NerdWallet's Smart Money Podcast - How Presidential Policies Affect Prices: Tariffs, Price Control, Immigration and More

Episode Date: October 10, 2024

Learn how presidential policies on tariffs, immigration, and prices can impact your everyday expenses like groceries and gas. What can a president actually do to lower prices and fight inflation? Can campaign promises really impact your wallet, or are they just political hot air? Hosts Sean Pyles and Anna Helhoski discuss presidential policies and how they affect everything from the cost of gas to your grocery bill to help you understand the real impact of political decisions on your finances. They begin with a discussion of inflation, with tips and tricks on understanding how inflation is measured, what drives price hikes, and what role the president plays in influencing it. Then, Anna talks to Derek Stimel, an associate professor of teaching economics at UC Davis, about the economic implications of tariffs and immigration policies. They discuss how tariffs raise the price of imported goods, how immigration impacts labor costs and wages, and what these political policies mean for your everyday purchases. Stay up to date on the latest financial news by visiting NerdWallet’s Financial News Hub: https://www.nerdwallet.com/h/news/financial-news  In their conversation, the Nerds discuss: inflation, gas prices, grocery prices, presidential policies, price gouging, campaign promises, tariffs, housing prices, lowering inflation, food costs, how presidents affect inflation, impact of tariffs, rising prices, how to reduce inflation, economic policy, cost of living, presidential election impact on economy, Federal Reserve, interest rates, macroeconomics, energy costs, labor costs, wages, supply chain issues, grocery store prices, price hikes, government spending, immigration policies, taxes, high inflation causes, price control, real estate market, debt and inflation, how tariffs work, price increases, affordable housing, consumer prices, cost of goods, natural gas prices, economic recession, and job market trends. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

What's the first thing you do when you go to the grocery store? Do you run to the produce aisle and look for the freshest broccoli maybe? Or conversely, are you heading for the candy section? I don't judge. But pretty soon after that, you're probably starting to look at prices, right? The price of, well, everything is a daily question in our lives. So it's not surprising that prices are playing a part in this year's presidential election. I just find it interesting that both presidential candidates have kind of focused on these highly volatile markets, which we often think they really can't do that much about,

and that are often driven by these kind of global forces, basically. But both of them have sort of, you know, focused on those as their avenues to kind of bringing inflation down. Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is episode two of our nerdy deep dive into presidential policy and personal finances. Hey, Anna, I don't know if you've noticed, but we've got a presidential campaign underway. Hard to miss it. Talk about drama. And every great drama has a storyline. One big part of this year's storyline in the campaign has been prices, specifically inflation and what it's done to our bottom lines. Yeah, inflation hit a high of 9.1% back in 2022. And we've been paying a whole lot more for a lot of things over the last few years.

And it's not subtle. It's very noticeable. Ana, is there anything specific that has popped up on your radar as more expensive than just a couple years ago? Something where you said, whoa, that is way more than I used to pay. Yeah, so I have a bread place near me. And a few years ago, the prices were pretty reasonable for a big loaf of fresh bread, like $6 a loaf. Yeah, that's like New York reasonable, I'll say. Yeah, exactly. No, that's how I gauge everything. But then flour prices spiked, and suddenly the price went up to nearly $10, which is way more than I'm willing to pay. What about you, Sean? Did gecko food get more expensive along with anything else?

You know, since you mentioned it, crickets for my gecko Ozzie did go up about 12%. I now spend a whopping $2.25 a week for those creepy bugs for the old guy. Of course, it's not just these one-off items. These are just the things that the two of us noticed in spades. Houses are more expensive. Cars are more expensive. Credit cards are more expensive. It just takes more out of your budget to buy stuff. So what can a president do about it? As we heard in last week's episode, the answer is not a lot by themselves. They often need Congress or the Fed or both, and sometimes a lot of luck to have an impact on the economy and specifically on prices.

