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During the last presidential campaign, Donald Trump made waves politically with the idea that higher-than-normal inflation was all due to the Democrats’ budget programs. No matter that prices rose for myriad reasons — like post-Covid pent-up demand, supply chain disruptions, the war in Ukraine, and possibly even corporate concentration — Trump won the election in part because he was able to convince enough Americans that inflation was Joe Biden’s fault.
Now there’s a more expensive shoe on the other side. The American president claims that inflation is falling, but that is actually the case higher than when he was elected. The Hawks are again on the rise at the Federal Reserve, warning that a rate cut in December is unlikely.
In the meantime, double-digit tariffs are likely the new normal, even if Trump cuts some duties on foods like beef and coffee (history shows that once they are raised, they take years to come down). And many secular and cyclical trends beyond rates point to a more inflationary environment.
Start reshoring. Foreign direct investment into the U.S. industrial base is pouring in from around the world. Capital expenditures are inherently inflationary, especially if they are not accompanied by immediate productivity gains. And many of the investments being rolled out now, in areas from the automotive industry to shipbuilding and artificial intelligence and the energy network upgrades needed to support this, are long-term investments.
These investments bring about a major change that has been in the works for forty years. From the 1970s onwards, US economic policy was aimed at outsourcing costs (labor, production) to countries in Asia in exchange for maintaining deficits and supplying the world with dollars. That whole paradigm – which was disinflationary – is now shifting. America wants to rebuild, and China and other countries want to move away from the dollar.
That truth complicates Trump’s already struggling efforts to appease Maga voters who disproportionately suffer from affordability issues. If the US erodes its industrial base and stops investing in supporting infrastructure, in part because, as analyst Luke Gromen put it in a recent letter to investors, this “supported the UST market, the USD, Washington and Wall Street deficits,” then “common sense suggests that resettling it on a real basis will do the opposite.” I very much agree.
Investments in factories and energy are not the only future inflation trend. Healthcare costs are also increasing. It’s no coincidence that the heart of the latest fight against the government shutdown has been about health care, and specifically Medicaid benefits. While much of the discussion about inflation has focused on rates, very often consumers can choose not to purchase items where the price is rising. They can’t choose not to have a health care emergency, which is a major reason for bankruptcy in the US.
Healthcare is an issue that will affect everyone, not just the working class. A recent report from strategy firm Mercer shows that costs are likely to rise 9 percent by 2026, and that employers will make “plan design changes” to try to reduce these rates by a few percentage points. That’s code for “reducing benefits” and “increasing copayments,” meaning individuals should expect less for more.
As with groceries, this is the kind of kitchen table issue that resonates deeply at the ballot box. You can see that Trump is already trying to get an edge, with things like TrumpRx, his proposal for a federally endorsed drug purchasing website that, ironically, is straight out of the Obamacare playbook.
While we all knew that affordability would become Trump’s problem, we didn’t know that he would turn to the same policy tools that Democrats have used to address the problem. Witness the idea of sending checks to households (which the Biden administration did under the American Rescue Plan Act in 2021), or the president saying he will have the Justice Department investigate the meatpacking industry for driving up prices through “illegal collusion, price fixing, and price manipulation,” as he put it on social media.
This is literally what Lina Khan did when she chaired Biden’s Federal Trade Commission, issuing a joint statement with the Justice Department on monopsony power in the poultry industry and raising competitive concerns in meatpacking at the height of Biden-era inflationary increases in 2022.
The former president made the fight against monopoly power a signature theme of his campaign. Unfortunately for Americans, antitrust is a long-term tool. Even if Trump were sincere and consistent in his desire to crack down on monopolies, this will not change the inflation picture over the next two years.
Meanwhile, it is not only the structural, but also the cyclical picture that drives inflation.
According to a report from Valuta Research Associates, inflation bottomed out last April and is now in a cyclical upswing. The report, which analyzes more than a hundred years of data, shows that inflation has developed on average in four-and-a-half-year cycles since 1933. Cyclical inflation has “rarely fallen below 3 percent, but has often bottomed out around 3 percent,” the report says, predicting inflation will rise and peak in 2027.
If that is the case, Trump will bear the political consequences.
