Why Voters Might Finally Blame Trump for Rising Costs

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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.

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.

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 Katherine Rempel to join me.

Katherine is an economics editor at the Bullwark and an anchor for MSNOW.

Katherine, welcome.

Great to be here.

So the weather's getting warmer.

Spring break is around the corner.

Are you planning any long road trips?

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.

You have an idea.

Yes.

Yes, gas prices are getting higher.

Although I am very glad we bought an EV.

I have to say.

Okay, so let's talk about what's happening.

Why are oil eyes turned on the straight of hormones?

Yes, most Americans wish that they did not have to know about the straight of hormones.

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% of the world's oil.

Normally transits through this straight, which is on Iran's southern coast.

But that straight has effectively been shut off because

Iran has been threatening ships that go through.

And some of them have been attacked.

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.

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.

It's the feedstock for sulfuric acid, which is used to extract copper, cobalt,

other kinds of important ingredients essentially for lots of products.

So 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% of the world's liquefied natural gas comes from

cutter, which are now that they were shutting down production last week that caused

liquefied natural gas prices to spike.

Yeah, 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 the pandemic.

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.

Well, I was going to say lots of stuff gets shipped.

Right, exactly.

With energy of some kind, whether it's gasoline or diesel 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. 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.

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?

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. So we do 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.

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?

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 margins. 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. 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. 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, 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 ensure a big oil tanker that is worth a lot of money, the vessel itself

is worth a lot of money. 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 that go through each day that would

require an escort. It's just not a viable thing to do because we just the US Navy doesn't have a

ship for every tanker that they would need to ask for. Or a fleet of ships for that matter,

so there are things like that. 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. 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. 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 in the economy. What 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? 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. 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. He overstated how cheap gas was, but he was very proud

to talk about it. And now, of course, the reverses happen. 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? 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 would the

off-ramp be? So the taco trade meeting, as you say, Trump always chickens out that

meaning when things start to look tough, he suddenly switches positions, even though it seemed like

he wasn't going to back down, right? 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 equity's 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 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 Trump maybe doesn't get the signal right. So that 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 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 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 waiting the economic costs if we don't know what

other benefits are per se that they are trying to extract from this foreign adventurism.

And how about the political costs? Gas prices are, as you say, politically salient any year,

that this is a midterm year where the president's party typically loses seats.

What's at stake for him politically and how do you see the current situation in Iran and Trump's

determination to go forward playing out over the next weeks and months?

Yeah. So as we've been discussing, we don't entirely know what the president's

objectives are here. If you think that he has started this war to distract from domestic

problems at home, which may be the case, he will have ironically made those domestic problems

much worse. There are a bunch of reasons why this war of choice is a political liability for

the president, including that, of course, he ran on a campaign of no more foreign wars.

The MAGA movement tends to be a very isolationist movement. They don't want money going abroad for

any purpose. That is a political vulnerability in and of itself. But then on top of that, of course,

you have this economic impact. Affordability is Donald Trump's biggest political issue.

It is among his biggest vulnerabilities, and it is probably the issue that has weighed down his

approval ratings more than anything else. If you look at how positively Americans viewed

this president on the economy, on inflation, on cost of living type questions versus how negatively

they view him today, this has been a huge turnabout and a huge weight on him. That was the case

before this war started, because the president came into office promising to reduce prices and

instead has enacted a bunch of economic policies that have likely increased prices. I cannot imagine

that voters will reward him for that. Voters may not prioritize the death of school children

in Iran. They may not prioritize the deaths of U.S. service members in the Middle East,

as much as we would like them to, but they will surely notice if they go to the gas station

and gas has gotten a lot more expensive, and they have trouble now paying their bills. Voters

always punish the incumbent party for gas prices. Again, whether or not they are responsible,

and in this case, you can definitely draw a line between actions that the administration has taken

and that thing that voters are very angry about. You mentioned the MAGA isolationist base,

and the question of whether Iran, this adventurism abroad, will maybe split that up a little bit.

Why wouldn't an American, sort of, a more isolationist-minded American look at the situation we have

right now, America producing all this energy and net exporter of oil, plenty of natural gas, and just

say, close it off. The problem is not that Trump has been too aggressive in shutting the United

States off from the rest of the world, but that he hasn't gone far enough. Just keep all of it here

in the United States, and we won't have to care about what happens in Iran or anywhere else.

What's the flaw in that reasoning? Well, again, the world is interconnected. We have lots and lots of

globalized markets and connected supply chains that if we try to hoard all of the energy for that

matter here, not just oil, but natural gas, that will have downstream consequences for other

countries that produce stuff that we rely on. I should say that other countries have already

started hoarding oil. China has been hoarding various kinds of energy because of this war,

because China gets a lot of its oil from Iran. So, understandably, they are worried about their

access to energy, but that's going to cause lots of disruptions there too. So, you know,

all of these things have consequences. There are cascading effects from all of these decisions

that get made, many in ways that are just not appreciated by this administration. You know,

one piece of all of this that I didn't mention that I should have when you are asking before about

what are the options that the administration has to try to bring down oil prices, or at least

temper the increase. We have also decided to alleviate sanctions on Russia, right? We have all

of these sanctions on Russia, which is essentially a petro state. You know, they get a lot of their

income from oil and gas. We had these third-party sanctions in place that basically said,

if you are in another country that buys oil and gas from Russia, we are going to penalize you

as well. Don't buy it. And now, the Treasury Secretary Scott Bessent has said, actually, we're

going to, you know, temporarily release some of those sanctions and allow Russia to sell more oil.

So, what does that mean? That means that not only are oil prices much higher today than they had

been, but Russia also has a bigger pool of customers to sell to. So, all of that is going to fund

their war chest in Ukraine. And reportedly, Russia is also advising Iran on how to target

U.S. assets in the area. So, it's like this very perverse thing that we're doing. Because Donald

Trump started this war that caused gas prices to rise. So, we're, you know, relaxing the sanctions

on Russia, which is helping Iran to kill our soldiers. If anybody had thought through this

even a little bit at the very beginning, most of these consequences could have been anticipated.

Maybe not like all of the, you know, palace intrigue and internal machinations of who's going to

replace Khamenei and things like that. I don't know how foreseeable that stuff was. I'm not

an Iran expert. But the idea that starting a war with Iran might lead to some very painful

economic consequences and might cause us to have to make hard choices about sanctions on Russia.

And all of the other things we've talked about, like all of that stuff was foreseeable. The question

is, did they consider it? Is anyone even advising Trump of these actions? Or are they just sort of

having to play clean up every time they finally learn, oh, wait, you know, this action had this

reaction. Maybe we should try to clean it up. It's like every time they try to clean up one

mess. They're creating another mess. So wrapping up, you spend a lot of your time thinking about

the economy. If you had to choose the biggest misconception the public has right now about why we're

at war and what it will cost them, what would that be? I would say the biggest misconception is

probably that oil disruptions are about oil. Oil disruptions are about oil, but they're also

about everything else that oil is a feedstock for. All of the petrochemicals that go into

other processes, industrial processes, extraction of copper and cobalt and everything else,

as well as various other products that Americans buy. They're not just going to see the

warflation here reflected at the pump. They're going to see it in almost everything that they purchase.

Catherine, thanks so much for joining us today. Thank you.

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