But that doesn't stop them from making all kinds of promises about the changes they'd make if not here to take sides or fan the flames of an already contentious political season. Our goal here is the same one we always have at NerdWallet, to help you, our listeners, make smart, informed decisions about the stuff that impacts your finances. Sometimes that means choosing a new high-yield savings account. Other times that means voting for the candidate who you believe will help you achieve your life and financial goals. All right, well, we want to hear what you think too, listeners. To share your thoughts around the election and your personal finances, leave us a voicemail or text the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or email a voice memo to podcast at nerdwallet.com. So Ana, who are we hearing from today? We're talking with Derek Stimmel. He's an Associate Professor of Teaching Economics at the

University of California, Davis. So not only is he an expert in macroeconomics, but he is an expert in teaching it. He'll help us parse what presidents can and can't do to affect the price of all sorts of goods that we all buy. Derek Stimmel, welcome to the show. Oh, thanks for having me. So presidential administrations tend to take the credit or get the blame for things that happen, at least when it comes to public perception. That means that the Biden-Harris administration has taken a lot of flack from the Republican Party and from many Americans for elevated prices that we're seeing in the wake of the pandemic. And since we are just a few months away from a new administration, can you talk a little bit

about how much influence presidents actually have on inflation and prices? Normally, we don't think of them as the major driver of inflation in the economy. Usually, it's things like monetary policy, so interest rates and the supply of money. Sometimes it can also be things like outside of the economy shocks, as we sometimes say in economics. So things that happen globally, for example. Having said that, it's not to say that there can't be some causes that are driven by policy of the government. For example, in the current situation, some people do kind of point to the government. For example, in the current situation, some people do kind of point to some government spending that took place in the aftermath of

COVID and the policies surrounding that, that might have been some fuel for inflation. But it's not usually the first thing we think of in this particular situation of our recent inflation. I suspect it's not the first number one thing causing the inflation. Let's get into some of the campaign promises that each candidate has made. Some of the promises might just be politicking, but some of it could become a reality. Start off with former President Donald Trump's proposals. Thus far, there have been multiple reports and assessments from economists who say that his proposals, if enacted, would be inflationary. And one of the main drivers of that projected inflation is Trump's promise to levy 10% across the board tariffs on all foreign goods. Can you

explain how tariffs and prices interact? Tariffs are basically a tax on imported goods. For any tax, it's going to have kind of the following effects on the market, which is the tax gets levied. Let's just say it's the 10% just to kind of have a number. And then the businesses basically have to kind of, in a sense, make a decision about, do we absorb this tax ourselves? Do we pass it on to the customers? And if so, in what proportion? They may not pass on the full 10%. It's unlikely they're going to absorb the full 10% themselves. So there's going to kind of be a split. So like in some loose setting, maybe they raise prices by 5% and they absorb 5% of it, right, to get up to the 10, or maybe it's eight and two or three and seven or what may be. But the point is that basically it's going to lead

to higher prices on those products. So in this particular situation, we're talking about higher prices for imported goods. And I think as we're all sort of generally aware from our day-to-day shopping, and if we ever look at the label of anything, we buy a lot of imported goods in the United States. So it's not unreasonable to think that raising taxes essentially on imported goods would ultimately boost the prices of those imported goods and then on average raise our cost of living at least somewhat. Now, Trump claims that his tariffs would spur American manufacturing and domestic competition for production. Is that something that does happen or would likely happen as a result of tariffs? So it definitely can happen, right, that there could be some, you know, businesses have to make the best decisions based on the kind of rules of

the game as they are. Raising tariffs would definitely change the rules and businesses would likely respond to that. And so to the extent that they could, and that the US was sort of a major market to them, at least some businesses would try to kind of reallocate or relocate back into the US in order to avoid this tariff, basically. But I think the question is, would that be enough to counterbalance the effect of this higher tax across the board? I don't have hard data on it, but the likely answer is it wouldn't be enough. So we would still sort of see higher prices as a result. And so we would have to kind of deal with the consequence. But there could be some

reallocation or relocation of businesses for sure. Another promise Trump has made is to lower gas prices. Under his first administration, he increased oil production and then Biden went further still. So how much can a president impact gas prices? The gas market or the market for energy sort of more broadly defined is very much a global market. But the US is sort of in a way in a unique position of being sort of center of that global market. You hear a lot about that the US dollar is this global reserve currency. Oil, for example, is usually traded in dollars and that sort of thing. So we do have a little bit more power than some other countries. The answer would be maybe a bit different if it was

us talking about Canada doing something or whatever. It is also probably true that gas prices or prices of energy in general are really sort of often driven by these global shocks. So in this particular case, the disruptions that took place due to Russia's invasion of Ukraine are really the prime mover probably of energy prices in the recent years. And it's not clear that any president would be able to have done something about that directly. Obviously, it's more of a geopolitical thing than an economic policy thing. Switching gears again, I'm hoping you can talk a little about the connection between immigration and the prices that consumers pay for certain everyday goods and services. And note for listeners, as you may know, Trump has promised to use law enforcement and the National Guard to deport many millions of undocumented immigrants. Beyond the humanitarian implications and the logistical questions raised by this proposal, what are some of the economic implications? Kind of a classic way of thinking about it economically, especially when we're

