‘Drill, baby, drill’: Trump holds off on tariffs, bets on Day 1 moves to cut energy prices and tame inflation

U.S. President Donald Trump announced that he will declare a 'l energy emergency' to help to bring down prices.

WASHINGTON — 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 increase 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 plans to sign a presidential memorandum seeking a broad-based government approach to bringing down inflation.

All those details are according to an incoming White House official who insisted on anonymity while outlining Trump’s plans during a call with reporters.

The official said the new administration, on his first day in office, will 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.

The decision to pause and study tariffs was a sign that 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.

Still, according to the weightings for the consumer price index, energy spending represents on average just six per cent of expenditures, much less than food (13 per cent) or shelter (37 per cent).

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 US$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 per cent in mid-2022. But inflation has picked up since September to an annual rate of 2.9 per cent in December.

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

In an interview with Time magazine last month, Trump acknowledged that lowering down grocery prices would be difficult. “It’s hard to bring things down once they’re up,’’ he said.

Many of the steps Trump is taking will probably need congressional approval. Parts of his 2017 tax cuts expire after this year and Trump intends to extend and expand them at a cost that could exceed $4 trillion over 10 years. Trump sees getting rid of Biden-era financial supports for renewable energy as a way to possibly fund his tax cuts.

He is also likely to seek to repeal a $7,500 tax credit for new EV purchases, and roll back rules to tighten limits on greenhouse gas emissions and other pollution from passenger and commercial vehicles.

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

Josh Boak, Matthew Daly And Paul Wiseman, The Associated Press