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Trump’s Plan: Make Inflation High Again

With less than seven months to go before E-Day and nine before Inauguration 2025, many of Trump’s economic advisors are dropping hints as to their plans should he return to power. It might surprise one to learn that that party which has spend the last three years railing about higher prices is planning to supercharge inflation (Politico [1]).

Economic advisers close to former President Donald Trump are actively debating ways to devalue the U.S. dollar if he’s elected to a second term — a dramatic move that could boost U.S. exports but also reignite inflation and threaten the dollar’s position as the world’s dominant currency.

Never mind those high grocery prices; think of the exports.

What Devaluing the Dollar Means

Currencies, like everything else, respond to supply and demand. The greater supply of dollars out there, the cheaper its value in foreign currencies. Those currencies also become more expensive to Americans. If, for example a dollar were to be worth 125 Japanese Yen instead of 160 (the current rate, roughly), that would mean the price of 100 Yen would rise from 62.5 cents to 80 cents. Of course, something else sees prices rise when the dollar used to buy them is devalued: goods and services Americans buy.

This would especially be true with imports – indeed, the whole purpose of the idea is to make imports so expensive that Americans switch their buying patterns in favor of previously priced-out domestic products. Inflation, therefore, is not a bug here; it’s a feature. Higher prices are the whole point.

Trump’s Other Inflationary Ideas

Of course, devaluing the dollar isn’t the only idea to come out of Trumpland. It’s just that the rest is more of the same.

The Trump administration could also impose across-the-board tariffs on imports, making them more expensive for U.S. consumers, the former officials said. Trump is considering a 10 percent universal import tariff, the former administration officials said, and one result of that policy could be to make the dollar weaker relative to other currencies.

So the party complaining about 3.5 percent inflation is proposing a plan to raise imported prices 10 percent (including inputs for which firms would have to charge higher prices to cover higher costs).

Trump is also hoping to stuff the Federal Reserve with folks “who would indulge his passion for the easy money that would goose the economy in the short term while risking renewed inflation” (Steve Rattner [2]).

This shouldn’t surprise any of us. Don’t forget, Trump’s plan to help the economy during the 2020 epidemic included a deal to raise gas prices [3]. We just need to make sure we remember it.

Trump is very lucky in his opponent this year. For all of Joe Biden’s qualities [4], he has been missing in action regarding necessary supply [5]side [6] reforms [7]. That said, the choice before us is an incumbent who is trying to tame inflation versus an ex-incumbent who would send it skywards.