Smart Money Podcast — How Presidential Policies Affect Prices: Tariffs, Price Control, Immigration and More – NerdWallet

Welcome to NerdWallet’s Sensible Cash podcast, the place we reply your real-world cash questions. On this episode:

Learn the way presidential insurance policies on tariffs, immigration, and costs can affect your on a regular basis bills like groceries and fuel.

What can a president truly do to decrease costs and struggle inflation? Can marketing campaign guarantees actually affect your pockets, or are they only political sizzling air? Hosts Sean Pyles and Anna Helhoski talk about presidential insurance policies and the way they have an effect on every part from the price of fuel to your grocery invoice that can assist you perceive the true affect of political selections in your funds. They start with a dialogue of inflation, with suggestions and tips on understanding how inflation is measured, what drives worth hikes, and what function the president performs in influencing it.

Then, Anna talks to Derek Stimel, an affiliate professor of educating economics at UC Davis, concerning the financial implications of tariffs and immigration insurance policies. They talk about how tariffs elevate the worth of imported items, how immigration impacts labor prices and wages, and what these political insurance policies imply in your on a regular basis purchases.

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What’s the very first thing you do once you go to the grocery retailer? Do you run to the produce aisle and search for the freshest broccoli, possibly? Or conversely, are you heading for the sweet part? I do not decide. However fairly quickly after that, you are most likely beginning to have a look at costs, proper? The worth of, nicely, every part is a every day query in our lives. So it is not stunning that costs are enjoying an element on this yr’s presidential election.

I simply discover it attention-grabbing that each presidential candidates have centered on these extremely unstable markets, which we frequently suppose they actually cannot do this a lot about, and which might be typically pushed by these world forces principally. However each of them have centered on these as their avenues to bringing inflation down.

Welcome to NerdWallet’s Sensible Cash Podcast. I am Sean Pyles.

And that is episode two of our Nerdy deep dive into presidential coverage and private funds. Hey Anna, I do not know for those who’ve observed, however we have got a presidential marketing campaign underway.

Laborious to overlook it. Discuss drama. And each nice drama has a storyline. One huge a part of this yr’s storyline within the marketing campaign has been costs, particularly inflation and what it is accomplished to our backside strains.

Yeah. Inflation hit a excessive of 9.1% again in 2022, and we have been paying a complete lot extra for lots of issues over the previous couple of years. And it is not delicate, it is very noticeable. Anna, is there something particular that has popped up in your radar as costlier than simply a few years in the past? One thing the place you mentioned whoa, that’s far more than I used to pay.

Yeah. So I’ve a bread place close to me and some years in the past the costs have been fairly cheap for a giant loaf of contemporary bread, like $6 a loaf.

Yeah, that is like New York cheap, I am going to say.

Yeah, precisely. No, that is how I gauge every part. However then flour costs spiked and out of the blue the worth went as much as almost $10, which is far more than I am keen to pay. What about you, Sean? Did gecko meals get costlier together with anything?

Because you talked about it, crickets for my gecko Ozzy did go up about 12%. I now spend a whopping $2.25 every week for these creepy bugs for the previous man. In fact, it is not simply these one-off gadgets, these are simply the issues that the 2 of us observed in spades. Homes are costlier, automobiles are costlier, bank cards are costlier. It simply takes extra out of your price range to purchase stuff.

So what can a president do about it? As we heard in final week’s episode, the reply shouldn’t be loads by themselves. They typically want Congress or the Fed or each, and typically a variety of luck to have an effect on the economic system and particularly on costs. However that does not cease them from making every kind of guarantees concerning the modifications they’d make if we despatched them to or again to the White Home. Let’s speak about what they will do in actuality.

And as we famous within the final episode, we’re not right here to take sides or stir up an already contentious political season. Our aim right here is identical one we at all times have at NerdWallet, that can assist you, our listeners, make sensible knowledgeable selections concerning the stuff that impacts your funds. Generally which means selecting a brand new high-yield financial savings account. Different instances which means voting for the candidate who you imagine will enable you to obtain your life and monetary objectives.

