Why Voters Might Finally Blame Trump for Rising Costs

0:00Catherine Rampell:Hey, it's Lauren Dragon from Wirecutter, the product recommendation service from the New York Times, and I test headphones.

0:06Steve Stormberg:We basically make our own fake sweat and spray it over and over on these headphones to see what happens to them over time. We're going to put on some noise-canceling headphones and see how well they actually block out the sound. I have 3 ,136 entries in my database. Kids, workout, what version of Bluetooth? At Wirecutter, we do the work so you don't have to. For independent product reviews and recommendations for the real world, come visit us at nytimes.com slash Wirecutter.

0:31Catherine Rampell:This is The Opinions, a show that brings you a mix of voices from New York Times Opinion. You've heard the news. Here's what to make of it.

0:47Catherine Rampell:I'm Steve Stromberg, an editor for New York Times Opinion. We are in the second week of war with Iran. We have already seen thousands of casualties in Iran and the Gulf region, as well as American military deaths. And then there's the economic fallout, and that's what we're going to be talking about in this conversation. We're taping on Monday as the price of oil is fluctuating wildly. President Trump tried to deflect criticism in a press conference Monday evening. I knew oil prices would go up if I did this, and they've gone up probably less than I thought they'd go up. But I don't think anybody thought we were going to be this quickly successful.

1:24Catherine Rampell:This was a military success, the likes of which people haven't seen. We have the best military. To help us understand this situation and what it means for the economy, I've invited Catherine Rempel to join me. Catherine is an economics editor at The Bulwark and an anchor for MS Now. Catherine, welcome.

1:42Steve Stormberg:Great to be here.

1:44Catherine Rampell:So the weather's getting warmer. Spring break is around the corner. Are you planning any long road trips?

1:49Steve Stormberg:I am not. I have a baby. So long road trips are not in the cards for the time being, which is fortunate because I know where this is going.

1:58Catherine Rampell:You have an idea? Yes.

2:00Steve Stormberg:Yes, gas prices are getting higher. Although I am very glad we bought an EV, I have to say.

2:06Catherine Rampell:Okay, so let's talk about what's happening. Why are all eyes turned on the Strait of Hormuz?

2:13Steve Stormberg:Yes, most Americans wish that they did not have to know about the Strait of Hormuz, but it turns out it is a very important choke point in the world. This has mostly been characterized as an oil crisis, But I would say it's a little bit more like an everything crisis, or at least it could be, because there is so much stuff that transits through this one 21-mile choke point. The most likely thing that Americans have heard about is, of course, the oil that goes through. Something like 20 percent of the world's oil normally transits through this strait, which is on Iran's southern coast. But that strait has effectively been shut off because Iran has been threatening ships that go through and some of them have been attacked.

3:04Steve Stormberg:In some cases, Iran is obviously responsible. In other cases, we still don't entirely know. But the net effect is that traffic has come to a virtual halt. And that means a few things. It means oil prices, as you know, have gotten a lot more expensive, but so are other things. So a lot of the world's fertilizer, for example, or the feedstock for fertilizer goes through this straight. And this is important basically any time of year if you are going to have a disruption in that supply chain. But it is especially important right now because spring planting is about to start or in some places has already started.

3:44Steve Stormberg:And so you'll have higher food prices and lots of other things, too. Like it's not just about oil. It's about the things that are made from oil. For example, there's a lot of sulfur that comes from oil, and sulfur is the feedstock for sulfuric acid, which is used to extract copper, cobalt, other kinds of important ingredients, essentially, for lots of products. You can't make transformers. You can't make EV batteries. You can't make lots of other things. Then you have liquefied natural gas. I think it's something like 20 percent of the world's liquefied natural gas comes from Qatar, which announced that they were shutting down production last week that caused liquefied natural gas prices to spike.

4:31Steve Stormberg:So, yeah, I mean, there's a lot of economic activity that comes from this very, very small region of the world. And because of globalization, all of these markets are interconnected. And that's why it matters. And if people are listening to this and maybe have some sort of PTSD from the COVID supply chain crises, this could potentially be just as bad, except in this case, it's more of a man-made disruption because of this war as opposed to, you know, a pandemic. it.

