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Speaker 1: Bloomberg Audio Studios, podcasts, radio.

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Speaker 2: News on the calendar this week is what President Trump

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Speaker 2: is calling Liberation Day Wednesday, April second. That's when the

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Speaker 2: President says we can expect the biggest salvo yet in

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Speaker 2: his widening trade war.

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Speaker 3: April second is going to be liberation Day for America.

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Speaker 3: We've been ripped off by every country and the world,

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Speaker 3: friend and foe.

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Speaker 2: The President raised the stakes this weekend by saying he

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Speaker 2: plans to start his reciprocal tariffs push with all countries,

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Speaker 2: no country spared, at least for now. But we still

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Speaker 2: don't know how high these tariffs will be. There's less

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Speaker 2: uncertainty about the tariff's significance about what they represent. Shawn

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Speaker 2: Donnan covers economic policy for Bloomberg.

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Speaker 1: Look, I think we're at a point where we are

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Speaker 1: moving towards and I think this is the key point.

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Speaker 1: To remember, one of the biggest acts of American protectionism

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Speaker 1: that we've seen in almost a century, and possibly even

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Speaker 1: bigger than the nineteen thirty Smoot Holly tariffs, which have

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Speaker 1: for decades been this kind of emblematic example of a

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Speaker 1: huge protectionist mistake.

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Speaker 2: The Smoot Holly terrifact, signed into law by President Herbert

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Speaker 2: Hoover in nineteen thirty, not long after the stock market crash,

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Speaker 2: smoot Holly raised duties on all kinds of imported goods

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Speaker 2: brought to the US from all over the world. The

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Speaker 2: government's goal was to protect American producers, mostly farmers, from

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Speaker 2: international competition. Douglas Irwin teaches economics at Dartmouth, and he

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Speaker 2: says smoot Hally led to almost instant reprisals.

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Speaker 3: Other countries were talied. They started keeping out US automobiles,

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Speaker 3: US farm goods, US manufacturers by raising terrists themselves, particularly Canada.

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Speaker 2: This happened on the eve of the Great Depression, and

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Speaker 2: for decades the consensus has been smoot Holly was an

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Speaker 2: economic disaster, a mistake. It's been a cautionary tale about

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Speaker 2: the dangers of protectionism. Now, the parallels aren't perfect. The

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Speaker 2: US economy is in better shape today than it was

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Speaker 2: in nineteen thirty. But also back then, the US wasn't

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Speaker 2: anywhere near his reliant on global trade as it is today.

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Speaker 2: But Erwin says President Trump is talking about imposing a

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Speaker 2: tariff's policy that would dwarf smoot Holly.

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Speaker 3: Well, I think it's really a historic moment. It's a

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Speaker 3: historic turning point in the world economy and certainly the

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Speaker 3: US trade policy.

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Speaker 2: I'm David Gura, and this is the big take from

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Speaker 2: Bloomberg News today on the show, what President Trump is

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Speaker 2: trying to do with trade policy and what history tells

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Speaker 2: us about what broad based tariffs could mean. We also

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Speaker 2: have a new Bloomberg analysis of the economic impacts of

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Speaker 2: the tariffs the President says he's planning to put in

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Speaker 2: place this weekend. President Trump said the rollout of these

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Speaker 2: reciprocal tariffs will affect all countries. There had previously been

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Speaker 2: speculation that the tariffs he said he'll unveil on April

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Speaker 2: second could be more limited, but Bloomberg Shaan Donnan says

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Speaker 2: a lot is still unknown.

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Speaker 1: All the details are still being worked out. Even people

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Speaker 1: in the White House don't really know what the exact

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Speaker 1: tariffs are going to be that are rolled out on

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Speaker 1: April second. But what's been very clear, and it's been

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Speaker 1: clear since the campaign last year, it's been clear since

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Speaker 1: January when he started rolling out these different tariffs, is

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Speaker 1: the direction that Donald Trump is going in, and that

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Speaker 1: is that he's erecting a tariff wall around the United States,

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Speaker 1: which is the world's largest economy, and that that is

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Speaker 1: going to have consequences for the US economy and for

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Speaker 1: the global economy.

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Speaker 3: Sean.

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Speaker 2: He keeps using a term reciprocal tariffs. What does it

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Speaker 2: mean by definition? And how does he think of that term.

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Speaker 1: It's a term that he is using to capture all

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Speaker 1: of the perceived barriers that other countries have to US

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Speaker 1: exports around the world, and an effort by this administration

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Speaker 1: to synthesize all of them into a single number, a

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Speaker 1: single tariff, a tariff that is a reciprocal reaction to

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Speaker 1: all of these tariff and other barriers like taxes and

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Speaker 1: regulations and even currency movements that this administration sees to

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Speaker 1: US exports around the world.