All proper, nicely, we need to hear what you suppose too, listeners. To share your ideas across the election and your private funds, depart us a voicemail or textual content the Nerd hotline at 901-730-6373. That is 901-730-N-E-R-D. Or e mail a voice memo to [email protected]. So Anna, who’re we listening to from at this time?

We’re speaking with Derek Stimel. He is an affiliate professor of educating economics on the College of California, Davis. So not solely is he an knowledgeable in macroeconomics, however he is an knowledgeable in educating it. He’ll assist us parse what presidents can and might’t do to have an effect on the worth of all types of products that all of us purchase. Derek Stimel, welcome to the present.

Presidential administrations are likely to take the credit score or get the blame for issues that occur, at the least in relation to public notion. That signifies that the Biden-Harris administration has taken a variety of flak from the Republican Get together and from many Individuals for elevated costs that we’re seeing within the wake of the pandemic. And since we’re just some months away from a brand new administration, are you able to speak somewhat bit about how a lot affect presidents even have on inflation and costs?

Usually we do not consider them as the most important driver of inflation within the economic system. Often, it is issues like financial coverage, so rates of interest, and the availability of cash. Generally it can be issues exterior of the economic system, shocks as we typically say in economics. So issues that occur globally, for instance. Having mentioned that, it is to not say that there cannot be some causes which might be pushed by coverage of the federal government. For instance, within the present scenario, some individuals do level to some authorities spending that befell within the aftermath of COVID and the insurance policies surrounding that. That may’ve been some gas for inflation. However it’s not often the very first thing we consider. On this explicit scenario of our latest inflation, I believe it is not the primary primary factor inflicting the inflation.

Let’s get into a few of the marketing campaign guarantees that every candidate has made. A few of the guarantees may simply be politicking, however a few of it may grow to be a actuality. Begin off with former President Donald Trump’s proposals. Up to now, there have been a number of experiences and assessments from economists who say that his proposals, if enacted, can be inflationary. And one of many important drivers of that projected inflation is Trump’s promise to levy 10% across-the-board tariffs on all international items. Are you able to clarify how tariffs and costs work together?

Tariffs are principally a tax on imported items. For any tax, it’ll have the next results in the marketplace, which is, the tax will get levied, let’s simply say it is the ten% simply to have a quantity. After which the companies principally need to, in a way, decide about will we soak up this tax ourselves, will we move it on to the purchasers, and if that’s the case, in what quantity? They might not move on the complete 10%, it is unlikely they are going to soak up the complete 10% themselves. So there’s going to be a cut up. So in some unfastened setting, possibly they elevate costs by 5% and so they soak up 5% of it to stand up to the ten, or possibly it is 8 and a couple of, or 3 and seven, or what could also be. However the level is that principally, it’ll result in increased costs on these merchandise.

So on this explicit scenario, we’re speaking about increased costs for imported items. And I believe as we’re all typically conscious from our day-to-day procuring and if we ever take a look at the label of something, we purchase a variety of imported items in america. So it is not unreasonable to suppose that elevating taxes basically on imported items would in the end enhance the costs of these imported items after which on common elevate our value of dwelling at the least considerably.

Now, Trump claims that his tariffs would spur American manufacturing and home competitors for manufacturing. Is that one thing that does occur or would possible occur on account of tariffs?

So it undoubtedly can occur that there could possibly be some… you understand, companies need to make the perfect selections based mostly on the principles of the sport as they’re. Elevating tariffs would undoubtedly change the principles and companies would possible reply to that. And so to the extent that they may and that the U.S. was a serious market to them, at the least some companies would attempt to reallocate or relocate again into the U.S. with the intention to keep away from this tariff, principally. However I believe the query is: Would that be sufficient to counterbalance the impact of this increased tax throughout the board? I haven’t got exhausting information on it, however the possible reply is it would not be sufficient. So we might nonetheless see increased costs consequently, and so we must cope with the implications. However there could possibly be some reallocation or relocation of companies for positive.