talking about things like inflation, is that we think that business costs basically would drive a lot of inflation, or at least it could be a prime driver of inflation. And inside those business costs, labor costs are often a large portion of those costs. And of course, that has to do a lot with the sort of supply of labor that's available relative to the demand of those costs. And of course, that has to do a lot with the sort of supply of labor that's available relative to the demand for that labor. And so we live in an aging society, the baby boomers are basically retiring. And of course, this is sort of reducing our labor supply, or at least likely to reduce our labor supply in the coming years. So what that would mean economically is that would tend to push up wages all else the same, which of course,

then could also push up prices. Businesses, when they face these increased labor costs, have to make a choice about how much to pass on to customers in terms of higher prices. So with that all in mind, if you also sort of cut off the amount of immigration into the economy, you would think that that's likely to put further pressure on wages in the economy, right? It's going to further, in a sense, reduce or at least not provide any extra slack for the supply of labor. And so that's going to further push up wages and further push up prices overall. That's not to say we shouldn't think

about reforming immigration in some way, shape or form. But that's just to sort of say economically, that if you reduce the supply of labor, the price of that labor, the wages and all the other forms of compensation that come with it is going to go up and businesses are going to pass at least some of that on to customers in the form of higher prices. And are there any specific areas of the economy that could be altered if you deport millions of people who were already in the workforce? There's sort of the additional disruption uncertainty that would surround it, right, which could, you know, shake out in all sorts of ways, many of which are probably not positive. Imagine, you know, the local restaurant down the street suddenly loses half its staff, and what are they going to do? So we would expect, you know, a lot of service sector

kind of jobs to maybe be impacted by this sorts of things, a lot of things that we interact with daily. And then there's also sort of this issue of about if you create shortages in one area, like let's say you create a shortage in one service sector, it could spill over to other unrelated service sectors as well. Maybe now the one sector has to basically go poach employees from the other one. And so maybe it starts to spill over into other areas where you wouldn't think of, say, you know, quote, unquote, illegal immigrants, basically playing a role, but it actually could have this sort of cascade to other markets. More of our interview in a moment. Stay with us. I want to talk about Donald Trump's proposal to weaken the power of the Federal Reserve

by bringing the central bank under more direct control of the president. And listeners, we've said it before, but the Federal Reserve is nonpartisan and operates independently. That means that the president doesn't tell the Fed what to do, and the Fed doesn't make its decisions based on politics. Derek, it seems like the separation is pretty crucial to ensuring public trust in the central bank's ability to make decisions. But if Trump was successful in his plans to more directly influence the Fed's activities, what are some of those economic implications? Stepping back for a second, we generally think that the Fed's activities. What are some of those economic implications? Stepping back for a second, we generally think that the Fed's main role is to keep inflation, especially over the longer term, relatively low and stable. And one element that tends to be

critical to that is their basically credibility to commit to that kind of policy, right, of keeping inflation low and doing what it takes. None of us liked in the recent years, the interest rates going up, but it's seen as sort of this necessary thing to do to bring inflation back down to that kind of longer term goal. And so the concern basically is that a lot of that comes from the fact that the Fed is independent to some degree from the rest of the government. It's important to understand that they're not completely independent. The president plays a role in nominating people to serve in the Fed. Congress obviously, you know, has to approve these things. But this kind of general separation of like, you can't tell us when to change interest rates, or you can't tell us we can't do this policy, and we have to do some other policy or

whatever, that tends to be sort of important as this inflation fighter kind of credibility that the Fed has. If that gets eroded, I think the concern would be basically that people in the economy start to kind of not believe in the Fed as much as an inflation fighter. That kind of lack of credibility starts to kind of make people think, well, they say they want 2% inflation, but given that they're tied to the rest of the government, I think it's maybe going to be more like two and a half, 3%. So expectations start to kind of tick up on inflation. And one thing about inflation is that expectations really play an important role and they tend to be self-fulfilling.