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Speaker 2: Sean, You've been listening to the President, You've been listening

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Speaker 2: to the Commerce secretary of the Treasury secretary. How would

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Speaker 2: you characterize what the overarching goal of these tariffs is.

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Speaker 1: So there's been different goals that they have laid out

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Speaker 1: for these tariffs. One is to rebalance the global trading system,

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Speaker 1: to try and get rid of the trade deficit and

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Speaker 1: these broader economic imbalances between the US and China, the

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Speaker 1: US and Europe, and somehow restore fairness in their mind

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Speaker 1: to the system. The second one is simply to raise revenues. Right.

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Speaker 1: The President has talked a lot about how tariffs raise

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Speaker 1: a lot of revenues for the government and that you

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Speaker 1: can use that to offset income tax cuts, which most

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Speaker 1: economists will tell you is kind of curious because tariffs

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Speaker 1: are attacks on imports that are usually paid by American

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Speaker 1: importers and consumers. The third is to try and get

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Speaker 1: to some kind of deal, possibly as part of this

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Speaker 1: rebalancing trade, but also to use tariffs as leverage to

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Speaker 1: force people to the negotiating table to try and make

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Speaker 1: concessions to the United States that somehow will help the

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Speaker 1: United States export more and buy less from overseas. The

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Speaker 1: fourth one is bringing manufacturing back to America, and that

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Speaker 1: is really transforming the US economy from one that is

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Speaker 1: consumption led to one that has a greater role in

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Speaker 1: it for production as it did in the past, and

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Speaker 1: so on.

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Speaker 2: We're kind of looking ahead to April second, but there

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Speaker 2: have been a series of these tier of announcements since

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Speaker 2: President Trump was inaugurated. Back in jail. We're the most recent,

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Speaker 2: which was the twenty five percent tariff on autoimports into

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Speaker 2: the US. What was the reaction to those tariffs by

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Speaker 2: other countries but by investors as well.

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Speaker 1: So I mean those have hit the markets is a

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Speaker 1: big surprise. We have seen stocks and car makers and

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Speaker 1: we should say that includes US carmakers who have most

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Speaker 1: of their production in the United States or in North America,

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Speaker 1: take a big hit as a result of these new

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Speaker 1: twenty five percent tariffs. We've also seen a scramble in

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Speaker 1: Europe to figure out how to respond to scramble in Japan.

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Speaker 1: We're seeing Canada where there's now an election campaign going

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Speaker 1: on talking about fundamental reordering of the economic and security

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Speaker 1: relationship with the United States. And this is just the beginning.

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Speaker 1: We're going to get more of that after April second.

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Speaker 1: We will also get more clarity on some of the

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Speaker 1: other sectoral tariffs pharmaceuticals, lumber, copper, and so on.

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Speaker 2: Just actually, lastly, before we move on to maybe the

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Speaker 2: economic impact of this, how do all of these policies

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Speaker 2: fit together. Is they're kind of a coherent directionals sense

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Speaker 2: of what this administration wants to do, not just with

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Speaker 2: April second and the reciprocal tariffs, but with all the

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Speaker 2: policies they've put in place.

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Speaker 1: So look, I think there's a lot of noise, and

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Speaker 1: it's sometimes it's hard to detect a coherent message. But

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Speaker 1: I think there's certainly a coherent direction in which they're going,

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Speaker 1: and that is that they want to have these tariffs

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Speaker 1: be a more permanent fixture of the US economy, and

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Speaker 1: that they believe that that's a solution to many of

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Speaker 1: the ills that have affected the US or the perceived

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Speaker 1: ills that have affected the US economy in recent decades.

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Speaker 2: After the break, what these tariffs could do to the

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Speaker 2: American economy, as Bloomberg Shan Donnan says, we likely won't

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Speaker 2: find out until April second how far the Trump administration

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Speaker 2: is planning to go with these reciprocal tariffs. Our colleagues

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Speaker 2: at Bloomberg Economics have tried to replicate the calcul relations

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Speaker 2: the White House has been doing to model what their

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Speaker 2: impacts could be.

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Speaker 1: They've kind of come up with a few different scenarios.

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Speaker 1: The maximum list one calls for an increase of the

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Speaker 1: average tariff rate that the US charges on the world,

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Speaker 1: up near forty percent, and that would take you to

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Speaker 1: the highest level since the eighteen hundreds. It would be

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Speaker 1: even bigger than the increase that we saw in nineteen

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Speaker 1: thirty when the smooth holly tariffs were introduced in the

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Speaker 1: Torrious smooth holly tarffs were introduced, and that would have

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Speaker 1: a huge impact on the US economy. It would take

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Speaker 1: something like, according to Bloomberg Economics calculations, take something like

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Speaker 1: four percent of gross domestic product out of the US

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Speaker 1: economy over two to three years. That's an enormous impact.