One other promise Trump has made is to decrease fuel costs. Beneath his first administration, he elevated oil manufacturing after which Biden went additional nonetheless. So how a lot can a president affect fuel costs?

The fuel market or the marketplace for vitality extra broadly outlined could be very a lot a world market, however the U.S. is in a method in a singular place of being the middle of that world market. You hear loads about that the U.S. greenback is that this world reserve forex. Oil for instance is often traded in {dollars} and that type of factor. So we do have somewhat bit extra energy than another international locations. The reply can be possibly a bit totally different if it was us speaking about Canada doing one thing or no matter. It’s also most likely true that fuel costs or costs of vitality typically are actually typically pushed by these world shocks. So on this explicit case, the disruptions that befell resulting from Russia’s invasion of Ukraine are actually the prime mover most likely of vitality costs within the latest years. And it is not clear that any president would be capable of have accomplished one thing about that straight. Clearly, it is extra of a geopolitical factor than an financial coverage factor.

Switching gears once more, I am hoping you may speak somewhat concerning the connection between immigration and the costs that buyers pay for sure on a regular basis items and providers. And be aware for listeners, as you could know, Trump has promised to make use of regulation enforcement and the Nationwide Guard to deport many hundreds of thousands of undocumented immigrants. Past the humanitarian implications and the logistical questions raised by this proposal, what are a few of the financial implications?

Type of a basic mind-set about it economically, particularly once we’re speaking about issues like inflation, is that we predict that enterprise prices principally would drive a variety of inflation, or at the least it could possibly be a first-rate driver of inflation. And inside these enterprise prices, labor prices are sometimes a big portion of these prices. And naturally, that has to do loads with the availability of labor that is out there relative to the demand for that labor. And so we reside in an growing old society, the newborn boomers are principally retiring. And naturally, that is decreasing our labor provide or at the least more likely to scale back our labor provide within the coming years. So what that will imply economically is that will are likely to push up wages all else the identical, which in fact then may additionally push up costs. Companies, once they face these elevated labor prices, have to choose about how a lot to move on to prospects by way of increased costs.

So with that each one in thoughts, for those who additionally lower off the quantity of immigration into the economic system, you’d suppose that that is more likely to put additional strain on wages within the economic system. It will additional, in a way, scale back or at the least not present any additional slack for the availability of labor, and in order that’s going to additional push up wages and additional push up costs general. That is to not say we should not take into consideration reforming immigration ultimately, form, or type, however that is simply to say economically that for those who scale back the availability of labor, the worth of that labor, the wages, and all the opposite types of compensation that include it will go up and companies are going to move at the least a few of that on to prospects within the type of increased costs.

And are there any particular areas of the economic system that could possibly be altered for those who deport hundreds of thousands of people that have been already within the workforce?

There’s the preliminary disruption, uncertainty that will encompass it, which may shake out in all types of the way, lots of that are most likely not optimistic. Think about the native restaurant down the road out of the blue loses half its employees. And what are they going to do? So we might count on a variety of service sector jobs to possibly be impacted by these types of issues, a variety of issues that we work together with every day. After which there’s additionally this situation about for those who create shortages in a single space, as an instance you create a scarcity in a single service sector, it may spill over to different unrelated service sectors as nicely. Perhaps now the one sector has to principally go poach staff from the opposite one. And so possibly it begins to spill over into different areas the place you would not consider, say, quote, unquote, “unlawful immigrants” principally enjoying a task, but it surely truly may have this cascade to different markets.

Extra of our interview in a second. Stick with us. I need to speak about Donald Trump’s proposal to weaken the facility of the Federal Reserve by bringing the central financial institution below extra direct management of the president. And listeners, we have mentioned it earlier than, however the Federal Reserve is nonpartisan and operates independently. That signifies that the president does not inform the Fed what to do and the Fed does not make its selections based mostly on politics. Derek, it looks as if the separation is fairly essential to making sure public belief within the central financial institution’s means to make selections. But when Trump was profitable in his plans to extra straight affect the Fed’s actions, what are a few of these financial implications?

