Trump ‘Can’t Guarantee’ Tariffs Won’t Raise Prices

The Pentagon
Reuters
By Yuval Rosenberg

Happy Monday! We hope your weekend was almost as good as Juan Soto’s. Congress has 11 days to pass a government funding bill to avoid a pre-holiday shutdown and a host of other issues to resolve, including a massive annual defense policy bill, a disaster relief measure and an extension of the farm bill.

Here’s what’s going on.

$895 Billion Defense Bill Heads for a Vote

The House and Senate Armed Services Committees on Saturday released the 1,813 pages of legislative text for a $895.2 billion compromise National Defense Authorization Act (NDAA) for Fiscal Year 2025.

“The newly revealed topline means the NDAA will come in under the congressionally mandated budget caps imposed by the Fiscal Responsibility Act (FRA), despite a push in the Senate to go over that number,” Breaking Defense noted.

The bill includes a 4.5% pay increase for servicemembers — and a historic 14.5% raise for the lowest-ranking enlisted personnel. It also includes measures meant to improve servicemembers’ housing and childcare. It reportedly still includes culture war measures opposed by Democrats, including a ban on the Pentagon providing transgender medical treatment for minors or funding critical race theory, as well as restrictions on military diversity, equity, and inclusion programs.

The House is poised to take up the bill later this week after the House Rules Committee advanced the legislation in a vote this afternoon.

Trump Says He ‘Can’t Guarantee’ Tariffs Won’t Hurt US Consumers

In his first interview with a major TV network since winning the election, President-elect Donald Trump said this weekend that although he does not believe that tariffs on imports result in higher costs in the U.S. economy, he can’t guarantee that his proposed tariffs aimed at some of the country’s leading trade partners won’t raise prices for American consumers.

Trump has spoken extensively about using tariffs as an all-purpose tool to punish competitors, create jobs, shrink the deficit and raise funds to pay for new government programs, and in his interview with Kristen Welker of NBC News’s “Meet the Press,” he made it clear that he plans to push ahead on his proposals, which include major new tariffs on goods from Mexico, Canada and China.

“I’m a big believer in tariffs,” he told Welker. “I think tariffs are the most beautiful word. I think they’re beautiful. It’s going to make us rich.”

When Welker noted that “economists of all stripes say that ultimately consumers pay the price of tariffs,” Trump rejected the widely accepted idea. “I don’t believe that,” he said.

At the same time, Trump said he couldn’t promise that prices won’t rise.

“Can you guarantee American families won’t pay more?” Welker asked.

“I can’t guarantee anything,” Trump replied. “I can’t guarantee tomorrow. But I can say that if you look at my — just pre-Covid, we had the greatest economy in the history of our country.”

Welker pressed him on the issue, saying “Sir, your previous tariffs during your first administration cost Americans some $80 billion, and now you have major companies from Walmart, Black & Decker, AutoZone, saying that any tariffs are going to force them to drive up prices for their consumers. How do you make sure that these CEOs, that these companies don’t, in fact, pass on the cost of tariffs to their consumers?”

Trump stuck to his guns: “They cost Americans nothing,” he insisted. He then underscored the idea that tariffs have multiple uses — including preventing war. “I have stopped wars with tariffs by saying, ‘You guys want to fight, it’s great. But both of you are going to pay tariffs to the United States at 100%.’” Trump provided no further details.

Trump said he won’t cut Social Security: Although some Republican lawmakers are indicating that the new “DOGE” cost-cutting effort led by Elon Musk and Vivek Ramaswamy could include cuts to Social Security, Trump reiterated that he has no plans to cut the popular entitlement program. “I said to people, we’re not touching Social Security, other than we make it more efficient. But the people are going to get what they’re getting,” Trump said. “And we’re not raising ages or any of that stuff.”

Still, he may have to wrangle with some members of his own party over the issue. Rep. Mark Alford, a Republican from Missouri, told Fox Business Network on Monday that entitlement programs will be on the table as GOP lawmakers and outside advisers try to hash out a plan for massive spending cuts.

“We all agree this is an unsustainable area that we’re in right now — almost $36 trillion in debt, and we are spending more on the interest on our debt than we are going to spend on the National Defense Authorization Act this year,” Alford told Fox’s Maria Bartiromo. “And so we’ve got to right the ship, and it’s going to mean cuts. It’s going to mean cuts to the 24 percent of the discretionary spending that we have, and it’s also going to mean looking long-term at the front end of some programs like Social Security and Medicare.”