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Speaker 1: Even to four percent doesn't sound like much to the

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Speaker 1: average person. It would also lead to higher prices for

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Speaker 1: products and would mean more inflation, which would probably lead

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Speaker 1: to at least persistent higher interest rates. And the worry

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Speaker 1: is that you would have the US economy essentially enter

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Speaker 1: a period of low growth and high inflation or what

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Speaker 1: we call stagflation.

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Speaker 2: So that's the maximalist approach. How about the less maximalist approach.

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Speaker 2: They have a sense of what that might mean.

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Speaker 1: Basically, you take it back from there, right, and so

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Speaker 1: if what we get is a nineteen or twenty percent

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Speaker 1: increase in tariff rates, then you're probably only going to

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Speaker 1: take two percent of GDP off out of the equation

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Speaker 1: over the next two to three years. And we have

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Speaker 1: a slightly more minor increase in prices and consumer prices.

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Speaker 1: We should point out that even that would be a

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Speaker 1: bigger impact than the smooth Holly tariffs of nineteen thirty.

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Speaker 1: And it would also hit at a time when the

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Speaker 1: US imports just a lot more stuff than it did

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Speaker 1: in nineteen thirty. In nineteen thirty, imports or something like

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Speaker 1: five percent of GDP. Today they're around fourteen percent of GDP.

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Speaker 2: And this is only actoring in the direct effects of

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Speaker 2: these tariffs. It doesn't include any tariffs other countries might

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Speaker 2: levy on the US in retaliation, or the cost of

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Speaker 2: uncertainty caused by these tariffs, how companies might hold off

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Speaker 2: on hiring or big investments that could help them grow.

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Speaker 1: I was talking to economists the other day, he said,

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Speaker 1: and yeah, and you know my frustration is I also

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Speaker 1: can't calculate this even bigger thing, which is what the

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Speaker 1: Trump administration is doing here is ripping apart the global

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Speaker 1: trade rules that have governed the world economy since the

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Speaker 1: Second World War. What happens if the world's last remaining

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Speaker 1: superpower rips up that system that it once led in

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Speaker 1: the building of, and we are just left with a

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Speaker 1: kind of perpetual uncertainty and all of this, this whole

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Speaker 1: framework goes away. How do you model the economic impact

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Speaker 1: of that? And the answer from this economist was I

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Speaker 1: don't know.

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Speaker 2: Stephen Myrad, one of the asins closest economic advisors, was

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Speaker 2: on Bloomberg TV and he was talking about the impact

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Speaker 2: as he sees that these turffs will have.

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Speaker 4: US consumers are flexible, We have options. We can produce

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Speaker 4: stuff at home, we have a variety of countries, we

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Speaker 4: can import stuff, we can substitt into home production. Whereas

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Speaker 4: countries that sell to the United States are inflexible. They've

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Speaker 4: only got the United States to sell to. There's no alternative,

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Speaker 4: so they're the ones who will bear the burden of this.

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Speaker 2: What did you make of what he had to say,

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Speaker 2: and how does that sort of reflect or encapsulate that

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Speaker 2: the argument the administration more broadly makes.

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Speaker 1: The argument that the administration makes is that there will

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Speaker 1: be a negligible impact on prices, that all of these

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Speaker 1: fears about slower growth are overdone. There may be a

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Speaker 1: small impact at one point, but that the economy will

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Speaker 1: very quickly digest that and move on, and more importantly,

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Speaker 1: that there's a bigger project a foot here. Which is

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Speaker 1: to draw lots of investment back into the US economy

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Speaker 1: to restore manufacturing, and that in the long run, even

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Speaker 1: if you get a short amount of pain, it will

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Speaker 1: be worth it. One of the things that the administration

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Speaker 1: also latches onto is, you know, this idea of who

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Speaker 1: pays the cost of tariff's. Now, most economists, most businesses

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Speaker 1: will tell you that when it comes to actually, you know,

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Speaker 1: handing over the cash for terroffs, it's the importers who

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Speaker 1: pay that, and then they decide whether they're going to

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Speaker 1: pass that on to consumers. And economic study after economic

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Speaker 1: study has shown that a large portion, if not all,

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Speaker 1: of that cost is passed on to consumers. The administration

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Speaker 1: makes an argument that actually the real economic cost of tariffs,

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Speaker 1: and the Stephen Myron in particular makes this argument. Else

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Speaker 1: Scott bess At, the Treasury Secretary has made it als well,

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Speaker 1: is measured in currencies that, for example, when you put

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Speaker 1: a tariff on goods from China, the Chinese currency will depreciate,

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Speaker 1: the US dollar will appreciate almost the same level of

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Speaker 1: the tariffs, and that as a result, the real cost

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Speaker 1: in terms of reduced purchasing power in the world is

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Speaker 1: born by the Chinese, or the Germans or the Mexicans,

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Speaker 1: who now have a weaker currency that reflects a weaker

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Speaker 1: economy at home. One of the really interesting things we've

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Speaker 1: seen in the last few weeks is that as concerns

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Speaker 1: have grown over the impact on US growth of these tariffs,

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Speaker 1: the dollar has actually weakened, which means that this argument

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Speaker 1: that the administration makes about who bears the actual economic

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Speaker 1: cost is being flipped on its head even as they

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Speaker 1: continue to make it.

