Affordability is Trump’s problem now
Like every president, he will have to own the political consequences of rising prices
Rana Foroohar
© Matt KenyonBack during the last presidential campaign, Donald Trump made political hay with the notion that higher than normal inflation was all down to the Democrats’ fiscal spending programmes.
Never mind that prices went up 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, a more expensive shoe is on the other foot.
The US president claims inflation is going down, but it is in fact higher than it was when he was elected.
Hawks are once again ascendant at the Federal Reserve, warning that a rate cut in December is unlikely.
Meanwhile, even as Trump walks back some levies on grocery items like beef and coffee, double-digit tariffs are probably the new normal (history teaches it takes years to bring them down once raised).
And many secular and cyclical trends beyond tariffs suggest a more inflationary environment.
Start with reshoring.
Foreign direct investment in America’s industrial base is pouring in from around the world.
Capital expenditure is by nature inflationary, particularly when it’s not paired with immediate productivity gains.
And many of the investments being rolled out now, in areas from the automotive industry to shipbuilding to artificial intelligence and the energy grid upgrades needed to support it, are long-term bets.
These investments create a sea change that has been 40 years in the making.
From the 1970s on, US economic policy was geared towards outsourcing costs (labour, manufacturing) to countries in Asia, in exchange for running deficits and providing the world with dollars.
That entire paradigm — which was disinflationary — is now shifting.
America wants to build again, and China and other countries want to move away from the dollar.
That truth complicates Trump’s already floundering efforts to appease Maga voters who suffer disproportionately from affordability issues.
If the US hollowed out its industrial base and stopped 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 deficits and Wall Street”, then “common sense suggests reshoring it will do the opposite on a real basis”. I’d very much agree.
Factory and energy capex isn’t the only secular inflation trend ahead.
Healthcare costs are also going up.
It’s no accident that the core of the latest government shutdown fight was about healthcare, and particularly Medicaid benefits.
While much of the inflation conversation has been centred on tariffs, consumers can very often choose not to purchase items that are going up in price.
They can’t choose not to have a healthcare emergency, which in the US is a big reason for bankruptcy.
Healthcare is an issue that will affect everyone, not just the working class.
One recent report by the strategy firm Mercer found that its costs are likely to rise by 9 per cent in 2026, and that employers will be making “plan design changes” to try to lower those rates by a couple of percentage points.
That’s code for “cutting benefits” and “raising co-payments”, which means that individuals should expect less for more.
Like groceries, this is the kind of kitchen-table issue that very much resonates at the ballot box.
You can see Trump trying to get ahead of it already, with things like TrumpRx, his proposal for a federally underwritten drug-purchasing website that is, ironically, straight out of the Obamacare playbook.
While we all knew that affordability would become Trump’s problem, what we didn’t know was that he would turn to the same policy tools that the Democrats have used to try to tackle the issue.
Witness the idea of sending cheques to households (which the Biden administration did under the American Rescue Plan Act in 2021), or the president saying he’s going to have the justice department investigate the meatpacking industry for driving up prices through “Illicit Collusion, Price Fixing, and Price Manipulation”, as he put it on social media.
This is literally what Lina Khan did while she was Biden’s Federal Trade Commission chair, issuing a joint statement along with the justice department around monopsony power in the poultry industry, as well as calling out competition issues in meatpacking at the height of the Biden-era inflation increases in 2022.
The former president made combating monopoly power a signature issue of his campaign. Sadly for Americans, antitrust is a long-term tool.
Even if Trump were sincere and consistent in his desire to crack down on monopolies, it’s not going to change the inflation picture in the next year or two.
Meanwhile, it’s not only the structural but also the cyclical picture that favours inflation.
According to a report by Currency Research Associates, inflation bottomed out last April and is now in a cyclical upturn.
The report, which analyses over 100 years of data, finds inflation has moved in four-and-a-half-year cycles on average since 1933.
Cyclical inflation has “seldom dipped below 3 per cent but has frequently bottomed out near 3 per cent”, it says, and predicts inflation to rise and peak in 2027.
If that’s the case, the political ramifications will be Trump’s to own.
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