On this blog, I discuss our country’s biggest problems, especially regarding economics and fiscal policy.  Since Donald Trump began his second term as President in January, much of my focus has been on his policies, especially his tariff policies, and their potential effect on inflation.

As I have stated several times, Trump was elected for a second term because of Joe Biden’s three major mistakes: 1) tripping off inflation with massive deficit spending, 2) allowing an out-of-control open southern border to develop, and 3) exhibiting a weak foreign policy, beginning with the disastrous withdrawal from Afghanistan in August 2021.

Trump has responded well to Biden’s last two problems.  Our southern border is now virtually closed, with daily illegal border crossings already down to a trickle.

Trump’s foreign policy is also doing well for the most part.  His successful Middle East trip, just concluded, establishes the Trump “Doctrine of the Deal” which offers a realism built on commerce, even if it is lacking American idealism.  He will now have to get very tough with Vladimir Putin, to have any chance of achieving a just end to the Russian-Ukraine war.  Hopefully, he will be able to accomplish this.

But Trump’s biggest challenge for his second term is to keep inflation under control.   Consider:

• In the first four months of 2025, the Consumer Price Index (CPI) has been 3.0 (January), 2.8 (February), 2.4 (March) and 2.3 (April). So inflation has been going steadily down since Trump took office, which is what we all want.

  

• The problem is that Trump’s tariff proposals risk reigniting inflation. Right now his original, and massive, tariff proposals are on temporary hold while individual bilateral agreements are being negotiated.
• America’s biggest retailer, Walmart, has already announced some price increases, based on current tariff projections. Other companies are likely to follow suit.  This will put upward pressure on inflation.  On the other hand, if consumer confidence continues to wane, this will tend to keep prices down.

  

Conclusion.  Trump has succeeded in closing our southern border and is off to a good start in foreign policy.  His biggest challenge will be keeping inflation under control, and continuing to fall towards the Fed’s desired goal of 2%.  Continuing to keep his tariff goals moderate will be key in this respect.

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