WEBVTT - Can the World Count on ‘TACO’ Anymore? 0:00:02.720 --> 0:00:18.440 Bloomberg Audio Studios, podcasts, radio news. I'm Stephanie Flander's head 0:00:18.440 --> 0:00:22.200 of Government and Economics at Bloomberg. Welcome to Trumponomics, the 0:00:22.239 --> 0:00:24.880 podcast that looks at the economic world of Donald Trump, 0:00:24.920 --> 0:00:28.280 how he's already shaped the global economy. What on earth 0:00:28.360 --> 0:00:32.560 is going to happen next? President Trump, it's often said, 0:00:32.600 --> 0:00:36.000 approaches the presidency like a reality show. The deadlines, the 0:00:36.159 --> 0:00:40.880 late night social media posts, the multiple plot lines. It's 0:00:40.960 --> 0:00:44.360 all about keeping us all tuned in. And that might 0:00:44.360 --> 0:00:46.800 be unfair, but there's no doubt he knows how to 0:00:46.880 --> 0:00:49.680 keep his audience guessing, and he really knows how to 0:00:49.800 --> 0:00:54.400 raise the stakes. We're recording this in London on Tuesday, 0:00:54.560 --> 0:00:59.040 June twenty fourth, after twelve days of conflict between Israel 0:00:59.080 --> 0:01:02.720 and Iran, and many days of guessing quite how far 0:01:02.880 --> 0:01:05.880 the US would allow Israel to lead it into war. 0:01:06.560 --> 0:01:09.160 But peace is now broken out, or at least a 0:01:09.240 --> 0:01:12.479 fragile ceasefire. Everything may have changed again by the time 0:01:12.520 --> 0:01:14.440 you hear this, but I want to shift focus anyway 0:01:14.480 --> 0:01:17.280 to consider a conflict which could have, probably would have 0:01:17.720 --> 0:01:21.040 a much larger impact on the global economy, the trade 0:01:21.080 --> 0:01:25.360 war unleashed by President Trump with his Liberation Day tariffs 0:01:25.400 --> 0:01:29.000 on April second. Now, the ninety day ceasefire in that 0:01:29.120 --> 0:01:32.920 war runs out in just two weeks, with barely a 0:01:33.000 --> 0:01:37.399 trade deal with US trading partners in sight. But having 0:01:37.400 --> 0:01:41.040 blinked once with that ninety day pause, the assumption of many, 0:01:41.520 --> 0:01:44.199 especially in the markets, had been that Donald Trump would 0:01:44.200 --> 0:01:48.000 back down again if his so called reciprocal tariffs were 0:01:48.040 --> 0:01:52.320 again riling the markets. But the world found out this 0:01:52.360 --> 0:01:56.040 weekend that President Trump doesn't always chicken out. So should 0:01:56.040 --> 0:01:59.520 we be considering alternative plot lines for the great tariff 0:01:59.560 --> 0:02:02.280 wars of twenty twenty five. I don't know the answer 0:02:02.320 --> 0:02:05.280 to that, but I know two colleagues who can speculate 0:02:05.560 --> 0:02:09.480 more sensibly than most in Washington, d C. Sean donnand 0:02:09.639 --> 0:02:12.640 senior writer with Bloomberg on the US and global economy 0:02:13.080 --> 0:02:17.359 and a frequent participant on trumpnomics. Welcome back, Sean. Wonderful 0:02:17.360 --> 0:02:19.760 to be here and usually in New York City, but 0:02:19.840 --> 0:02:22.840 this week with me in London is John Authors. John 0:02:22.919 --> 0:02:26.559 is a senior editor for Markets and a Bloomberg opinion columnist. 0:02:26.639 --> 0:02:28.640 He was also the Ft for many years before that, 0:02:28.880 --> 0:02:32.240 and his daily newsletter Points of Return, is now one 0:02:32.240 --> 0:02:34.880 of the most read on Bloomberg. Very nice to have. 0:02:34.880 --> 0:02:38.119 You with us, John, Thank you for that very kind introduction. 0:02:38.200 --> 0:02:38.919 It's great to be here. 0:02:38.960 --> 0:02:45.440 It's all downhill from here. So Sean reminds us what 0:02:45.480 --> 0:02:47.639 the US tariff rate is now with the rest of 0:02:47.680 --> 0:02:49.720 the world, because it's obviously much higher than it was 0:02:50.200 --> 0:02:52.040 when Donald Trump took office. 0:02:52.680 --> 0:02:55.640 Right, So, we entered the year with the average applied 0:02:55.720 --> 0:02:58.400 tar f rate on US imports around two and a 0:02:58.440 --> 0:03:01.600 half percent, and it's now sitting around fifteen percent, which 0:03:01.639 --> 0:03:04.640 is its highest level since the nineteen thirties. And I 0:03:04.639 --> 0:03:07.280 think that's the key point right there. We're at the 0:03:07.360 --> 0:03:12.080 highest rate in almost a century. That is in the 0:03:12.120 --> 0:03:14.960 middle of a pause. Trump has threatened much higher tariffs 0:03:15.000 --> 0:03:18.120 that would take that average applied rate up closer to 0:03:18.200 --> 0:03:20.639 twenty five percent, which would take us to the highest 0:03:20.680 --> 0:03:23.440 rate since somewhere in the late nineteenth century. 