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Trump is shafting his base economically in three ways most Trump voters don’t see or know. It’s important that they do.
The Consumer Price Index has risen 2.7 percent from a year earlier. That’s the fastest pace since February. The trend is worrying, especially for working-class consumers who have to sacrifice a larger portion of their paychecks to buy what they bought before.
So-called “core” inflation — which strips out volatile food and energy prices and is therefore a more reliable measure for underlying price pressures — is rising even faster: up 2.9 percent from the same time last year.
Trump’s tariffs are the major culprit. Prices rose noticeably on appliances, clothing, and furniture — all products heavily exposed to Trump’s import taxes from Canada, China, and other major trading partners.
Prices will almost certainly rise further over the course of the summer, as new so-called reciprocal levies go into effect, including a 50 percent import tax on Brazil and an eye-popping 50 percent import tax on copper, all set to take effect August 1.
The Yale Budget Lab has estimated that consumers will face an overall effective import tax rate of 20.6 percent. That’s the highest in 115 years, the equivalent of a $2,800 hit in yearly household income.
$2,800 is a far bigger deal for lower-income consumers than higher-income. Much of Trump’s working-class base will be hurt.
Trump wants Fed Chair Jerome Powell to cut interest rates in order to stimulate spending. But there’s no way Powell is going to do that with core inflation picking up.
Trump doesn’t have the power to fire Powell, but Trump is trying to pressure him with a White House investigation of an expensive renovation of the Fed’s headquarters, which Trump may try to use as a pretext for firing him. Earlier today, Trump again tore into Powell over both interest rates and the cost of the renovations to the Fed’s headquarters.
Trump’s pressure on Powell is worrying investors that Trump won’t allow Powell or his replacement to control inflation.
This worry is raising inflationary expectations — already causing lenders to raise longer-term interest rates. The worry is also eroding confidence in the safety and stability of the U.S. dollar, which is plunging in value.
Lower-income American consumers will be hit with three big cost increases:
(1) Import taxes (Trump’s tariffs), which will rise further on August 1. These import taxes will take a bigger bite out of the wallets of lower-income Americans than higher-income.
(2) On top of the import taxes, the declining dollar makes everything imported from the rest of the world even more expensive. Again, lower-income Americans will be hit harder than higher-income.
(3) Trump’s Big Ugly bill will cut Medicaid and food stamps, which will raise the costs of health care and food for lower-income Americans, including much of Trump’s base.
Income inequality is wider than it’s been since the first Gilded Age. Trump’s policies — import taxes (tariffs), pressure on the Fed that’s driving down the dollar, and Big Ugly cuts in Medicaid and food stamps in order to help finance a tax cut mainly for the rich — will further widen it.
Many of the working-class people who voted for Trump will be harmed the most.
They need to know.
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(REUTERS)
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