We all expect five, we'll get five. And so basically the Fed's sort of independence is one of, there's some others, of course, but it's one of the main things that's kind of tying down those expectations because it's helping the Fed maintain its credibility to be there when we need them to fight inflation. Well, those are the main things I want to talk about in terms of Donald Trump. But I want to switch gears and talk about Vice President Kamala Harris's plans to battle inflation. She recently unveiled a plan to ban price gouging. So first off, what is price gouging? And how have we seen it happen? So in economics, price gouging doesn't really have sort of like a specific definition, to

be honest with you. But the kind of loose idea is that it's sort of taking, quote unquote, for lack of a better term, unfair advantage of a situation in order to raise prices. Sometimes these situations are obvious, which are there's an earthquake that happens, let's say. So suddenly the price of gas and water in the surrounding area is going to skyrocket, that kind of idea of sort of taking advantage of other people's sort of misery and something that was really out of their control, a natural disaster. And that's really kind of what

we see as price gouging. So in this particular context, what we're talking about with Vice President Harris is this kind of view that we're, say, for example, grocery stores taking advantage of the circumstances to basically raise prices on their products in an unfair way. But it's a bit nebulous once you start to get away from things that I think we all would agree are clearly, you know, things out of our control, like natural disasters. And is there anything already in place to prevent price gouging? So states generally have laws that prevent price gouging in the situations we're talking about, like natural disasters, so hurricanes and floods and earthquakes and so forth. What Vice President

Harris is really talking about is basically a federal ban across the board on all forms of price gouging, at least that's what I understand it to be. And we don't have that. It's not really clear what the criteria would be for that as well. So for example, if a company raises prices on its products by 5%, how do we decide if that's just normal market forces or is it price gouging in some ways? In other words, how do we decide the fairness of it all? Generally speaking, in our economy, we kind of let the markets work that out and then everybody individually makes a decision about like, nope, that's too expensive. I'm not going to buy it or I guess I'm willing to pay that price,

right? That kind of thing. So some critics of Harris's proposal, including Donald Trump, have said that this is a price control. So what is a price control? Why don't economists like price controls? And would Harris's proposal to ban price gouging actually be a price control? Basically, a price control is essentially the government setting sort of a maximum price in a marketplace. So sort of saying, hey, you can charge no more than X for this product. And of course, we have price controls in the economy. You know, the ones that people typically talk about classically are certain cities that have rent control. What people are basically saying is that this sort of price gouging idea would kind of in a way limit how much businesses can raise prices.

And that would sort of in a way be similar to what happens in a price control situation where the government often does cap how much a business can raise prices. The good and bad of economics a lot of times is that there's tradeoffs for everything. thing. Concern would be basically that maybe grocery stores, because that's the one that's sort of been central to all this argument has really been sort of the price of food, is that basically, maybe grocery stores, you wouldn't see as many new grocery stores opening up or at least in a lower frequency. Maybe you would start to see the quality of what's on the shelves in the grocery stores to start to decline a little bit. So on the one hand, you kind of get the prices of the things you buy don't go up as much maybe. But on the other hand, there's less of them available. And at least for some of them, maybe the quality of those products might go down a little bit. So beyond preventing price

gouging, Harris has also vowed to lower prescription drug prices. And she wants to do this with price caps by allowing Medicare to negotiate prices, speeding up delivery of generic drugs and cracking down on big pharma. So how impactful could some of these efforts be in terms of making prescription drug prices more affordable? Oh, it could. Not surprisingly, the federal government, right, via Medicare, is a huge consumer in this marketplace, which basically means they have a lot of power, market power, we would call. In this particular case, the technical term is monopsony power. But basically, yeah, they would have a lot of power potentially to negotiate. And there would be spillover effects for people who don't have Medicare. In terms of being able to lower,

you know, say prescription drug prices, by allowing Medicare to kind of do this sort of giant negotiation, basically with the big pharma companies, that honestly could have a big impact on those prices for sure, because Medicare is so huge. Right. And you touched on housing earlier, but let's talk a little bit about Harris's big proposals with her plans to make housing more affordable. One that really stuck out to me is a plan to prevent corporate landlords from using price fixing algorithms. This is sort of a brave new world that we're in. And there's a lot of times where regulation is behind the technology where we're basically, you know, a lot of these businesses, and it's, of course, not just in real estate, it's in a lot of other areas as well in finance,

in particular, where they basically use these computerized algorithms to essentially search for the deals that they want to transact. Is it price fixing? Or is it the fact that all of these algorithms basically tend to point in the same direction because they often use the very same data in order to kind of churn through all their calculations? It's not clear to me, I guess, how that might be enacted, and then also what the implications would be. And Harris said she would support construction of three million new housing units in the next four years, among other plans. And fundamentally, in order to lower housing prices or rent or the supply of homes for purchase, we just need more housing. So could Harris's proposal spur more construction? And also, what can a president do to facilitate housing growth?

