Good Cash Podcast — How Presidential Insurance policies Have an effect on Costs: Tariffs, Value Management, Immigration and Extra

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

Find out how presidential insurance policies on tariffs, immigration, and costs can affect your on a regular basis bills like groceries and fuel.

What can a president really do to decrease costs and battle inflation? Can marketing campaign guarantees actually affect your pockets, or are they simply political scorching air? Hosts Sean Pyles and Anna Helhoski focus on presidential insurance policies and the way they have an effect on the whole lot from the price of fuel to your grocery invoice that can assist you perceive the actual affect of political choices in your funds. They start with a dialogue of inflation, with suggestions and methods on understanding how inflation is measured, what drives value hikes, and what position 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 focus on how tariffs elevate the value of imported items, how immigration impacts labor prices and wages, and what these political insurance policies imply to your on a regular basis purchases.

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What’s the very first thing you do whenever you go to the grocery retailer? Do you run to the produce aisle and search for the freshest broccoli, perhaps? Or conversely, are you heading for the sweet part? I do not decide. However fairly quickly after that, you are most likely beginning to take a look at costs, proper? The worth of, effectively, the whole lot is a day by day query in our lives. So it isn’t shocking that costs are enjoying a component on this 12 months’s presidential election.

I simply discover it fascinating that each presidential candidates have centered on these extremely risky markets, which we frequently assume they actually cannot do this a lot about, and which might be usually pushed by these international forces principally. However each of them have centered on these as their avenues to bringing inflation down.

Welcome to NerdWallet’s Good 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 should you’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 12 months’s storyline within the marketing campaign has been costs, particularly inflation and what it is accomplished to our backside traces.

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 isn’t refined, 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 stated 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 had been fairly cheap for an enormous 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 the whole lot. However then flour costs spiked and instantly the value 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 outdated man. After all, it isn’t simply these one-off objects, 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 funds to purchase stuff.

So what can a president do about it? As we heard in final week’s episode, the reply just isn’t quite a bit by themselves. They usually want Congress or the Fed or each, and typically lots 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 adjustments 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 objective right here is similar one we all the time have at NerdWallet, that can assist you, our listeners, make sensible knowledgeable choices concerning the stuff that impacts your funds. Generally meaning selecting a brand new high-yield financial savings account. Different occasions meaning voting for the candidate who you consider will enable you obtain your life and monetary targets.

All proper, effectively, we wish to hear what you assume too, listeners. To share your ideas across the election and your private funds, go away 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 as we speak?

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 skilled in macroeconomics, however he is an skilled in educating it. He’ll assist us parse what presidents can and may’t do to have an effect on the value 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, a minimum of in terms of public notion. That implies that the Biden-Harris administration has taken lots of flak from the Republican Celebration and from many Individuals for elevated costs that we’re seeing within the wake of the pandemic. And since we’re only a few months away from a brand new administration, are you able to discuss just a little bit about how a lot affect presidents even have on inflation and costs?

Usually we do not consider them as the foremost driver of inflation within the economic system. Often, it is issues like financial coverage, so rates of interest, and the provision of cash. Generally it may also be issues outdoors of the economic system, shocks as we typically say in economics. So issues that occur globally, for instance. Having stated 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 state of affairs, some individuals do level to some authorities spending that passed off within the aftermath of COVID and the insurance policies surrounding that. That may’ve been some gasoline for inflation. Nevertheless it’s not normally the very first thing we consider. On this specific state of affairs of our current inflation, I believe it isn’t the primary primary factor inflicting the inflation.

Let’s get into among the marketing campaign guarantees that every candidate has made. A number of the guarantees would possibly simply be politicking, however a few of it might grow to be a actuality. Begin off with former President Donald Trump’s proposals. To this point, there have been a number of reviews and assessments from economists who say that his proposals, if enacted, could be inflationary. And one of many most 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 is going to 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 must, in a way, decide about will we take up this tax ourselves, will we go it on to the purchasers, and if that’s the case, in what quantity? They could not go on the complete 10%, it is unlikely they will take up the complete 10% themselves. So there’s going to be a cut up. So in some free setting, perhaps they elevate costs by 5% they usually take up 5% of it to rise up to the ten, or perhaps it is 8 and a pair of, or 3 and seven, or what could also be. However the level is that principally, it is going to result in increased costs on these merchandise.