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Speaker 2: What are we going to see the effects of the

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Speaker 2: tariffs that the administration puts in place? Will it be immediate?

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Speaker 2: Is going to take a few days, a few weeks?

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Speaker 2: How soon will we know the effect that they're having.

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Speaker 1: Well, the answer is we're seeing it already. The Federal

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Speaker 1: Reserve in March downgraded its expectations for growth in the

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Speaker 1: US a big whack down to one point seven percent

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Speaker 1: growth I think it is for this year, and that

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Speaker 1: is largely on the back of what has been announced already,

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Speaker 1: but it's also because we are already seeing businesses hit

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Speaker 1: the brakes in terms of investment. So we're already seeing

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Speaker 1: the impact in terms of the actual numbers in terms

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Speaker 1: of growth and so on. It'll probably take a few

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Speaker 1: quarters to work itself into the actual GDP data, into

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Speaker 1: the CPI data. I think we're going to be back

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Speaker 1: in a place like we were during the pandemic. We're

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Speaker 1: going to be trying to look for a lot more

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Speaker 1: kind of odd, faster return data like do you remember

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Speaker 1: when we were measuring restaurant reservations or traffic through airports

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Speaker 1: or things like that to try and get a sense

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Speaker 1: of what was happening in economy. And I think in

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Speaker 1: the short term we're going to be back in that

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Speaker 1: space again, and then eventually it'll all become clear.

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Speaker 2: So Sean, on the one hand, you've got economic historians

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Speaker 2: mainstream economists saying, take heed of what we learned from

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Speaker 2: Smooth Holly. This is going to backfire and have huge

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Speaker 2: deleterious effects on the US and global economy. On the

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Speaker 2: other hand, you have this group within the Trump administration

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Speaker 2: and the President himself saying it's going to be great

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Speaker 2: for the US. It's going to bring in a lot

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Speaker 2: of revenue. How long is it going to take to

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Speaker 2: know who's won that fight.

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Speaker 1: I'm pretty convinced that neither side is going to concede

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Speaker 1: defeat in this fight at any point in the short

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Speaker 1: term or perhaps even in the long term. I mean,

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Speaker 1: there are still people in America today who believe that

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Speaker 1: Smoot Holly in the tariffs that we're introduced then were

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Speaker 1: a fantastic bit of economic policy making, and who write

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Speaker 1: books making that case. They're in the minority. There are

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Speaker 1: people who are economists who are convinced that the lessons

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Speaker 1: of twenty nineteen were very clear. Manufacturing employment went down

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Speaker 1: in twenty nineteen, industrial production went down in twenty nineteen,

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Speaker 1: the economy slowed in twenty nineteen as a result of

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Speaker 1: the tariffs, and they think that tells you that we're

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Speaker 1: going to see the same thing all over again. You know,

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Speaker 1: one of the things that happened after Smooth Holly was

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Speaker 1: America in the world kind of learned a lesson, a

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Speaker 1: broader lesson, and that's where we get this kind of

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Speaker 1: consensus view and the majority of view about tariffs. And

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Speaker 1: you're already starting to see some signs of that. We're

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Speaker 1: seeing Democrats start to make that same argument that this

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Speaker 1: is a tax on the middle class and it's buying power.

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Speaker 1: So the real kind of lesson or the conclusion or

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Speaker 1: the aha moment may not necessarily come in the economic data.

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Speaker 1: It may come at the ballot box, either in the

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Speaker 1: midterm elections or in the next presidential election. Those are

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Speaker 1: likely to become elections in which trade and economic policy

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Speaker 1: become kind of central central things. Americans will have to

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Speaker 1: decide whether they want to be an open economy that

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Speaker 1: engages with the outside world, that benefits from imports and

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Speaker 1: travel and flux of foreign capital and investment in the

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Speaker 1: United States, or a more closed economy and one that

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Speaker 1: is growing slower in which prices are higher. But perhaps

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Speaker 1: the trade off is that there's a new factory down

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Speaker 1: the road making things that we once imported from other

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Speaker 1: parts of the world. Sean, thank you very much, Thanks

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Speaker 1: so much for having me.

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Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura.

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