$622 Billion Deficit in First Two Months of Fiscal Year: CBO

The federal budget deficit came to an estimated $622 billion in October and November, the first two months of the 2025 fiscal year, the Congressional Budget Office estimated Monday.

The total is $242 billion larger than the budget gap recorded in the first two months of fiscal year 2024, CBO said. Revenues were $50 billion (7%) lower, while outlays were $191 billion (18%) higher.

Anomalies in the calendar account for some of the year-over-year increase. If not for the shifts in the timing of weekends and holidays, the deficit would have been $541 billion this year. The postponement of tax deadlines in 2023 also played a role.

Republicans Already Feel Better About the Economy, While Democrats Dread What’s Ahead

Dictionary publisher Merriam-Webster just named “polarization” its 2024 word of the year, and if you need any evidence that it is an apt choice, consider this: Even before President-elect Donald Trump takes office again, Republicans are already feeling more upbeat about the economy than they have since November 2020, while consumer sentiment among Democrats has taken a decidedly gloomy turn, falling to its lowest level since July 2022, when gas prices were spiking.

Those findings are from the preliminary December report for the University of Michigan’s Consumer Sentiment Index, released on Friday — the first such temperature reading since Trump was reelected.

“The post-election shift in the economic perceptions of Republicans and Democrats is not shocking. A similar story has played out following previous changes in power in the White House, including after the 2016 and 2020 elections,” CNN’s Matt Egan writes. “Still, the magnitude of the shift is startling, and researchers say it reflects the county’s political polarization.”

Consumer sentiment overall is rising, according to the Michigan index, which just posted its highest reading in seven months. Republican views have swung dramatically, from an index reading below 50 as of August and September to nearly 82 now. And forward-looking expectations among Republicans are soaring, from an index level of 53.4 as of June to 105.9 now. Democrats, meanwhile, have grown sharply more pessimistic about the future, with the sentiment index dropping from 94 as of August to 48.7 now.

“This adjustment process is consistent with a response to actual underlying changes in expectations for the national economy, and not merely an expression of partisanship,” Joanne Hsu, the survey director, said in a statement. “For example, throughout this month’s interviews, Democrats voiced concerns that anticipated policy changes, particularly tariff hikes, would lead to a resurgence in inflation. Republicans disagreed; they expect the next president will usher in an immense slowdown in inflation. As such, national measures of sentiment and expectations continue to reflect the collective economic experiences and observations of the American population as a whole.”

In other words, the two sides have very different ideas about the effects Trump’s policies — especially his promised tariffs — will have. And some Trump defenders see his tariff talk as a negotiating strategy as much as anything else. Still, as noted above, Trump himself told NBC News that he can’t guarantee prices won’t rise as a result of his tariffs, though he disagrees with the mainstream economic consensus that consumers will pay for his levies.

Consumers are already buying some big-ticket items they expect will cost much more next year. “This is not a sign of strength,” Hsu told CNN. “People think it’s a better time to buy durables because they are expecting prices to skyrocket next year — and they want to avoid that.”

Inflation expectations for the year ahead rose from 2.6% last month to 2.9% this month in the University of Michigan survey, the highest reading in six months. Long-run inflation expectations dipped from 3.2% last month to 3.1% this month.

Number of the Day: $2.98

The average U.S. price for a gallon of gas is now under $3, according to GasBuddy, and Emily Peck of Axios points out that gas prices haven’t been this low since the spring of 2021. “The recent lows are a big sign that inflation is increasingly in our rear-view mirror,” Peck writes.

GasBuddy analyst Patrick De Haan reportedly expects prices to potentially fall another 10 cents to 15 cents a gallon by Christmas.

“The good news comes too late for the Biden administration, which suffered politically when inflation and the war in Ukraine drove prices above $5 a gallon in 2022,” Axios’s Peck notes. “Instead, low gas prices are more likely to benefit President-elect Donald Trump, who campaigned on bringing them down.”

Send your feedback to yrosenberg@thefiscaltimes.com.

Fiscal News Roundup

Views and Analysis