My wife and I honeymooned at a beach resort in Barbados, a small island nation in the southern Caribbean not far off the coast of Venezuela. My wife had a very hard time finding sugar for her morning coffee. It was unavailable in restaurants and bars, and its availability in the island’s grocery stores was extremely limited. The few packets of sugar that could be found sold only at unaffordable cost. On further investigation I discovered that the economy of Barbados is largely based on the export market for a single product: sugar. Essentially the entire sugar crop produced in Barbados was committed by trade deals for export to Europe. A large fraction of the Barbados workforce, who toiled every day on sugar plantations or in the sugar refineries, could not afford the very thing they were producing.
I bring up this story because it nicely illustrates what the U.S. is currently facing with its trade relationship with China. As the Nobel-prize-winning economist Paul Krugman has pointed out, the fundamental problem is that China’s economy is largely export-based, a deliberate policy of the Chinese Communist Party. Much of what China produces is cheap stuff or knockoffs that are made primarily for export, not for the Chinese domestic market. This fundamental fact is what distorts the U.S.-China trade relationship.
The problem facing the incoming Trump Administration is how to mitigate this distortion without doing further damage to the U.S. economy. Almost all economists agree that imposing more tariffs on Chinese imports is not the answer. Trump’s promise to impose an additional 10% across-the-board tariff will almost certainly fail to get China to reduce their exports, and will more likely cause the extra costs of Chinese imports to be passed on to U.S. consumers. Worse, Trump’s promise to hit our two biggest trading partners, Canada and Mexico, with 25% tariffs on Day 1 of his presidency (January 20) will ricochet through the entire economy and raise costs for virtually everything. Bottom line: even though Trump was elected on a promise to reduce inflation, the tariffs he will impose early in 2025 will almost certainly do the opposite.
As for the price of gasoline, the problem for the U.S. is the opposite imbalance of supply and demand. Worldwide oil supply is down — and hence prices are up — mainly because three of the world’s major producers, Russia, Iran, and Venezuela, are limited in their exports because of sanctions. The war in Ukraine and the continuing turmoil in the Middle East have only exacerbated the oil supply problem.
Trump’s proposed solution is to “drill, baby, drill” in the U.S. This may look like a reasonable solution, since more U.S. supply may reduce prices. The problem with this, however, is that there is not a whole lot of oil left in the ground, and what is left is increasingly expensive to extract. More drilling in the U.S. is likely to have only a marginal effect — or no effect at all — on reducing oil prices. Worse, the new Administration will be coupling their rollbacks of oil and gas regulation with cuts to all government investment in renewable energy, further slowing our needed transition away from fossil fuels. We can expect that Trump in 2025 will claw back all the money from the Inflation Reduction Act that has not yet been spent. Bottom line: not only will Trump not reduce the price of gasoline in 2025, he will likely cause massive job losses in other sectors of the energy economy.
One caveat in these projections is that Trump’s focus is not on policy, but on taking control of all three branches of government. In 2025 he will mainly be focused on destroying the “deep state” and “the enemies within” by wholesale firings of career civil servants in the Executive branch and their replacement with unqualified hard-core MAGA loyalists. He has already started this process with his nominations for Cabinet and other senior positions.
The only thing possibly standing in his way is the Congress. Republicans in 2025 will hold only a very slim majority in both the House and the Senate, making it impossible for Trump to get any of his policy proposals passed or his nominees confirmed unless he has almost no Republican defections. He will most likely be focused in 2025 on forcing Congressional Republicans to bend to his wishes, using threats, intimidation, and bullying.
Jeff Colvin has spent his professional career as a research physicist, first at the Los Alamos National Laboratory and then at Lawrence Livermore National Laboratory, the two US nuclear weapons design laboratories. He lives in Gettysburg part-time and is chair of Gettysburg DFA Government Accountability task force.