5:09Catherine Rampell:The list of prices of goods this might affect is probably longer than the list of goods it won't affect, given the pervasiveness of oil, natural gas, as you say, across the economy. Not to mention.

5:23Steve Stormberg:Well, I was going to say, you know, lots of stuff gets shipped. Right.

5:26Catherine Rampell:Exactly. You know,

5:27Steve Stormberg:with energy of some kind, whether it's gasoline or diesel or or other kinds of energy usage. And the other thing that I should mention here is that it's not only about not being able to ship stuff. It's also about the supply of stuff at this point, because places like Iraq are running out of storage because they cannot ship oil. They only have limited ability to store the stuff that they are producing. So that means that if they start producing less because they have nowhere to put it, that even if magically the war were to end tomorrow and everything went back to normal, militarily, geopolitically and economically and in terms of shipping, you would still be in the hole, right?

6:15Steve Stormberg:There is still a deficit of production that starts to spook markets even more. It's not just about letting things start moving again. It's that we are now backed up in terms of how much stuff can be produced.

6:29Catherine Rampell:So we've heard for years about energy independence. President Trump likes to talk about energy dominance. And yet the American economy remains vulnerable to disruptions in Middle Eastern oil supply. Why is that? I mean, we're producing so much oil. We're producing so much natural gas. Why aren't we more insulated?

6:49Steve Stormberg:Well, we are more insulated than we were in the 1970s, for example. We are now a net exporter of petroleum products and have been relatively consistently for the past few years. That happened under the first Trump administration, basically throughout the Biden administration and still today under the second Trump administration. So that does give us some insulation. And if you look at what has happened to energy prices in Europe, for example, they are up much more, at least as of this taping, than they are in the United States, in part because we do have our own supply here and Europe is much more reliant on the global market.

7:35Steve Stormberg:So, you know, we have a lot of consequences here. It's not as bad as it could be. I'm not sure that that's going to be super comforting to American consumers like, oh, look, it's so much worse in Europe. Congrats. That's not really going to insulate the administration or his party from the political repercussions from all of this. So there are a lot of different routes in which it will come for American consumers, even if we are producing quite a lot of oil and natural gas ourselves.

8:07Catherine Rampell:So what, if any, options does Trump have to restrain oil prices, alleviate the supply concerns, deal with some of these now sort of tangled webs of supply all around the world?

8:21Steve Stormberg:Well, he could not start a war in the Middle East. That would probably be the most obvious way to not. Well, too late for that. Too late for that. I know. If only somebody had informed him. Beyond that, you know, this is something that has bedeviled presidential administrations many times before. Every time there is an election year in particular, presidents wish that they had a dial that would allow them to turn down gasoline prices, and they don't. In this case, it turns out that they have a dial to turn up gasoline prices. But in any event, the kinds of tools that are available can help things a little bit on the margin.

9:01Steve Stormberg:So we have a strategic petroleum reserve here in the United States. As of this taping, the administration has not said it will tap it. But if this war goes on for a very long time and if the Strait of Hormuz is effectively blocked for a very long time, that's not going to make much of a dent, especially since market participants are forward looking and can see like how much oil is being released from these reserves versus how much oil is being sort of held back, either not shipped or again, not extracted at all. because of this war.

9:40Catherine Rampell:So people can see that there's this big gap in how much is being supplied. And, you know, they can look at how much is in the reserves and say there's a big discrepancy between these two. The reserves can't make up for what we're losing.

9:53Steve Stormberg:Right. And the reserves are supposed to be there, you know, in an emergency, right? And so you don't want to just, like, drain them all immediately because there may be some other contingency that governments understandably are worried about that's not just about this particular military conflict. They have also suggested that they would provide insurance for tankers that are worried, not just that they're worried about transiting through the strait, but are not insurable right now because who wants to insure a big oil tanker that is worth a lot of money? The vessel itself is worth a lot of money.