So much of this is local, right? I mean, so much of this is red tape based on local housing boards and all these other types of things, the not in my backyard kind of stuff. And so it's not really clear what anybody at a national level could really do about that kind of stuff, because so much of it is all of to other markets in that the supply is basically fixed by the number of units and vary what we would say in economics inelastic. You're not going to really get around that unless you just simply build more. Derek, are there any other proposals from either of the candidates that we're overlooking that could contribute to lowering prices or to increasing inflation? I think the last thing I would kind of mention, I guess, I know President Trump, he sort of wants to increase the domestic production of natural gas and coal and all

that sort of thing. And I do find it interesting that both Vice President Harris and President Trump have kind of focused on these areas of inflation. In the case of former President Trump, it's energy costs. And in the case of former President Trump, it's energy costs. And in the case of Vice President Harris, it's basically food costs. And these are the things that are specifically excluded by the Fed when they're looking at their longer term measures of inflation, right? So I just find it interesting that both presidential candidates have kind of focused on these highly volatile markets, which we often think they really can't do that much about, and that are often driven by these kind of global forces, basically. But both of them have sort of, you know, focused on those

as their avenues to kind of bringing inflation down. I think the very last thing I might add in, which is probably too big to really get into, is, you know, the extent that the deficit and the national debt might play in terms of inflation and other parts of the economy, especially going forward, as it's sort of ballooned a lot. Because we kind of have, there are some theories out there, for example, that it does play a role in inflation. And to the extent that the policies of the two candidates might add to the deficit, and of course, then by extension, add to the debt, that could be in a way a hidden inflation factor that we tend to not focus so much on.

And one we'll probably pay for in the future. Yeah, somebody will eventually. Gork Simmel, thank you so much for joining us today. Yeah, absolutely. Thank you so much for having me. Sean, there's something else I want to point out that I didn't get to in my conversation with Derek, but came from researching an article on this topic, and that's price tolerance. Right now, people are still pretty price intolerant because so much is elevated from where we remember it being. But if prices actually did drop across the board, it would be a big problem. Economy-wide price drops really only happen when there's a big recession. And I think Trump and Harris's campaigns both know this.

They can't bring back pre-pandemic prices, so what they can do, strategically, is make promises that are most relevant to people. Right. And last week, we talked about how one individual president can't really transform the economy on their own. But your conversation with Derek Stimmel illustrates how a president's priorities can make a bigger impact on an issue-by-issue basis. Former President Trump is focused on lowering the price of gas. Vice President Harris wants to make housing more affordable. And we saw how President Biden was able to push for lower prices on certain drugs like insulin. Although we should note,

of course, that Biden wasn't able to do that without the help of Congress. So Sean, one other thing, maybe it's obvious, but it's worth saying, is that while we have pointed to a lot of ways in which a president cannot really control things like pricing, the president is also the leader of his or her respective political party. And that often means that the party and its political leaders will coalesce around these policies, making them more viable. Yep. We've mentioned that the president often has to work with Congress to get bills passed

that can fulfill their promises and members of their party, while they don't necessarily march in lockstep, they will frequently work with that president to pursue his or her economic agenda. So no, the president can't wave a magic wand, but if their party also has control in Congress, that makes a world of difference in the ability to make those goals happen. And that's a case for making sure you're paying attention to what candidates are saying up and down the ballot. The presidential candidates

aren't the only ones to make a difference. Do some research on your congressional candidates, and for that matter, city council and school district, because they all touch public money, and that's your money. It always helps to educate yourself on how they plan to spend it. You can find the latest money news updates in NerdWallet's financial news hub, which we'll link to in the show notes, or just search online for NerdWallet financial news. So, Ana, tell us what's coming up in episode three of the series.

Well, Sean, next time we're using a word nobody likes, but matters a lot to your finances, taxes. We'll hear what the current candidates for the highest office in the land want to do with the money that comes out of your paycheck. Two thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans. So to the richest 20% of Americans. So just for a sense of what that will cost, like in 2026 alone, that will cost more than $280 billion. For now, that's all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com.

And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. This episode was produced by Tess Vigeland and Anna. I helped with editing. Rick Vanderkneif and Amanda Derengowski helped with fact-checking. Megan Maurer mixed our audio. And a big thank you to NerdWallet's editors for all their help. And here's our brief disclaimer.

We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.