So on this specific state of affairs, we’re speaking about increased costs for imported items. And I feel as we’re all typically conscious from our day-to-day procuring and if we ever have a look at the label of something, we purchase lots of imported items in the US. So it isn’t unreasonable to assume that elevating taxes primarily on imported items would in the end enhance the costs of these imported items after which on common elevate our price of dwelling a minimum of 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 seemingly occur because of tariffs?

So it positively can occur that there could possibly be some… you realize, companies must make the very best choices based mostly on the principles of the sport as they’re. Elevating tariffs would positively change the principles and companies would seemingly reply to that. And so to the extent that they might and that the U.S. was a serious market to them, a minimum of some companies would attempt to reallocate or relocate again into the U.S. so as to keep away from this tariff, principally. However I feel the query is: Would that be sufficient to counterbalance the impact of this increased tax throughout the board? I haven’t got exhausting knowledge on it, however the seemingly reply is it would not be sufficient. So we’d nonetheless see increased costs because of this, and so we must take care of 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 manner in a novel place of being the middle of that international market. You hear quite a bit about that the U.S. greenback is that this international reserve forex. Oil for instance is normally traded in {dollars} and that form of factor. So we do have just a little bit extra energy than another nations. The reply could be perhaps 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 usually pushed by these international shocks. So on this specific case, the disruptions that passed off on account of Russia’s invasion of Ukraine are actually the prime mover most likely of vitality costs within the current years. And it isn’t clear that any president would be capable to have accomplished one thing about that instantly. Clearly, it is extra of a geopolitical factor than an financial coverage factor.

Switching gears once more, I am hoping you’ll be able to discuss just a little concerning the connection between immigration and the costs that customers pay for sure on a regular basis items and companies. And be aware for listeners, as it’s possible you’ll know, Trump has promised to make use of legislation enforcement and the Nationwide Guard to deport many tens of millions of undocumented immigrants. Past the humanitarian implications and the logistical questions raised by this proposal, what are among the financial implications?

Form of a basic mind-set about it economically, particularly after we’re speaking about issues like inflation, is that we predict that enterprise prices principally would drive lots of inflation, or a minimum of it could possibly be a chief driver of inflation. And inside these enterprise prices, labor prices are sometimes a big portion of these prices. And naturally, that has to do quite a bit with the provision of labor that is accessible relative to the demand for that labor. And so we stay in an ageing society, the child boomers are principally retiring. And naturally, that is lowering our labor provide or a minimum of prone to cut back our labor provide within the coming years. So what that may imply economically is that may are likely to push up wages all else the identical, which in fact then might additionally push up costs. Companies, once they face these elevated labor prices, have to select about how a lot to go on to prospects by way of increased costs.

So with that every one in thoughts, should you additionally minimize off the quantity of immigration into the economic system, you’ll assume that that is prone to put additional strain on wages within the economic system. It may additional, in a way, cut back or a minimum of not present any additional slack for the provision of labor, and in order that’s going to additional push up wages and additional push up costs total. That is to not say we should not take into consideration reforming immigration indirectly, form, or type, however that is simply to say economically that should you cut back the provision of labor, the value of that labor, the wages, and all the opposite types of compensation that include it will go up and companies are going to go a minimum of 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 should you deport tens of millions of people that had been already within the workforce?

There’s the preliminary disruption, uncertainty that may encompass it, which might shake out in all types of how, a lot of that are most likely not constructive. Think about the native restaurant down the road instantly loses half its workers. And what are they going to do? So we’d count on lots of service sector jobs to perhaps be impacted by these types of issues, lots of issues that we work together with day by day. After which there’s additionally this situation about should you create shortages in a single space, for instance you create a scarcity in a single service sector, it might spill over to different unrelated service sectors as effectively. Perhaps now the one sector has to principally go poach workers from the opposite one. And so perhaps it begins to spill over into different areas the place you would not consider, say, quote, unquote, “unlawful immigrants” principally enjoying a job, however it really might have this cascade to different markets.