Stepping again for a second, we typically suppose that the Fed’s important function is to maintain inflation, particularly over the long term, comparatively low and secure. And one ingredient that tends to be essential to that’s their principally credibility to decide to that coverage of maintaining inflation low and doing what it takes. None of us preferred within the latest years the rates of interest going up, but it surely’s seen as this obligatory factor to do to deliver inflation again right down to that longer-term aim. And so the priority principally is that a variety of that comes from the truth that the Fed is unbiased to some extent from the remainder of the federal government. It is essential to know that they are not utterly unbiased. The president performs a task in nominating individuals to serve within the Fed. Congress clearly has to approve these items. However this normal separation of like, oh, you may’t inform us when to vary rates of interest or you may’t inform us we won’t do that coverage and we’ve got to do another coverage or no matter, that tends to be essential as this inflation fighter credibility that the Fed has.

If that will get eroded, I believe the priority can be principally that folks within the economic system begin to not imagine within the Fed as a lot as an inflation fighter. That lack of credibility begins to make individuals suppose, “Effectively, they are saying they need 2% inflation, however given that they are tied to the remainder of the federal government, I believe it is possibly going to be extra like two and a half, 3%.” So expectations begin to tick up on inflation. And one factor about inflation is that expectations actually play an essential function and so they are typically self-fulfilling. All of us count on 5, we’ll get 5. And so principally the Fed’s independence is one in all… There’s some others in fact, but it surely’s one of many important issues that is tying down these expectations as a result of it is serving to the Fed preserve its credibility to be there once we want them to struggle inflation.

Effectively, these are the primary issues I need to speak about by way of Donald Trump, however I need to swap gears and speak about Vice President Kamala Harris’s plans to battle inflation. She lately unveiled a plan to ban worth gouging. So first off, what’s worth gouging and the way have we seen it occur?

So in economics, worth gouging does not actually have a particular definition, to be trustworthy with you, however the unfastened thought is that it is taking, quote, unquote, for lack of a greater time period, “unfair benefit of a scenario with the intention to elevate costs.” Generally these conditions are apparent, that are… There’s an earthquake that occurs, as an instance, so out of the blue the worth of fuel and water within the surrounding space goes to skyrocket. That type of thought of profiting from different individuals’s distress and one thing that was actually out of their management, a pure catastrophe, that is actually what we see as worth gouging. So on this explicit context, what we’re speaking about with Vice President Harris is that this view the place, say, for instance, grocery shops profiting from the circumstances to principally elevate costs on their merchandise in an unfair method. However it’s kind of nebulous when you begin to get away from issues that I believe all of us would agree are clearly issues out of our management, like pure disasters.

And is there something already in place to forestall worth gouging?

So states typically have legal guidelines that stop worth gouging within the conditions we’re speaking about like pure disasters, so hurricanes and floods and earthquakes, and so forth. What Vice President Harris is absolutely speaking about is principally a federal ban throughout the board on all types of worth gouging. A minimum of that is what I perceive it to be. And we do not have that. It is probably not clear what the factors can be for that as nicely. So for instance, if an organization raises costs on its merchandise by 5%, how will we resolve if that is simply regular market forces or is it worth gouging in some methods? In different phrases, how will we resolve the equity of all of it? Usually talking, in our economic system, we let the markets work that out, after which all people individually comes to a decision about, nope, that is too costly, I am not going to purchase it, or I assume I am keen to pay that worth, that type of factor.

So some critics of Harris’s proposal, together with Donald Trump have mentioned that it is a worth management. So what’s a worth management? Why do not economists like worth controls and would Harris’s proposal to ban worth gouging truly be a worth management?

Principally, a worth management is basically the federal government setting a most worth in a market. So type of saying, “Hey, you may cost not more than X for this product.” And naturally, we’ve got worth controls within the economic system. Those that folks sometimes speak about classically are sure cities which have hire management. What individuals are principally saying is that this worth gouging thought would in a method restrict how a lot companies can elevate costs. And that will in a method be much like what occurs in a worth management scenario the place the federal government typically does cap how a lot a enterprise can elevate costs.

