Both Donald Trump and Kamala Harris have said during their campaigns for president that they want to bring down costs for consumers. It’s an admirable goal and, if done right, can be achieved.
Unfortunately, both have been sparse on details about how to do so. In his September 6 speech to the Economic Club of New York, Trump engaged in a lot of exaggeration and bluster, but didn’t give details. In response to a sympathetic Philadelphia reporter’s question about how to do so, Harris started by telling how she was born into a middle-class family. She then segued to a mention of how people in her neighborhood were very proud of their lawns. She did propose a $25,000 subsidy for first buyers of housing, but that would increase, not decrease prices. She never answered his question.
That’s the bad news. The good news is that economics gives us some tried and true ways of making consumers better off. They mainly have to do with allowing competition and allowing increased supplies. Trump did some of that while president. Harris as vice president showed no signs of moves in that direction. Yet many of the policies that both propose would do the opposite.
Free trade
One thing that economists are most sure of is that increased competition leads to lower prices. This is true whether the competition is from inside the country or from another country. Trump understood the inside part, as evidenced by his moves to allow more competition in the provision of generic drugs. But Trump has never understood that competition from other countries is good for us consumers also. For him, the fact that there is a border between two countries whose people engage in trade makes all the difference. He does see that it’s good for us if other countries buy our exports. He doesn’t see that it’s just as good if we are allowed to import from other countries. Indeed, he has been known to say that when producers in other countries sell more here than our producers sell in their countries, they are ripping us off. He especially applies this thinking to China. He has even objected to producers in other countries selling to us at low prices. The co-author of The Art of the Deal seems not to recognize a good deal when it’s in front of his face.
During his four years in office, and especially in his last two, we saw the damage done by that misunderstanding. He imposed tariffs on consumer goods and producers’ inputs. Both hurt US consumers. Moreover, the tariffs on producers’ inputs such as steel and aluminum hurt downstream US producers who used steel and aluminum as inputs. That went against even his narrow goal of saving manufacturers’ jobs.
Trump has pledged to go even further on taxing trade. He wants a 10 percent tariff on goods from countries other than China and a 60 percent tariff on goods from China. Those tariffs, if implemented, would, of course, reduce imports. That’s the point. When imports of a good fall, their prices rise, as do the prices of domestically produced goods that compete with those imports. So, it makes no sense for Trump to claim that foreign producers, and not US consumers, would bear any of the cost of the tariffs. US consumers would pay too. We don’t know much of the cost they would bear, but we do know the two factors that matter for figuring that out. Here I need to get a little technical, but I’ll explain.
A tariff is a tax. The way to figure out who bears the burden of the tax is to figure out, if possible, the elasticity of demand for, and elasticity of supply of, imports. The more elastic the demand, all other things equal, the lower percent of the burden is borne by buyers. What makes demand elastic? Lots of close substitutes for the imported good. The more elastic the supply, all else equal, the less of the burden is borne by the exporter and the more of the burden is borne by those who buy the imports. What would make supply elastic is for the exporter to have many alternate countries to ship to where buyers are willing to pay almost as much as we were willing to pay before the tariffs. So, who bears the burden depends on specifics. One thing we can be sure of is that, as with virtually all taxes on goods and services, we US consumers would bear some of the burden.
Where does Vice President Harris stand on free trade? She hasn’t said much.
Therefore, to tease out where Harris stands on tariffs, we need to look at three things: (1) what President Biden has done while he and Harris have been in office, (2) what the Democratic platform says on the issue, and (3) what Harris has said on the issue.
Contrary to what many of us economists had hoped would be true of Biden, he kept Trump’s tariffs and added his own. As New York Times reporter Ana Swanson put it in “Harris and Trump Embrace Tariffs, Though Their Approaches Differ,” New York Times, August 27, 2024:
Despite early criticisms of Mr. Trump’s trade policy, the Biden administration has kept the former president’s initial tariffs on China in place and proposed adding another $18 billion of new levies on some Chinese products, including a 100 percent tax on electric vehicles. The administration also proposed new tariffs on electric vehicle batteries, semiconductors, steel, and medical products, in an effort to ensure that newly invested American factories can stay in business.
That doesn’t mean that Harris would keep those tariffs. We just don’t know. We can speculate based on how she handled another issue: fracking. In an interview with Dana Bash of CNN, Harris claimed that in 2020 she had said that she would not ban fracking. However, that is not what she had said in 2020. Rather, she had said that Joe Biden would not ban fracking. The only way to reconcile the two statements is to assume that when she said that Biden would not ban fracking, that represented her viewpoint also. So, there’s a weak case, in the absence of other evidence, for thinking that Harris favors the tariffs that Biden has kept and the ones that he implemented.
Another indicator of Harris’s views on tariffs is the 2024 Democratic Party Platform. To the Democratic Party’s credit, the platform does denounce Trump’s proposed 10 percent tariffs on other countries’ exports to us and his proposed 60 percent tariffs on goods from China. It makes the denunciation more credible by estimating the costs of the tariffs: $1,500 per American family for the 10 percent tariff and an additional $1,000 per family for the 60 percent tariff. But it says nothing about getting rid of the current tariffs. And elsewhere in the platform, the writers praise Biden for his “targeted tariffs on China,” claiming, implausibly, that these tariffs “will promote US growth.” The opposite is true. Tariffs generally hurt growth, whether the person imposing them is a Republican or a Democrat.
