Newsletter Wednesday, November 13

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On the campaign trail, Donald Trump has made many promises to end inflation. One of his proposed fixes has been lowering energy prices, which have drastically increased since the pandemic.

While rising energy costs have been named as one of the many reasons behind rising inflation, Trump’s proposed solution – as well as inflation itself – contain many moving parts. Here’s how Trump’s campaign trail promise to lower energy prices may splay out for small businesses.

What Trump is promising

Trump’s primary vehicle for ending inflation and boosting small businesses has been to lower energy costs by increasing American energy production.

“We will drill, baby, drill, and by doing that we will lead to a large-scale decline in prices,” Trump said at the Republican National Convention in July.

Trump has claimed that by reducing reliance on foreign energy, prices – and by extension, manufacturing, transport and other costs that drive consumer goods prices – will be halved within the first year of his term.

Energy costs have been one of the driving factors behind inflation. In 2021, when inflation began to spike, retail electricity prices rose at their fastest rate since 2008 due to a variety of factors, including extreme weather events and federal policies driving up demand and restricting supply. In 2022, Russia’s invasion of Ukraine increased gas and electricity prices due to worldwide embargoes on Russian oil.

Other factors such as supply chain snarls, shortages and pent-up demand from the COVID-19 pandemic aftermath have contributed to inflation across the board.

How lowering energy costs will impact small businesses

Energy costs can have a compounding effect on the prices of goods, as it takes energy to manufacture, transport, advertise, store and distribute goods. Trump promises to focus on American energy – particularly, oil and petroleum – will drive down costs for businesses and prices for consumers, the campaign argues.

Inflation continues to be the number one concern for small businesses, according to an August 2024 survey by the National Federation of Independent Business. Driving down costs for businesses and prices for consumers can be beneficial, as consumers will have more money to spend, businesses will spend less on operating and supply costs and prices on the whole will lower.

However, Trump’s methodology for lowering inflation has drawn criticism and doubts over the viability of the plan. Trump is likely to deregulate the oil and gas industry in order to incentivize production and end Biden-era restrictions on federal land, which has led to environmental concerns, especially since Trump is emphasizing non-renewable energy sources like oil and natural gas. Some economists also argue that higher American energy production may also cause waves in the global market.

Bankrate’s expert take on ending inflation with energy prices

“Oil and energy prices are among the most complicated in all of the U.S. economy,” says Sarah Foster, principal U.S. economy and Federal Reserve reporter for Bankrate. “For starters, they’re volatile, and they’re based on a whole number of factors — namely, supply and demand and global production. Those have a lot more to do with than just who sits in the White House: wars, demand for energy and even weather can all influence the amount of supply on the market.”

Foster added that putting a price cap or trying to control the price of oil may make the energy price problem even worse.

“President Donald Trump might be able to slash regulations and incentivize more production, but slashing energy prices by more than half the way he’s promised is a lot more nuanced than that,” she said. “Companies may no longer be able to make a profit, which disincentivizes them from producing — and actually exacerbates the problem of energy inflation even more.”

Trump’s inflation promise: The pros

  • Lower energy costs may help lower inflation and ease price increases for small businesses.
  • Reduced prices can give consumers more money to spend at small businesses.
  • Businesses could have lower operating and supply costs.

Trump’s inflation promise: The cons

  • Lowering energy costs alone may not fix inflation.
  • Focusing on non-renewables can have environmental impacts.
  • Lowering energy costs may shake the global market.

The bottom line

Trump’s foremost strategy to combat inflation is through domestic oil production and its subsequent effects on energy prices. While the lower costs could have a welcome effect on the cost of living, some experts are not so sure and feel like it could have adverse effects on the national and global economy. And during a time of great anxiety about climate change, increasing domestic oil production would be a highly controversial move.

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