The great and dangerous of economics a variety of instances is that there is tradeoffs for every part. Concern can be principally that possibly grocery shops, as a result of that is the one which’s been central to all this argument, has actually been the worth of meals, is that principally, possibly you would not see as many new grocery shops opening up, or at the least in a decrease frequency. Perhaps you’d begin to see the standard of what is on the cabinets within the grocery shops begin to decline somewhat bit. So on the one hand, you get the costs of the stuff you purchase do not go up as a lot possibly, however however, there’s much less of them out there and at the least for a few of them, possibly the standard of these merchandise may go down somewhat bit.

So past stopping worth gouging, Harris has additionally vowed to decrease prescription drug costs and she or he needs to do that with worth caps by permitting Medicare to barter costs, rushing up supply of generic medication, and cracking down on huge pharma. So how impactful may a few of these efforts be by way of making prescription drug costs extra reasonably priced?

Oh, it may. Not surprisingly, the federal authorities by way of Medicare is a big shopper on this market, which principally means they’ve a variety of energy, market energy we might name. On this explicit case, the technical time period is monopsony energy. However principally, yeah, they might have a variety of energy doubtlessly to barter and there can be spillover results for individuals who do not have Medicare. When it comes to with the ability to decrease, say, prescription drug costs by permitting Medicare to do that large negotiation principally with the massive pharma firms, that actually may have a big effect on these costs for positive, as a result of Medicare is so enormous.

Proper. And also you touched on housing earlier, however let’s speak somewhat bit about Harris’s huge proposals together with her plans to make housing extra reasonably priced. One that basically caught out to me is a plan to forestall company landlords from utilizing price-fixing algorithms.

This can be a courageous new world that we’re in, and there is a variety of instances the place regulation is behind the know-how, the place principally a variety of these companies… And it is in fact not simply in actual property, it is in a variety of different areas as nicely, in finance particularly, the place they principally use these computerized algorithms to basically seek for the offers that they need to transact. Is it price-fixing or is it the truth that all of those algorithms principally are likely to level in the identical course as a result of they typically use the identical information with the intention to churn by way of all their calculations? It isn’t clear to me, I assume, how that may be enacted after which additionally what the implications can be.

And Harris mentioned she would help building of three million new housing items within the subsequent 4 years, amongst different plans. And essentially, with the intention to decrease housing costs or hire or the availability of properties for buy, we simply want extra housing. So may Harris’s proposals spur extra building? And in addition what can a president do to facilitate housing development?

A lot of that is native. I imply, a lot of that is crimson tape based mostly on native housing boards and all these different varieties of issues, the “not in my yard” type of stuff. And so it is probably not clear what anyone at a nationwide stage may actually do about that type of stuff as a result of a lot of it’s all the native political machines and so forth that principally drive all these insurance policies. As a normal thought, I believe the essential level that, sure, the way in which it’s a must to principally decrease housing costs or at the least maintain them from going up as a lot is to provide extra housing, is unquestionably the reply. As a result of the housing market in a way is exclusive in comparison with different markets, in that the availability is principally fastened by the variety of items and really, what we might say in economics, inelastic. You are not going to essentially get round that except you simply merely construct extra.

Derek, are there every other proposals from both of the candidates that we’re overlooking that would contribute to reducing costs or to rising inflation?

I believe the very last thing I might point out, I assume. I do know President Trump needs to extend the home manufacturing of pure fuel and coal and all that type of factor. And I do discover it attention-grabbing that each Vice President Harris and President Trump have centered on these areas of inflation. Within the case of former President Trump, it is vitality prices, and within the case of Vice President Harris, it is principally meals prices. And these are the issues which might be particularly excluded by the Fed once they’re trying on the longer-term measures of inflation. So I simply discover it attention-grabbing that each presidential candidates have centered on these extremely unstable markets, which we frequently suppose they actually cannot do this a lot about, and which might be typically pushed by these world forces, principally. However each of them have centered on these as their avenues to bringing inflation down.