Finally, we can check Harris’s statements she has made about tariffs since her having been chosen as the Democratic presidential nominee. In her acceptance speech for the nomination, she denounced Trump’s new tariff proposals, accurately calling them a tax but inaccurately calling them a “national sales tax.” Still, that does give some hope that she wouldn’t go as far as Trump. That hope is dampened a little when one notices that the Democratic platform calls for new tariffs and fails to call for ending current tariffs.
The bottom line is that both candidates want to raise tariffs and that Trump wants to raise them higher than what Harris proposes. Keeping tariffs keeps consumer costs high; raising them drives consumer costs higher. In short, both would violate the candidates’ pledge to get consumer costs down. Trump’s proposed tariffs would be an even bigger violation of his pledge.
Price controls
One method that appears to drive down consumer costs but actually raises them is price controls. When the government keeps the price below what the free market price would be, it creates a shortage. That causes people to waste valuable time in line trying to get the goods that are in short supply. When the price controls on oil and gasoline in 1979 kept the price of gasoline at 80 cents a gallon, energy economists at the newly created Department of Energy estimated that ending the controls would cause the price to be about $1.00 per gallon. At the time, I estimated, using the average worker’s wage and the average time spent in line, that the time cost of getting gasoline was about 40 cents a gallon. The real cost to consumers, therefore, was about $1.20 per gallon, which was 20 cents above the free market price.
Harris has advocated a federal law against price gouging. This law, if implemented, would do something similar to what the 1970s price controls on gasoline did. Consumers would have to shop around more for items in short supply, adding a time cost to the explicit price they pay.
Trump has advocated price controls in the form of a 10 percent cap on credit card interest rates. Such price controls, which are known as usury laws, would make it harder for higher-risk people to get loans. Here’s what I wrote about usury laws in 2019 when Bernie Sanders and Alexandria Ocasio-Cortez proposed a less-tight 15 percent cap on credit card interest rates that Trump has called for:
What would happen in the unlikely case that Sanders and AOC got their national ceiling of 15 percent interest on credit card balances? Three practices would probably become more common. The first is layaway plans, in which the customer chooses the high-ticket item but doesn’t take it home. Instead she “lays it away,” saving money slowly until she has enough to buy it. This usually happens many months later, which means that the customer does without the item for months. And the item might be a washer/dryer combination. If she had bought it with a credit card, she would have saved weekly trips to the laundromat and many rolls of quarters.
The second likely effect is more use of pawn shops. When you take an item to a pawn shop, you get immediate cash. But if you want to buy the item back later, you pay a higher amount than you were paid upfront. There’s nothing wrong with that. That’s what the pawn shop owner has to do to stay in business. But the implicit interest rate you’re paying, on an annual basis, is typically well above 30 percent.
A third likely effect of the Sanders-AOC idea is a shift to borrowing from “loan sharks.” Loan sharks lend money illegally for interest rates that, annualized, are a multiple of 15 percent and who, if the borrower doesn’t pay, threaten to, and sometimes do, assault the borrower. Call me crazy, but that seems like a less appealing option than a 25 percent annual interest rate on a credit card. More important, borrowers think it’s worse, too, which is why they pay 25 percent on a credit card rather than head to a loan shark.
In short, the price controls that Harris and Trump propose would raise costs to many consumers, which is the opposite of what they claim to want.
Immigration
I stated in my introduction that allowing increases in supplies brings down prices. One way to do that is to allow more immigration. Immigrants to the United States are disproportionately working-age and the vast majority of working-age immigrants, whether legal or illegal, come here to work.
If we go by Trump’s past actions, we know that he would keep legal immigration low or cut it further. He has also made clear that he would deport millions of illegal immigrants. Whatever one thinks of these ideas, one thing is clear: with fewer people producing, less will be produced. These lower supplies will lead to higher prices. This will be especially important for produce because illegal aliens are disproportionately employed in agriculture.
Harris, by contrast, seems much more open to expanding the number of legal immigrants. The Democratic National Committee platform gives some of the details. Strangely, the platform discusses what President Biden plans to do in his second term. Could the fact that no one bothered to update the platform after Biden’s July announcement that he wasn’t running mean that Harris is comfortable with the current policies and with the proposals that he embraced? Possibly.
The platform states:
The Biden-Harris administration established a humanitarian parole process for Cubans, Haitians, Nicaraguans, and Venezuelans (CHNV), which allows people from these four countries who have a sponsor in the US and who pass a background check to come to the US for a period of two years to live and work lawfully.
The platform points to one good consequence:
Border encounters from these nationalities decreased by 89 percent in the first six months after CHNV was put in place—incentivizing migrants to stay in place, rather than make the dangerous journey to our southwest border.
It shouldn’t be surprising that letting people in legally reduces the number of people who come here illegally. Many of these people are almost certainly employed in agriculture and production of other foods, making food and grocery prices lower than otherwise.
Conclusion
Both Trump and Harris have stated that they want to bring down costs for consumers. The main insight from economics on this issue is that if you want lower costs, you should allow more supply. Tariffs do the opposite. Both Trump and Harris favor tariffs but Trump wants higher tariffs. Price controls do the opposite and both Trump and Harris favor price controls. More immigration makes consumer costs lower. Trump would almost certainly reduce immigration, both legal and illegal. Harris, if she follows some of the legalization procedures that President Biden has put in place, would get more immigration, including more legal immigration. All other things equal, Harris’s immigration policies will make consumer costs lower than if Trump’s likely policies were implemented.
