During the first Trump administration, tax cuts initially accelerated economic growth but led to increased federal deficit spending, which soon drove up borrowing costs and ultimately slowed the economy. While many attributed the initial supply chain issues and inflationary pressures primarily to the COVID-19 pandemic, the first inflationary event was actually sparked by climate change—the 2019 drought in Taiwan. Taiwan, a global center for microchip production, saw its chip manufacturing severely impacted by this drought, which reduced the water supply crucial for chip fabrication and forced some facilities to shut down temporarily. This disruption marked the beginning of supply chain issues that rippled through multiple sectors, creating shortages and fueling inflation.
The climate-induced inflationary cycle was further amplified by multi-billion dollar climate-related disasters, from severe hurricanes and wildfires to extended droughts. These events impacted insurance costs significantly, leading to spikes in homeowners’ and auto insurance premiums. President Trump’s proposed “Drill, baby, drill” approach, which prioritizes expanding fossil fuel extraction, is likely to exacerbate these issues by accelerating climate change effects, driving further economic instability, and intensifying the inflationary cycle tied to environmental damage.
The impact on health and wellness in the United States is already evident in a significant decline in life expectancy and quality of life. After remaining generally flat between 2014 and 2019, U.S. life expectancy saw a sharp decline, dropping from 78.8 years in 2019 to 77 years in 2020, the largest single-year decline since World War II. This trend continued into 2021, with life expectancy falling further to about 76.1 years. These factors contribute to a worrying trend of early mortality and diminished quality of life, which poses long-term implications for the economy and the healthcare system.
In addition to these factors, climate change is likely to accelerate the decline in life expectancy and increase health risks. Pollution, already the leading contributor to death globally, is expected to worsen with climate change, increasing respiratory issues, cardiovascular diseases, and other pollution-related health conditions. Climate change impacts, such as severe weather events, also disrupt healthcare supplies and logistics, as seen during Hurricane Helene when IV solution shortages spiked. Rising temperatures are anticipated to drive up the rate and transmission of zoonotic diseases, further straining healthcare resources and costs.
While these factors generally point toward increased healthcare demand and costs, the impact on health insurance rates remains complex. On one hand, higher medical needs and treatment costs suggest rising insurance premiums. However, as life expectancy shortens, some individuals may not incur long-term healthcare costs, potentially offsetting some insurance expenses. In any scenario, climate change is a critical factor affecting both personal and public health outcomes.
The proposed economic policies in the next Trump administration would likely include substantial corporate tax cuts along with significant taxes and tariffs, which are expected to primarily impact consumer costs. This approach could lead to a dramatic increase in the federal deficit due to reduced corporate tax revenue and heightened consumer prices. With increased deficit spending, the federal government will likely need to borrow heavily, which could spur inflation and push interest rates higher as the government competes with the private sector for financing.
As inflation and interest rates rise, this could create a “debt spiral” in which the government must borrow even more just to cover mounting interest payments on the national debt. According to projections, if these policies are enacted, federal interest payments could exceed $3 trillion over the next decade, with an estimated $1.7 trillion in annual interest payments by 2034. This feedback loop could lead to further economic strain, as inflation erodes consumer purchasing power and the cost of borrowing increases for businesses and individuals alike. Such policies, if enacted, could thus deepen fiscal instability and exacerbate the ongoing climate-driven inflation pressures impacting essential goods and services.
RECOMMENDATIONS FOR ASSETS
Investors may see an initial stock market surge followed by a period of prolonged decline as the economy faces mounting fiscal and environmental pressures. With this volatility in mind, it may be prudent to prioritize secure, inflation-protected investments. Treasury I-Bonds are a sound choice, offering inflation protection and low risk; however, they are capped at a maximum investment of $10,000 per individual per year. Additionally, 4-week Treasury bills could serve as an effective, low-risk short-term option due to their liquidity and lower exposure to interest rate volatility.
Real estate should be approached cautiously, with a focus on how climate change is affecting property values and insurance availability. Areas with high vulnerability to climate-driven disasters, such as coastal properties and locations in Florida, Louisiana, Texas, Arizona, New Mexico, Nevada, Colorado, California, and Washington, may face increased insurance premiums, frequent natural disasters, and dwindling property values. Liquidating properties in these areas may help mitigate financial risk, especially as the insurance industry reassesses coverage availability in high-risk zones.
RECOMMENDATIONS FOR LIABILITIES
Borrowing costs are expected to rise considerably, making it critical to secure fixed-rate loans whenever possible. Investors and homeowners should lock in fixed-rate mortgages sooner rather than later to hedge against future interest rate hikes. Variable-rate financing, including adjustable-rate mortgages (ARMs) and other forms of variable loans, could become unsustainable as rates continue to increase. By opting for fixed-rate options, borrowers can better protect themselves from the uncertainty of future rate fluctuations and potential inflationary pressures on their monthly payments.