pointed to what he believes to be the root cause of the inflation crisis: excessive federal spending. He suggested that increasing oil production could help reduce prices for consumers.
Among the new initiatives announced, including a directive related to Alaska, are measures aimed at reducing regulatory barriers for oil and natural gas production. Additionally, Trump plans to declare a national energy emergency to stimulate electricity production, particularly as the U.S. competes with China in sectors reliant on high energy consumption such as artificial intelligence and data centers.
Trump intends to sign a presidential memorandum that advocates for a comprehensive governmental strategy to combat inflation. Detailed insights into these plans were revealed by a new White House official who preferred to remain anonymous while speaking with journalists.
This official noted that the administration will also end what Trump has inaccurately described as an “electric car mandate.” While the outgoing administration led by Democrat Joe Biden has encouraged the transition to electric vehicles (EVs), there has been no legal mandate compelling consumers to purchase them.
Throughout his election campaign and following his win in November, Trump had threatened tariffs on various nations, including China, Mexico, and Canada. However, he seems to be delaying the implementation of increased import taxes for now. An official indicated that Trump will likely issue a memorandum directing federal agencies to investigate trade issues rather than imposing immediate tariffs.
Despite this, Trump reiterated in his inaugural address that tariffs on foreign imports will eventually be enacted, asserting that such penalties will be borne by other countries, even though domestic importers currently absorb these taxes, which are often passed on to consumers.
This cautious approach regarding tariffs signals to the Canadian government that it should prepare for a range of potential outcomes concerning trade with the U.S. Canadian Finance Minister Dominic LeBlanc commented on the unpredictability of Trump’s administration, suggesting that they must stay ready for any scenario.
The challenges facing Trump in achieving his ambitions to reduce prices are considerable. Although President Biden succeeded in reducing the inflation rate over two years, he is leaving office with inflation still outstripping wage growth.
A key factor driving inflation is the ongoing housing shortage, while U.S. oil production has reached record highs, bringing uncertainty regarding global demand. The Federal Reserve, tasked with regulating inflation, typically manages it through short-term interest rates for banks and various monetary controls.
Trump advocates that ramping up the production of natural resources is crucial to lowering consumer costs, both regarding gasoline and utility bills. Given that energy prices affect nearly every aspect of the economy, boosting production of oil, natural gas, and other fossil fuels is presented as essential for national security. Trump has also criticized the Biden administration for restricting oil and gas operations in Alaska.
Demonstrating a lack of concern about the fossil fuel industry’s impact on climate change, Trump has voiced grievances about environmental disasters, such as the wildfires in Los Angeles. He has stated he would rewithdraw the U.S. from the Paris climate agreement, effectively undermining efforts to address global warming and distancing the nation from important allies.
While energy influences overall prices, it constitutes a relatively small portion of family expenditures, averaging about 6% according to consumer price index weightings, which is significantly lower than food (13%) or housing (37%).
Inflation, which had been low for decades, made a resurgence in early 2021 as the economy swiftly rebounded from the impacts of COVID-19 shutdowns. An unexpected surge in consumer demand led to overwhelmed supply chains, resulting in delays and increasing costs across various sectors, including manufacturing for key products like computer chips and furniture.
Republican leaders were quick to attribute rising inflation to Biden’s massive $1.9 trillion pandemic relief bill, although this inflationary trend is global, driven by factors beyond American policy. The situation worsened further after Russia’s invasion of Ukraine in February 2022, which led to escalating prices for energy and food.
In response, the Federal Reserve raised its benchmark interest rate 11 times between 2022 and 2023, effectively lowering inflation from a high of 9.1% in mid-2022. Nevertheless, inflation has shown signs of an uptick since September, reaching an annual rate of 2.9% in December.
Voters have expressed dissatisfaction with the progress made against inflation, as prices are still over 20% higher than they were four years prior, and average weekly earnings have not kept pace. Groceries, in particular, have become increasingly expensive, with prices rising 27% since February 2021.
Following his inaugural remarks, Trump downplayed the significance of inflation for the 2024 election cycle, indicating that his supporters might prioritize immigration concerns over prices, suggesting there’s only so much to say about rising costs.
“How many times can you say that an apple has doubled in cost?” Trump remarked.