Extra of our interview in a second. Stick with us. I wish to speak about Donald Trump’s proposal to weaken the ability of the Federal Reserve by bringing the central financial institution beneath extra direct management of the president. And listeners, we have stated it earlier than, however the Federal Reserve is nonpartisan and operates independently. That implies that the president would not inform the Fed what to do and the Fed would not make its choices 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 skill to make choices. But when Trump was profitable in his plans to extra instantly affect the Fed’s actions, what are a few of these financial implications?

Stepping again for a second, we typically assume that the Fed’s most important position is to maintain inflation, particularly over the long term, comparatively low and steady. And one ingredient that tends to be crucial to that’s their principally credibility to decide to that coverage of preserving inflation low and doing what it takes. None of us appreciated within the current years the rates of interest going up, however it’s seen as this essential factor to do to deliver inflation again right down to that longer-term objective. And so the priority principally is that lots of that comes from the truth that the Fed is impartial to a point from the remainder of the federal government. It is vital to grasp that they are not fully impartial. The president performs a job in nominating individuals to serve within the Fed. Congress clearly has to approve this stuff. However this common separation of like, oh, you’ll be able to’t inform us when to alter rates of interest or you’ll be able to’t inform us we won’t do that coverage and we now have to do another coverage or no matter, that tends to be vital as this inflation fighter credibility that the Fed has.

If that will get eroded, I feel the priority could be principally that folks within the economic system begin to not consider within the Fed as a lot as an inflation fighter. That lack of credibility begins to make individuals assume, “Properly, they are saying they need 2% inflation, however given that they are tied to the remainder of the federal government, I feel it is perhaps 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 vital position they usually are usually 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, however it’s one of many most important issues that is tying down these expectations as a result of it is serving to the Fed preserve its credibility to be there after we want them to battle inflation.

Properly, these are the principle issues I wish to speak about by way of Donald Trump, however I wish to change gears and speak about Vice President Kamala Harris’s plans to battle inflation. She not too long ago unveiled a plan to ban value gouging. So first off, what’s value gouging and the way have we seen it occur?

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

And is there something already in place to stop value gouging?

So states typically have legal guidelines that stop value 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 value gouging. Not less than that is what I perceive it to be. And we do not have that. It is probably not clear what the standards could be for that as effectively. So for instance, if an organization raises costs on its merchandise by 5%, how will we determine if that is simply regular market forces or is it value gouging in some methods? In different phrases, how will we determine the equity of all of it? Typically 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 value, that form of factor.

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

Principally, a value management is actually the federal government setting a most value in a market. So form of saying, “Hey, you’ll be able to cost not more than X for this product.” And naturally, we now have value controls within the economic system. Those that folks usually speak about classically are sure cities which have hire management. What individuals are principally saying is that this value gouging thought would in a manner restrict how a lot companies can elevate costs. And that may in a manner be just like what occurs in a value management state of affairs the place the federal government usually does cap how a lot a enterprise can elevate costs.

The great and dangerous of economics lots of occasions is that there is tradeoffs for the whole lot. Concern could be principally that perhaps grocery shops, as a result of that is the one which’s been central to all this argument, has actually been the value of meals, is that principally, perhaps you would not see as many new grocery shops opening up, or a minimum of in a decrease frequency. Perhaps you’ll begin to see the standard of what is on the cabinets within the grocery shops begin to decline just a little bit. So on the one hand, you get the costs of the belongings you purchase do not go up as a lot perhaps, however alternatively, there’s much less of them accessible and a minimum of for a few of them, perhaps the standard of these merchandise would possibly go down just a little bit.

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

Oh, it might. Not surprisingly, the federal authorities by way of Medicare is a large shopper on this market, which principally means they’ve lots of energy, market energy we’d name. On this specific case, the technical time period is monopsony energy. However principally, yeah, they might have lots of energy probably to barter and there could be spillover results for individuals who haven’t got Medicare. By way of having the ability to decrease, say, prescription drug costs by permitting Medicare to do that large negotiation principally with the massive pharma firms, that actually might have a huge impact on these costs for positive, as a result of Medicare is so enormous.

Proper. And also you touched on housing earlier, however let’s discuss just a little bit about Harris’s huge proposals together with her plans to make housing extra inexpensive. One that actually caught out to me is a plan to stop company landlords from utilizing price-fixing algorithms.