I believe the very very last thing I would add in, which might be too huge to essentially get into, is the extent that the deficit and the nationwide debt may play by way of inflation in different elements of the economic system, particularly going ahead because it’s ballooned loads. There are some theories on the market, for instance, that it does play a task in inflation and to the extent that the insurance policies of the 2 candidates may add to the deficit, and naturally, then by extension add to the debt. That could possibly be in a method a hidden inflation issue that we are likely to not focus a lot on.

And one we’ll most likely pay for sooner or later.

Yeah, anyone will finally.

Derek Stimel, thanks a lot for becoming a member of us at this time.

Yeah, completely. Thanks a lot for having me.

Sean, there’s one thing else I need to level out that I did not get to in my dialog with Derek, however got here from researching an article on this subject, and that is worth tolerance. Proper now, individuals are nonetheless fairly worth illiberal as a result of a lot is elevated from the place we keep in mind it being. But when costs truly did drop throughout the board, it could be a giant downside. Economic system-wide worth drops actually solely occur when there is a huge recession. And I believe Trump and Harris’s campaigns each know this. They cannot deliver again pre-pandemic costs, so what they will do strategically is make guarantees which might be most related to individuals.

Proper. And final week we talked about how one particular person president cannot actually remodel the economic system on their very own. However your dialog with Derek Stimel illustrates how a president’s priorities could make a much bigger affect on an issue-by-issue foundation. Former President Trump is concentrated on reducing the worth of fuel. Vice President Harris needs to make housing extra reasonably priced. And we noticed how President Biden was capable of push for decrease costs on sure medication like insulin. Though we should always be aware, in fact, that Biden wasn’t ready to do this with out the assistance of Congress.

So Sean, one different factor. Perhaps it is apparent but it surely’s price saying, is that whereas we’ve got pointed to a variety of methods during which a president can not actually management issues like pricing, the president can also be the chief of his or her respective political occasion, and that always signifies that the occasion and its political leaders will coalesce round these insurance policies, making them extra viable.

Yep. We have talked about that the president typically has to work with Congress to get payments handed that may fulfill their guarantees. And members of their occasion, whereas they do not essentially march in lockstep, they’ll continuously work with that president to pursue his or her financial agenda. So no, the president cannot wave a magic wand, but when their occasion additionally has management in Congress, that makes a world of distinction within the means to make these objectives occur.

And that is a case for ensuring you are taking note of what candidates are saying up and down the poll. The presidential candidates aren’t the one ones to make a distinction. Do a little analysis in your congressional candidates, and for that matter, metropolis council and college district, as a result of all of them contact public cash and that is your cash. It at all times helps to coach your self on how they plan to spend it. You will discover the newest cash information updates in NerdWallet’s monetary information hub, which we’ll hyperlink to within the present notes, or simply search on-line for NerdWallet monetary information.

So Anna, inform us what’s arising in episode three of the collection.

Effectively, Sean, subsequent time we’re utilizing a phrase no one likes however issues loads to your funds: taxes. We’ll hear what the present candidates for the best workplace within the land need to do with the cash that comes out of your paycheck.

Two-thirds of the price of making these particular person tax cuts everlasting would go to the richest fifth of Individuals. So to the richest 20% of Individuals. So only for a way of what that can value, in 2026 alone, that can value greater than $280 billion.

For now, that is all we’ve got for this episode. Do you’ve gotten a cash query of your personal? Flip to the Nerds and name or textual content us your questions at 901-730-6373. That is 901-730-N-E-R-D. You may as well e mail us at [email protected]. And keep in mind, you may comply with the present in your favourite podcast app, together with Spotify, Apple Podcasts, and iHeartRadio to routinely obtain new episodes.

This episode was produced by Tess Vigeland and Anna. I helped with enhancing. Rick VanderKnyff and Amanda Derengowski helped with fact-checking. Megan Maurer combined our audio. And a giant thanks to NerdWallet’s editors for all their assist.

And this is our temporary disclaimer. We’re not monetary or funding advisors. This nerdy data is offered for normal academic and leisure functions and should not apply to your particular circumstances.