“`html
In Washington, Donald Trump is embarking on his presidency by refraining from imposing tariffs, focusing instead on executive actions that he hopes will lower energy prices and control inflation. However, there remains uncertainty about whether these measures will affect the U.S. economy as he has pledged.
Trump attributed the inflation crisis to excessive government spending, as stated in his inaugural address where he proposed that boosting oil production could help reduce prices. His forthcoming orders, including actions related to Alaska, aim to alleviate the regulatory constraints on oil and natural gas extraction. Additionally, he plans to declare a national energy emergency to stimulate electricity production, competing with China in sectors such as artificial intelligence that require substantial energy for data centers.
On his first day, Trump is expected to issue a presidential memorandum that advocates for a comprehensive government strategy to combat inflation. Sources privy to the new administration’s plans indicated that Trump would also terminate what he erroneously labels an electric vehicle “mandate.” Though the outgoing administration under Joe Biden sought to promote electric vehicles, there was no formal mandate to compel their purchase.
Throughout his campaign and after winning the election, Trump persisted in threatening tariffs on countries such as China, Mexico, and Canada. However, he seems to be delaying the implementation of increased import taxes. Instead, he is pointing federal agencies towards a study of trade issues, reflecting a cautious approach amidst his stated commitment to imposing tariffs.
As a result, Canadian officials are acknowledging the unpredictable nature of Trump’s trade intentions and are preparing for varied outcomes. Canadian Finance Minister Dominic LeBlanc noted, “He may have chosen to momentarily suspend the threat of tariffs against many nations. We will wait and see,” emphasizing the need for readiness given Trump’s history of unpredictability.
Trump faces numerous challenges in achieving his goals of reducing prices. His predecessor, Biden, succeeded in lowering inflation over two years, yet left office with prices rising faster than wages over a four-year period. A significant factor contributing to inflation is the ongoing housing deficit. Although U.S. oil production remains at high levels, producers confront uncertainties regarding global demand this year. The Federal Reserve, responsible for maintaining inflation around a 2% target, utilizes short-term interest rates as a primary tool, supplemented by bond purchases and strategic communication.
Trump argues that enhancing natural resource production is critical for lowering costs for consumers, particularly concerning fuel and utility bills. As energy prices dramatically influence nearly all aspects of the economy, boosting U.S. production of fossil fuels is deemed essential for national security. Trump has criticized his predecessor’s administration for restricting Alaska’s oil and gas production, emphasizing the need for U.S. “energy dominance.”
Despite this, energy expenditures account for an average of only 6% of overall consumer spending, which is significantly lower than expenditure categories such as food, which takes up 13%, or housing, which comprises 37% of the consumer price index.
Inflation, which had remained dormant for many years, reemerged in early 2021, driven by a rapid economic recovery from COVID-19. An increase in customer orders overwhelmed supply chains, resulting in delays and price hikes. Manufacturing sectors globally, including those producing computer chips and furniture, faced challenges during the recovery.
Republican lawmakers were swift to attribute rising inflation to Biden’s $1.9 trillion pandemic relief initiative, despite the reality that inflation was a worldwide issue influenced by factors beyond U.S. policy. The situation worsened after Russia’s invasion of Ukraine in February 2022, which led to surging energy and food costs. In reaction, the Federal Reserve raised its benchmark interest rate multiple times across 2022 and 2023, achieving a decrease from a peak of 9.1% inflation in mid-2022, but inflation rates nudged up to 2.9% year-on-year by December.
Voter dissatisfaction with progress on inflation is palpable, with many expressing frustration over prices being more than 20% higher than four years prior, while average earnings have stagnated. Grocery prices have soared by 27% since February 2021, leading to significant concerns for consumers. In a recent interview, Trump admitted the challenge of reducing grocery prices, stating, “It’s hard to bring things down once they’re up.”
Many of the initiatives Trump is advocating will likely require approval from Congress, especially with some provisions of his 2017 tax cuts expiring soon. He aims to extend and amplify these cuts, potentially costing over $4 trillion over the next decade. To finance these tax reductions, he may consider eliminating Biden’s supports for renewable energy. Additionally, Trump is likely to propose repealing a $7,500 tax credit for new electric vehicle purchases, as well as rolling back regulations related to greenhouse gas emissions in passenger and commercial vehicles.
“`