It is a courageous new world that we’re in, and there is lots of occasions the place regulation is behind the expertise, the place principally lots of these companies… And it is in fact not simply in actual property, it is in lots of different areas as effectively, in finance specifically, the place they principally use these computerized algorithms to primarily seek for the offers that they wish to transact. Is it price-fixing or is it the truth that all of those algorithms principally are likely to level in the identical route as a result of they usually use the identical knowledge so as to churn via all their calculations? It is not clear to me, I assume, how that is likely to be enacted after which additionally what the implications could be.

And Harris stated she would help development of three million new housing items within the subsequent 4 years, amongst different plans. And essentially, so as to decrease housing costs or hire or the provision of houses for buy, we simply want extra housing. So might Harris’s proposals spur extra development? And likewise what can a president do to facilitate housing progress?

A lot of that is native. I imply, a lot of that is purple tape based mostly on native housing boards and all these different sorts of issues, the “not in my yard” form of stuff. And so it is probably not clear what anyone at a nationwide stage might actually do about that form of stuff as a result of a lot of it’s the entire native political machines and so forth that principally drive all these insurance policies. As a common thought, I feel the essential level that, sure, the best way it’s a must to principally decrease housing costs or a minimum of maintain them from going up as a lot is to produce extra housing, is certainly the reply. As a result of the housing market in a way is exclusive in comparison with different markets, in that the provision is principally mounted by the variety of items and really, what we’d say in economics, inelastic. You are not going to essentially get round that except you simply merely construct extra.

Derek, are there another proposals from both of the candidates that we’re overlooking that would contribute to decreasing costs or to growing inflation?

I feel the very last thing I might point out, I assume. I do know President Trump desires to extend the home manufacturing of pure fuel and coal and all that form of factor. And I do discover it fascinating 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 fascinating that each presidential candidates have centered on these extremely risky markets, which we frequently assume they actually cannot do this a lot about, and which might be usually pushed by these international forces, principally. However each of them have centered on these as their avenues to bringing inflation down.

I feel 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 would possibly play by way of inflation in different elements of the economic system, particularly going ahead because it’s ballooned quite a bit. There are some theories on the market, for instance, that it does play a job in inflation and to the extent that the insurance policies of the 2 candidates would possibly add to the deficit, and naturally, then by extension add to the debt. That could possibly be in a manner 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 as we speak.

Yeah, completely. Thanks a lot for having me.

Sean, there’s one thing else I wish to level out that I did not get to in my dialog with Derek, however got here from researching an article on this matter, and that is value tolerance. Proper now, individuals are nonetheless fairly value illiberal as a result of a lot is elevated from the place we keep in mind it being. But when costs really did drop throughout the board, it might be an enormous drawback. Economic system-wide value drops actually solely occur when there is a huge recession. And I feel Trump and Harris’s campaigns each know this. They can not 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 rework 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 decreasing the value of fuel. Vice President Harris desires to make housing extra inexpensive. And we noticed how President Biden was in a position to push for decrease costs on sure medication like insulin. Though we must always be aware, in fact, that Biden wasn’t ready to try this with out the assistance of Congress.

So Sean, one different factor. Perhaps it is apparent however it’s value saying, is that whereas we now have pointed to lots of methods by which a president can’t actually management issues like pricing, the president can be the chief of his or her respective political celebration, and that usually implies that the celebration and its political leaders will coalesce round these insurance policies, making them extra viable.

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

And that is a case for ensuring you are being attentive to what candidates are saying up and down the poll. The presidential candidates aren’t the one ones to make a distinction. Perform some research 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 all the time helps to teach your self on how they plan to spend it. You’ll find the most recent 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 developing in episode three of the collection.

Properly, Sean, subsequent time we’re utilizing a phrase no one likes however issues quite a bit to your funds: taxes. We’ll hear what the present candidates for the very best workplace within the land wish 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 may price, in 2026 alone, that may price greater than $280 billion.

For now, that is all we now have for this episode. Do you might have 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 too can e-mail us at [email protected]. And keep in mind, you’ll be able to comply with the present in your favourite podcast app, together with Spotify, Apple Podcasts, and iHeartRadio to robotically obtain new episodes.

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

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