Trump holding off on tariffs but betting Day 1 moves can cut energy prices and tame inflation

Donald Trump is holding off on tariffs during his first day and placing a big bet that his executive actions can cut energy prices and tame inflation. But it's unclear whether his orders will be enough to move the U.S. economy as he promised.

“The inflation crisis was caused by massive overspending,” Trump said in his inaugural address as he suggested that increasing oil production would lower prices.

Orders coming Monday, including one tied to Alaska, are meant to ease the regulatory burdens on oil and natural gas production. He also intends to declare a national energy emergency in hopes of jumpstarting more electricity production in the competition with China to build out technologies such as artificial intelligence that rely on data centers using massive amounts of energy.

Trump also signed a directive telling federal agencies to conduct a 30-day review of how they can help to lower the costs of housing, health care, food, energy and home appliances as well as finding ways to bring more people into the workforce.

On a Monday call with reporters, a White House official said the new administration would also end what Trump incorrectly calls an electric car “mandate.” While there is no mandate from outgoing Democratic President Joe Biden to force the purchase of electric vehicles, his polices have sought to encourage Americans to buy EVs and auto companies to shift from gas-powered vehicles to electric cars.

Trump, during his campaign and after he won the November election, threatened tariffs on China, Mexico, Canada and other countries. But he appears to be holding off so far on higher taxes on imports. The official pointed reporters to a Wall Street Journal story saying Trump will only sign a memorandum telling federal agencies to study trade issues.

Still, Trump pledged in his inaugural address that tariffs would be coming and said foreign countries would be paying the trade penalties, even though those taxes are currently paid by domestic importers and often passed along to consumers. Trump later on Monday said tariffs would "make us rich as hell."

The decision to pause and study tariffs was a sign to the Canadian government that it should be prepared for almost all possibilities on the direction of trade with the United States.

“Perhaps he’s made decisions to sort of suspend the threat of tariffs over a whole slate of countries. We will wait and see,” Canadian Finance Minister Dominic LeBlanc said. “Mr. Trump has been in a previous mandate unpredictable, so our job is to make sure we are ready for any scenario.”

Overall, the Republican faces an array of challenges with fulfilling his ambitions to lower prices. Biden managed to see the inflation rate drop over two years yet he was leaving office with price growth still outpacing wages over the past four years.

A big driver of inflation is a persistent housing shortage, and U.S. oil production is already at record levels, with producers facing uncertainty about global demand this year. The Federal Reserve is technically the government body tasked with keeping inflation at a roughly 2% annual target. Its usual levers are setting short-term rates for banks lending to each other, in addition to bond purchases and public communications.

Trump has said natural resource production is key to lowering costs for American consumers, both at the pump and in their utility bills.

Energy prices permeate every part of the economy, so increasing U.S. production of oil, natural gas and other fossil fuels is critical to national security. Trump, who has pledged to restore U.S. “energy dominance," has complained that the Biden administration limited Alaska’s oil and gas production.

Trump showed his relative indifference to the fossil fuels accelerating climate change, even as he lamented natural disasters such as the Los Angeles wildfires. He said he would again withdraw the United States from the landmark Paris climate agreement, dealing a blow to efforts to combat global warming and once again distancing the U.S. from its closest allies.

Energy can impact prices, but it's not the largest chunk of families' spending. According to the weightings for the consumer price index, energy spending represents on average just 6% of expenditures, much less than food (13%) or shelter (37%).

Inflation, dormant for decades, resurfaced in early 2021 as the economy recovered with unexpected strength from COVID-19 lockdowns. A surge in customer orders overwhelmed America’s supply chains, causing delays, shortages and higher prices. Factories for computer chips, furniture and other products worldwide struggled to rebound.

Republican lawmakers were quick to blame the Biden administration's $1.9 trillion pandemic relief, though inflation was a global phenomenon that points to factors beyond U.S. policy. Inflation further worsened after Russia invaded Ukraine in February 2022, pushing up energy and food prices.

In response, the Fed raised its benchmark interest rate 11 times in 2022 and 2023. Inflation has come down from a four-decade high 9.1% in mid-2022. But inflation has picked up since September to an annual rate of 2.9% in December.

Voters were unimpressed with the progress against inflation, frustrated that prices remained more than 20% higher than they were four years ago while average weekly earnings had not kept up. Higher grocery prices – up 27% from February 2021 -- were especially painful.

After the inaugural address, Trump played down the importance of inflation in the 2024 election, suggesting in remarks at the Capitol that his voters cared more about immigration because there were only so many ways to talk about prices.

“How many times can you say that an apple has doubled in cost?” Trump said.

Associated Press writer Rob Gillies in Toronto contributed to this report.

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