Trump's Promise to 'Rapidly Bring Down Costs and Prices' Is His Achilles Heel

Trump is promising big changes and may well deliver them on immigration and 'wokeness.' But on the economy, he's making promises he can't keep.

Dear readers,

President Trump’s delivery in his inaugural address was subdued, but the content was bold: he will bring about a “revolution of common sense,” “annihilate” the country’s problems, “rapidly bring down costs and prices” while seeing to it that “all illegal entry will be immediately halted,” and “tariff and tax other countries to enrich our citizens.”

Trump’s promise upon taking office is basically the one Biden made four years earlier: He’ll take us back to the normal way things once were. Now he actually needs to do that.

Anti-incumbent sentiment is global and it seems to persist even when new incumbents are created: voters sweep opposition parties into power, only for those parties to quickly become unpopular themselves, as voters see the government has changed but the circumstances making them unhappy have not. To break this anti-incumbent pattern and remain popular (or, at least, as popular as he’s ever been) Trump will need to deliver that promised change. On some issues, I think he’ll succeed. But on the most important issue — the economy and the cost of living — I expect him to have a lot of trouble.

Trump has tailwinds in some areas. The crime spike from the events of 2020 is already receding, and he’ll likely get to take credit for that trend continuing. Race-conscious DEI frameworks are falling out of favor in the private sector, and he’s likely to succeed in a push to restore colorblind frameworks as the dominant approach toward fairness on race — including through litigation against universities that have resisted following the law.

In other areas, he’ll have more trouble because his signature agenda items are crosswise with his promises. Trump’s biggest political worry should be inflation. He will never be able to literally deliver on a promise to “bring down costs and prices” because prices move upward; the question is by how much. And while inflation is currently moderate compared to 2021 and 2022, it remains above target and inflationary pressures still exist. Tax cuts — Republicans’ number-one fiscal policy agenda item — would add to inflationary pressure, as would any effort by Trump to push the Federal Reserve toward lower interest rates. And Trump’s signature agenda item on trade — to reduce imports and increase goods production here in the US, where workers earn much higher wages than in major exporting countries like China — is one that will tend to raise consumer prices. (Vice President J.D. Vance has been explicit about this, saying “cheap foreign goods” are an economic problem — of course, the alternative to cheap foreign goods is more expensive domestic goods.) And any effort to remove millions of unauthorized immigrants from the labor force will tend to raise costs by making labor more scarce — again, an intended effect of the policy.

There are aspects of Trump’s agenda that could reduce inflation. He intends to take a more friendly approach to US fossil fuel production, which could lower energy prices, though it’s worth noting that production already surged under President Biden, despite Democrats’ hostile temperament toward the industry. I am skeptical that Trump will achieve Treasury Secretary Scott Bessent’s goal of raising oil production by a further three million barrels a day (a greater than 20% increase, as I wrote about last month). Still, there is some room here for Trump to fight inflation with more production. He and congressional Republicans will also move to repeal cost-increasing energy mandates from Democrats, with effects large (the EV mandate) and small (appliance efficiency standards). Trump and Republicans also say they will cut government spending — a move that would be disinflationary — but many of the large cuts they could pursue are likely to be politically unpopular and/or impossible to get through a House of Representatives that is nearly evenly divided.

If I were Trump, I would be looking warily at mortgage rates, which have moved over 7% on average in spite of rate cuts by the Federal Reserve. He has few good options to bring down interest rates without spiking inflation — and like the anti-incumbents before him, he will suffer politically if people see that the president has changed but the economy has not changed very much.

Perhaps the difficulty of the economic challenge is the real reason Trump was more interested in talking about immigration than inflation during his inaugural address. His break with the Biden administration on immigration has been immediate — canceling asylum application appointments made through the CBP One app and declaring an intention to restore the “Remain in Mexico” policy. Just as Biden’s early immigration policy moves induced a wave of illegal migration by signaling to migrants that they were likely to gain access to the US, Trump’s hard-ass messaging (combined with enhanced enforcement efforts) is likely to discourage migrants, who were already entering in much lower numbers after this year’s get-tough moves under Biden. But illegal entry won’t be “halted,” and just as in his first term, he’ll face legal barriers that make it hard to stop illegal migration or abuse of the asylum system. He’ll need Democratic cooperation to change the law to reform asylum and increase his powers on immigration, and the passage of the Laken Riley Act signals that he might well get it. But he’d be well-advised to move quickly, during his honeymoon period, before his approval rating sags (likely) and he alienates Democrats in other policy fights (very likely).

Restoring Remain in Mexico will also require cooperation from Mexico. Trump’s speech signaled at least three areas of likely conflict with Mexico — migration, drug interdiction, and tariffs. But Mexico is a sovereign country whose new president has a much broader electoral mandate than Trump’s, and he can’t have everything he wants from them (just like they never paid for the wall). Jonathan Martin of Politico did flag something interesting about the speech — while Trump waxed poetic about tariffs, he did not indicate he’ll do something he promised in November: enact a 25% tariff on imports from Mexico and Canada on his first day in office. Maybe the hesitation on tariffs is the way to square the circle on US-Mexico relations: Trump will use the tariff threat to induce Mexican cooperation with his approach to drugs and migration, and that tariff (with its adverse affect on US consumer prices) won’t ever go into effect.

We’ll see if Trump is that clever.

Overall, I think Trump is likely to come close enough to keeping his promises on crime, immigration, and “wokeness” to satisfy the electorate that he is doing what he was elected to do. Addressing the cost of living is going to be a much more difficult — especially if he is serious about his wacky view that tariffs are what’s needed to make America rich again. And that means we may be about to learn what voters really cared most about in 2024: immigration, or inflation.

Very seriously,

Josh