How Harris and Trump Want to Battle Inflation and Lower Prices

Both presidential candidates are promising to give people what they want: to pay less money for most everything.

But whether former President Donald Trump or Vice President Kamala Harris are capable of lowering prices is debatable. Experts say presidents aren’t usually the primary drivers of inflation in the economy; monetary policy has a much greater impact, as do fluctuations in the supply chain and good old-fashioned consumer demand.

During the pandemic, inflation grew exponentially and reached 9.1% in June 2022. In response, the Federal Reserve hiked interest rates and since then, inflation has slowed down. The latest federal data for August shows that the inflation rate is 2.5%, leading the Federal Reserve to cut interest rates at its September meeting.

But prices still remain elevated compared to just a few years ago, with food prices up about 28% since the start of 2020. Concerns about the cost of living have long been the thorn in the side of the Biden-Harris Administration and will likely be an issue the next president will face for quite some time.

It’s worth noting, says Tara Sinclair, director of the George Washington University Center for Economic Research, that if prices came down en masse, it would have significant negative economic consequences — deflation typically only happens during steep recessions. She says that political campaigns make promises with that context in mind.

“They do understand that they can’t promise that we’re going to bring back the prices of 2019, so they have to find these ways of addressing prices in certain categories that are particularly salient for people,” says Sinclair. That includes things like groceries, energy prices, rent and anything else that gives people sticker shock on a day-to-day basis.

Surveys show that inflation and prices are top-of-mind for voters. In the most recent Gallup poll for August, 18% of voters said the “economy in general” and 15% said the “high cost of living/inflation” are the most pressing concern for the country, behind “immigration,” the top concern at 19%.

As with all campaign promises, there are limits for what the government can do to lower prices, and many of the proposals require Congress to pass legislation. Keep in mind, many of the candidates’ promises are more about electioneering than they are about sound, achievable policy. In any event, here’s how Trump and Harris each say they plan to make people’s lives less expensive.

Price gouging doesn’t have a specific legal definition, but it’s essentially taking unfair advantage of a situation to raise prices. For instance, an earthquake hits and suddenly the price of bottled water surges. Or, let’s say, a global pandemic breaks out and the price of toilet paper skyrockets.

Harris wants to specifically target exorbitant price hikes by corporate grocers by putting a ban on price gouging. She said she would create rules that prevent these big companies from arbitrarily increasing prices, with enforcement by the Federal Trade Commission (FTC) and state attorneys. Most states already have laws in place to prevent price gouging during a state of emergency. It’s unclear if the ban would apply to emergency scenarios only or more broadly.

Critics of the proposal call it a price control by another name; a system that most economists despise in which the government sets a maximum price in a marketplace.

Derek Stimel, associate professor of teaching economics at U.C. Davis, says he thinks Harris’ proposal isn’t exactly a price control, but it has some features akin to a price control.

The result of a ban could, theoretically, do what Harris hopes for, he says. “At a superficial level, the honest answer is it would maybe cause grocery stores to not raise prices as much; I think they would probably be hesitant to run afoul of this law, especially in the early stages when they’re trying to figure out what the law means,” he says.

But Stimel is concerned about the unintended consequences. Capping the prices that grocers can charge could mean grocery stores may not open up as frequently and then a local area doesn’t get a new grocery store. Or grocery stores might stock fewer items, which could result in shortages, or cheaper items that degrade the quality of the food.

A ban would require an act of Congress; Sinclair is skeptical that the proposal would go anywhere. “All in all, it’s one of those things where economists kind of shrug their shoulders and be like, yeah, OK, that seems like a political move you need to make, rather than being like, this is the economic policy we would all support.”

Sinclair says that a better preventative measure for price hikes is preventing large chains from getting too big. She says the government can play a stronger role in breaking up monopolistic companies, but that’s easier said than done. For example, right now two of the largest grocery chains — Kroger and Albertsons — are in the midst of a contentious legal battle with the FTC on antitrust grounds over a proposed merger.

Prices are, often, determined by the heft and sway of larger companies who don’t struggle to draw customers. “If they’re too large, then they may not have enough incentive to keep prices low,” says Sinclair. “But if they’re not big enough, they struggle to have the scale to negotiate with their suppliers to get lower prices.”

Harris’ plans to lower prescription drugs would extend to all Americans the $35 cap on insulin and $2,000 cap on out-of-pocket expenses for seniors. She would also speed up the process for Medicare and other federal programs to negotiate the prices of prescription drugs. Her campaign estimates this effort could result in cutting costs for common prescriptions by 40% to 80%. She would also expedite how quickly affordable drugs are made available for Medicare recipients. Finally, she promises to take on anti-competitive behavior in the pharmaceutical industry.

Sinclair says cutting the costs of pharmaceuticals is an area where there’s room for the government to negotiate since it’s already a large player in the health care market.

“We’ve already seen some impact on that in terms of when Medicare is able to negotiate and bring down a price,” Sinclair says. “Not only does it benefit us as taxpayers that are paying for Medicare, but it also benefits others because other companies follow suit and they’re like, ‘well, hey, if you can give it to Medicare for that price, we want it for that price too’ so they can lower costs more generally across the board.”

Harris wants to lower rent and make home buying more affordable. Both require a substantial uptick in the availability of all types of housing. She wants to cut red tape so housing can be built faster with the goal of constructing 3 million new housing units over the next four years. She also wants to penalize and outlaw price-fixing among corporate landlords.

Stimel is skeptical about how much red tape the federal government can cut since local housing boards, local political machines and local NIMBYs (not-in-my-backyard proponents) influence what gets built.

