"Cost of living" has become a key focus for Trump, Bank of America: The White House will increase "price intervention," the trade war is "over."

After the recent elections sent a "warning signal" to the Republican Party regarding the cost of living, the Trump administration is urgently pivoting to make curbing consumer prices a core policy agenda. This shift not only has the potential to reshape domestic economic policy in the United States but also suggests a significant reversal of Trump's hallmark tough stance on trade.

According to The Wall Street Journal, the White House is rapidly formulating a series of plans aimed at lowering prices for consumers. The latest developments indicate that Trump and his advisors are discussing measures that include providing Americans with direct subsidies of $2,000 or more, launching antitrust investigations into meatpacking companies, and a new plan aimed at reducing tariffs on consumer goods such as coffee and fruit.

At the heart of this series of actions is the reduction of tariffs. Last Friday, the U.S. government announced it would lower tariffs on dozens of agricultural products and foods, including beef, coffee, nuts, and spices, marking a significant shift in trade policy under the Trump administration. This move is seen as one of the most direct and powerful tools the White House has to address growing voter dissatisfaction with high living costs.

Market attention has quickly focused on this. Bank of America’s analysis report indicates that Washington's political focus on "affordability" may signal the "end of the trade war." The bank predicts that the White House will increase direct intervention in prices through "tangible fists," and this macro backdrop change will become a key driver of asset allocation in the coming months.

From Trade War to Price Stabilization

The pressure from election results is forcing the White House to shift its focus from past priorities to stabilizing prices. According to government officials, Trump’s aides have urged the president to focus on "affordability" and are working on specific plans to address voter frustration.

In addition to direct subsidies and tariff adjustments, the White House's policy toolbox also includes: reaching more agreements with pharmaceutical companies to lower prescription drug prices, approving new offshore drilling projects to stabilize energy costs, and launching new healthcare and housing proposals.

According to a senior government official, Trump has even personally suggested some ideas, such as providing taxpayers with a $2,000 rebate and a housing plan offering 50-year mortgages. Treasury Secretary Scott Bessent added that the government may impose income limits on the $2,000 rebate.

Among the limited tools available to the president for lowering prices, reducing tariffs is undoubtedly the most effective. The direct impact of tariffs on consumer prices is evident. For example, data from the U.S. Department of Labor shows that the average price of a pound of ground coffee has surged from $6.47 a year ago to $9.14 in September this year, with a significant portion of the increase attributed to a 50% tariff on certain imports from Brazil, a major global producer.

However, experts also caution that price control is not an easy task. Ken Kuttner, an economist at Williams College, points out that many price increases are driven by "chronic issues" that have no short-term solutions. For instance, high housing costs are primarily due to a shortage of homes, and alleviating supply is not a quick fix; at the same time, surging electricity demand from sectors like data centers is challenging aging infrastructure In addition, even if tariffs are reduced, companies often need some time to pass the cost reductions on to retail prices.

Soothing Voters and Economic Realities

For Trump, addressing the cost of living issue is also a complex political game. On one hand, he claims on social media that the "affordability" used by Democrats is a "complete scam," while on the other hand, he promises to "make America affordable again for all Americans."

This contradictory stance reflects the dilemma faced by the White House. Former President Biden struggled with disconnect from voters on price issues. His former Council of Economic Advisers Chairman Jared Bernstein admitted, "There is no secret switch on the president's desk to lower prices." Michael Strain, head of economic policy research at the right-leaning American Enterprise Institute, also stated that telling people their views on living conditions are wrong is not a good idea. Nevertheless, Republican pollster Bill McInturff pointed out that when people are this angry, "they don't have a patience button."

The Market is Betting on "Tangible Fists" and the End of Trade Wars

For investors, the policy shift in Washington means a new market logic is forming. Bank of America analyst Michael Hartnett noted in his latest report that this political game around "affordability" will directly translate into specific market drivers. He boldly predicts, "Whoever wins the affordability issue will win the midterm elections."

Bank of America believes that to win over voters, the U.S. government is expected to increase intervention, turning the "invisible hand into a tangible fist," influencing key areas such as energy, healthcare, housing, and utilities through direct price control or increased supply. This clearly poses a downside risk to the profit margins of related "inflation-sensitive" sectors.

However, the good news is that this political anger over affordability may very well signal "the end of trade wars" and "the reduction of tariffs." In Bank of America's view, this will be one of the main themes for the future market. As inflation decreases as a result, the cyclical uptrend of going long on long-term government bonds will likely continue for a longer period. However, Hartnett also provided a clear exit timing: "Take profits before May 15," as the market may start pricing in the election of a more dovish new Federal Reserve chair by then.

Risk Warning and Disclaimer

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