Good mood with Trump – but how long will it last?Image: trapezoid
During the campaign, Donald Trump benefited from voter dissatisfaction with high prices. But if he wanted to implement his plan, cheap stuff wouldn't work – quite the opposite.
Voters fed up with high prices for food, real estate and car insurance helped return Donald Trump to the White House on Wednesday. The inflation (or “economic,” as many people decide after the election) problem is arguably even more serious. Stronger than the fear of the imminent collapse of democracy, stronger than abortion rights, minority protections, climate protection and even immigration.
This is economy Inflation, stupid.
Post-election surveys also showed that people who said they were particularly hard hit by rising prices were more likely to vote for Trump.
Clearly, the American people are more likely to believe Trump will make everyday products cheaper again. Trump also frequently reminds them that inflation has not been a problem during his administration. He also promised to rein in high prices during his second term.
His problem: If he really wants to fulfill his campaign promises, the former president will soon have an inflation problem of his own.
Tariffs and deportations put pressure on prices
Some of the campaign promises that were popular with voters — notably “mass deportations” and extremely high tariffs on foreign products — would, if implemented, lead to even higher prices. very high inflation.
Not only that: Some financial markets have become nervous. The stock market has generally risen since Trump's election. (At least that's true in the United States; in Europe, the opposite is true.) But if you look at bond markets, such as those that trade government bonds, the picture is different. For example, the yield on 10-year U.S. government bonds briefly rose on election day, rising more than at any time since April.
That's likely because Trump's plans for a presidency would create trillions of dollars in additional debt — about $4 trillion more than Harris' plan, according to one study. In theory, higher debt increases the risk for investors investing in the country, thereby increasing the risk premium, or returns.
If bond yields rise over the long term, it will cost more to finance a mortgage or loan or even a car.
Why inflation is more than just inflation
What many Democrats have repeatedly reminded is the truth: The U.S. economy is doing very well. Unemployment is at an all-time low and the stock market is at an all-time high. Yes, it is also true that inflation is falling sharply again.
In June 2022, inflation remained at 9.1%, the highest in four (!) decades. In October last year the figure was 2.4%. Inflation has fallen so sharply that Federal Reserve Chairman Jerome Powell cut key interest rates for the second consecutive time on Thursday.
But there is one thing you must not forget: price There has been no decline during this period – just the rate at which prices continue to rise. While economists and analysts like to talk about averages and fairly neutral numbers, the reality for Americans is often different.
The extent to which American households have been and will continue to be hit by persistently high prices should not be underestimated. Moody's analysis shows that the typical U.S. household must spend $1,120 more per month than in January 2021 to purchase the same goods and services. Indeed, the same typical household also earned $1,193 more than in January 2021.
But these numbers are just averages, and not every household or every employee will be able to compensate for higher prices with higher wages. According to CNN, Trump won several districts in the swing state of Pennsylvania where wages simply have not kept pace with rising prices.
Ryan Sweet, chief U.S. economist at Oxford Economics, explained to CNN:
“Economists focus on the rate of price change, while consumers focus on the level of prices. American consumers generally have short memories—except when it comes to price. Many can now say that compared with four years ago, gasoline, milk, and The price of bread has dropped to pennies.
How tariffs raise prices
However, Donald Trump’s commitment to solving the problem stands in stark contrast to his agenda. Particularly striking is his enthusiasm for tariffs of all kinds – no matter whose product it is or what country it comes from. Trump has said that tariffs are the “greatest invention ever.” So far, he has been able to willfully ignore the fact that all economists and experts contradict his logic—that tariffs have an inflationary effect, not lower prices, as Trump claims.
According to calculations by the prestigious Peterson Institute for International Economics, the impact is quantifiable and, in fact, not encouraging at all for U.S. consumers. Trump's pledge to impose huge tariffs, deport millions of unregistered workers and possibly even influence the Federal Reserve will weaken economic growth, increase inflation and reduce employment. At the same time, Trump wants to lower inflation, which will rise to at least 6% by 2026. Researchers say prices will rise by 20% by 2028.
Indeed, individual tariffs, if used in a targeted manner, can play a role in protecting domestic industries. However, this impact will only have long-term effects, if at all, that is, only if domestic industry is able to expand its production capacity to the point where previously imported goods can be substituted by domestic goods. In the short term, however, tariffs are nothing more than a tax on products: they make them more expensive, and consumers pay the price.
Trump's voters believe he will control inflation better than Democrats. Now, paradoxically, they have to hope that the new president will not deliver on his campaign promises. Otherwise, their joy at the new president will soon fade again.
An unpredictable US president returns to the White House. Concerns became evident during the talks in Kiev, and the future U.S. vice president offered little hope.
Now there is finally certainty. Donald Trump won the US presidential election last Tuesday and will therefore determine the fate of the United States for the next four years. The former president's re-election is a worry not only for America's enemies but also for its allies.