10:35Steve Stormberg:The cargo is worth a lot of money that might get blown up. So the administration has said or Trump has said that he would provide this sort of emergency insurance. They've also talked about having like a naval escort for these ships, which is just everyone I've spoken with who knows more about military resources than I do, has said is not a viable option, particularly since normally there are dozens of ships. of ships that go through each day that would require an escort. It's just not a viable thing to do. Because we just the U.S.

11:12Catherine Rampell:Navy doesn't have a ship for every tanker that they would need to escort.

11:15Steve Stormberg:Or a fleet of ships for that matter, you know. So there are things like that. You know, they've talked about intervening in oil futures markets or doing some targeted tax breaks. But none of these things are really going to make that big of a difference. And again, this is something that prior administrations have struggled with before because voters blame the president for higher gas prices. And usually I would say that that blame is not particularly deserved by a president because presidents don't exert that much control over energy markets. But in this case, voters may actually have a point.

11:56Catherine Rampell:So Trump recently called the spike in oil prices a very small price to pay for peace. That said, Monday afternoon, he told a CBS News reporter, quote, I think the war is very complete, pretty much. So even since we started taping, the price of oil has gone down a bit. I know you're not a foreign policy expert, but you are a close watcher of Trump and the economy. Where do you see this going from here? Do you think he's backing down? Has he reached sort of the point of too much economic discomfort?

12:30Steve Stormberg:It's clear that he cares about gas prices. In fact, this was one of the things that he highlighted in the State of the Union.

12:38Catherine Rampell:Gasoline, which reached a peak of over$6 a gallon in some states, under my predecessor, is now below$2.30 a gallon in most states. And in some places,$1.99 a gallon. And when I visited the great state of Iowa just a few weeks ago, I even saw$1.85 a gallon for gasoline.

13:02Steve Stormberg:And he overstated how cheap gas was, but he was very proud to talk about it. And now, of course, the reverse has happened. Gas prices have shot up because of actions this administration has taken. You know, whatever the other merits there may have been for going to war, and I will let other people weigh in on the strategic or geopolitical merits here. In terms of the thing Trump has cared about, gas prices and the economic impact of those and the broader affordability question, this is going to be very painful for him. And it's not clear that he has a solution for that. Does that mean he backs down?

13:40Steve Stormberg:I don't know. You know, there's the taco trade. Trump always chickens out. Markets don't seem to think that he's going to chicken out here. And it's not even clear what that would look like at this point. What what would the off ramp be?

13:53Catherine Rampell:So the taco trade meeting, as you say, Trump always chickens out that meaning when things start to look tough, he he suddenly switches positions, even though it seemed like he wasn't going to back down. Right.

14:06Steve Stormberg:Right. The taco trade is the idea that Donald Trump is not willing to take a beating from the markets, that if the market falls, if equities markets fall, if oil prices rise, he's going to back down because he just doesn't want to deal with the fallout from that. And so the result is that people are increasingly betting that he's just not going to carry out whatever his threats are. And the problem with all of that is like the feedback loop kind of gets short circuited because if traders think that it's not worth, you know, reacting to the economically damaging thing that Trump does because he won't be willing to sustain the pain, but then they don't inflict the actual pain, then then Trump maybe doesn't get the signal right.

14:54Steve Stormberg:So there is a risk here that if markets don't give enough of a slap on the wrist or whatever to this president, then he will continue doing the thing that markets don't like or that would be bad for the economy. And so, you know, we don't know what this is going to mean for the war effort. There are a lot of other considerations I'm sure that this administration has besides what happens to gas prices, as they should. Right. Our foreign policy should not be dictated solely by what happens at the pump, even if that is the thing that is most salient to consumers. But I think it's also a little bit harder for them to maintain whatever their strategy or objective is outside of the economic consequences if we don't really know what their strategy or objective is.

15:42Steve Stormberg:And that has been changing as well. So it's a little bit hard to like put these puzzle pieces together for what it is they are prioritizing and how much they are weighting the economic costs if we don't know what the other benefits are, per se, that they are trying to extract from this foreign adventurism.