The best way to lower housing prices or prevent prices from increasing is to build more housing; without that supply there’s little chance that prices will decline. “You’re not going to get around that unless you simply build more; anything that might spur that is probably good,” says Stimel. “The question might be would Vice President Harris’ plan be enough to lower housing prices or would it be just more of a drop in the bucket? And that’s a lot harder to say.”

Harris has some additional proposals related to prices, including lowering child care and elder care costs as well as lowering energy costs; there’s no clear strategy for how either would be executed. Her tax proposals are also aimed at lowering costs for the middle class, including restoring and expanding the Child Tax Credit and the Earned Income tax credit. She also supports increasing the minimum wage, ending the sub-minimum wage for tipped workers and cutting taxes on tips. She also says that she would provide up to $25,000 in help for down payments for first-time homebuyers and even more support for first-generation homebuyers.

Trump wants to impose a 10%-20% baseline tariff on all foreign imports in addition to any existing tariffs, and 60% on imports from China. He claims that the revenue would offset his proposed tax cuts and would spur more U.S. manufacturing.

But economists all along the political spectrum have denounced the plan as not only unfeasible, but an expensive policy for the American consumer. Tariffs are a common tool for foreign policy, but the cost is often absorbed by households. The tariffs would likely add a significant tax burden to the typical middle-income taxpayer — $1,700 annually, according to a May analysis by the Peterson Institute for International Economics (PIIE), a nonpartisan think tank.

Taxing foreign imports would also increase the price of any imported goods — and the cost of goods required for the provision of various services, which in turn, makes those services more expensive. Stimel says to consider a tariff a tax and if goods are taxed 10%, businesses are not going to absorb that full cost themselves. That means at least some of those costs will be passed onto the consumer.

“We’re all generally aware, from our day-to-day shopping, that if we ever look at the label of anything, we buy a lot of imported goods,” Stimel says. “It’s not unreasonable to think that raising taxes, essentially, on imported goods would ultimately boost the prices of those imported goods.”

For example, in 2018 then-President Trump imposed a tariff on washing machines with the intention of increasing the purchase of American-made washing machines. As a result, the price of washing machines went up by 12%, according to a report by the University of Chicago. The price of dryers also went up by 12%, because they are companion products — even though there was no tariff on dryers.

One of Trump’s signature phrases is “drill, baby, drill,” meaning that, if re-elected, he would work to pump out more oil, natural gas and coal. Trump specifically wants to increase oil production on federal lands. While in office, Trump did increase oil production, reaching up to 12,311 barrels per day. Under the Biden administration, oil production went even further, increasing to 12,927.

He says his plan would lower gas prices — and it’s true that greater production can have that effect. And opening drilling on federal land can encourage companies to increase production.

But presidents can only influence the price of gas so much and it can take a long time for their actions to manifest. The biggest contributor to gas prices is the price of crude oil. It’s a global commodity, which means that global market forces set the price and the U.S. cannot stand alone in setting oil prices.

Energy prices are also driven by global shocks, says Stimel. “The disruptions that took place, due to Russia’s invasion of Ukraine, are really the prime mover of energy prices in recent years,” he says. “And it’s not clear that any president would be able to have done something about that directly. It’s more of a geopolitical thing than, say, an economic policy thing.”

Gas prices are also influenced by driver behavior, be it commuting or vacationing. Lower prices are also not always a good thing, says Sinclair. “When we see gas prices go down, it’s often because the economy is weakening, so that’s not necessarily great.”

Trump has promised to crackdown on unauthorized immigration, including rounding up, detaining and deporting millions of people. He wants to restructure various immigration laws and use the National Guard for enforcement.

Sinclair says Trump has tried to blame foreigners and immigrants for inflation, as well as other asserted ills, including the lack of housing. But she says that deporting a whole bunch of people at once would likely result in a housing crash. Why? Because immigrants play an outsized role in the construction sector.

“I don’t see how this is like a clear economic win,” says Sinclair.

Deportations could have other impacts to other sectors of the economy, as well. An assessment of Trump’s immigration proposal by Moody’s Analytics, a research division of one of the world’s most prominent bond-rating agencies, said it could result in labor shortages, which could make the cost of doing business more expensive, which businesses are likely to pass on to the U.S. consumer.

“If you 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?” says Stimel. “It’s going to further 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.”

Trump has been a staunch critic of the Federal Reserve and has expressed he would like to bring the Central Bank under more direct control of the president. The Federal Reserve is nonpartisan and makes its decisions independent of the federal government, with some checks-and-balances.

Sinclair says that if the power of the Fed to make inflation-related decisions is eroded, it could make the Central Bank less credible, which could impact its inflation fight moving forward.

“If people just think, ‘well, Trump might be able to put his thumb towards lower interest rates,’ then the public may start to not trust that the Fed will raise interest rates when needed to fight inflation in the future, and that means that we may see higher inflation on average,” says Sinclair. “That’s historically what we’ve seen in other countries where there has been less independence of the central bank.”

Stimel agrees: “That kind of lack of credibility starts to 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 to 3%.’ So expectations start to tick up on inflation and one thing about inflation is that expectations really play an important role, and they tend to be self-fulfilling.”

Trump has made other proposals that would have some effect on individual finances including extending his package of 2017 tax cuts, which is due to expire next year; lowering the corporate tax rate; eliminating taxes on tipped income; and replacing personal income taxes with tariffs.

Economists say Trump’s economic proposals, as a whole, would lead to higher inflation. The Moody’s report projected that inflation would grow at an estimated rate of 3.6% in 2025 if Trump’s economic policies were enacted.

On June 25, a group of 16 Nobel Prize-winning economists released a letter stating, “We believe that a second Trump term would have a negative impact on the U.S.’s economic standing in the world and a destabilizing effect on the U.S.’s domestic economy.”