0:03:23.680 --> 0:03:25.480 I'm glad we started with that because it's something to 0:03:25.520 --> 0:03:27.799 bear in mind that there's one of the clever things 0:03:27.840 --> 0:03:31.000 that President Trump does is sort of change our perceptions 0:03:31.000 --> 0:03:33.480 of how bigger number is or how small a number is. 0:03:33.880 --> 0:03:36.160 So just falling on from that, as you say, there's 0:03:36.160 --> 0:03:40.200 a ceasefire with the sort of big reciprocal tariffs, those 0:03:40.240 --> 0:03:42.400 ones that he announced in the Rose Garden with a 0:03:42.560 --> 0:03:47.120 big menu board. But that would mean a much larger 0:03:47.160 --> 0:03:50.080 increase in average tariphraates. As you said, it's about another 0:03:50.160 --> 0:03:54.080 twenty percent increase in the US tariffhrase and quite a 0:03:54.160 --> 0:03:56.120 hit even just for the US economy. 0:03:56.720 --> 0:04:01.360 Absolutely, we should go back and remember that when those 0:04:01.480 --> 0:04:06.000 initial Liberation Day tariffs were announced, most economists very quickly 0:04:06.040 --> 0:04:09.800 started predicting a recession in the United States, and that 0:04:09.840 --> 0:04:14.800 we saw the chances of a recession from big banks 0:04:14.840 --> 0:04:18.840 and big Wall Street analytical shops go up above fifty percent, 0:04:19.760 --> 0:04:23.560 and it was a pretty immediate threat of a pretty 0:04:23.600 --> 0:04:28.120 dramatic slowdown in the US economy. What we've ended up 0:04:28.160 --> 0:04:35.239 with is a much more benign scenario, but one still 0:04:35.279 --> 0:04:38.560 where we're going to see slower growth and higher prices. 0:04:39.080 --> 0:04:41.520 We're just not going to tumble into that dramatic recession. 0:04:42.080 --> 0:04:45.640 So John, I mean Sean said, when those tarifts were announced, 0:04:45.920 --> 0:04:49.960 we saw lots of people expecting a recession, and there 0:04:50.000 --> 0:04:51.839 was a lot of action in the bomb markets, which 0:04:52.080 --> 0:04:56.000 probably did force Donald Trump's hand in announcing that ninety 0:04:56.040 --> 0:04:58.359 day cease five. But it was only a ninety day ceasfive. 0:04:58.560 --> 0:05:01.960 So how come everything's been so quiet since then and 0:05:02.000 --> 0:05:04.360 even now in the lead up to this deadline, when 0:05:04.800 --> 0:05:06.560 the deals that were supposed to be signed are just 0:05:06.640 --> 0:05:09.440 nowhere to be seen. Apart from that rather feeble UK deal. 0:05:09.320 --> 0:05:12.600 Which wasn't really a dealer. All of us speaking today 0:05:12.640 --> 0:05:15.400 are alumni of the Financial Times. To mention the guy 0:05:15.440 --> 0:05:17.360 who is actually still at the Financial Times, I will 0:05:17.400 --> 0:05:21.200 colleague Robert Armstrong came up with the glorious acronym TUCO 0:05:21.360 --> 0:05:23.799 for Trump Always chickens Out. 0:05:24.560 --> 0:05:26.559 I was thinking it's great for him to get credit 0:05:26.560 --> 0:05:28.360 for that, But I wonder whether he, given how much 0:05:28.400 --> 0:05:30.800 Donald Trump apparently hates it, I wonder whether he's sort 0:05:30.800 --> 0:05:32.480 of wishing it would been a bit more anonymous. 0:05:32.600 --> 0:05:36.480 I gathered yes. But anyway, the point is that when 0:05:36.560 --> 0:05:40.920 he used that phrase, it touched a nerve beyond the 0:05:40.960 --> 0:05:44.200 tariff truces. There had been the earlier deciding he was 0:05:44.200 --> 0:05:48.560 going to lift the fentanyl tariffs on Mexico and Canada 0:05:48.600 --> 0:05:51.279 in return for really no concessions at all. There was 0:05:51.320 --> 0:05:54.239 the brief threat to see if he could fire Jerom 0:05:54.279 --> 0:05:58.359 Powell from the FED. That's also got removed quite quickly, 0:05:58.920 --> 0:06:01.640 and so there really was a sense in the market 0:06:01.680 --> 0:06:03.720 that this was something you could rely on, that it 0:06:03.760 --> 0:06:06.400 was like a put option that Trump always chickens out. 0:06:06.560 --> 0:06:10.880 You can safely ignore him. If other people are selling 0:06:11.080 --> 0:06:14.880 because they think there is more political risk because Trump 0:06:15.040 --> 0:06:17.240 might actually go through with what he's doing, then it 0:06:17.240 --> 0:06:21.400 makes sense to buy. And that's basically the logic that 0:06:21.640 --> 0:06:25.279 has moved. And that means that officially we are moving 0:06:25.320 --> 0:06:28.960 back to whatever number Swan gave us over twenty five 0:06:29.000 --> 0:06:33.120 percent average tariffs two weeks from now, which is economic 0:06:33.200 --> 0:06:36.159 armageddon scenario. I know nobody who thinks that wouldn't cause 0:06:36.279 --> 0:06:38.320 a recession if you actually had tariffs that eye for 0:06:38.360 --> 0:06:41.360 any length of time. And yet people are so calm. 0:06:41.440 --> 0:06:47.080 There is a strong assumption that Trump does always chicken out. Now, 0:06:47.120 --> 0:06:50.040 the interesting thing is, after we've the effect of the 0:06:50.080 --> 0:06:54.480 bunker buster in Iran, which does it has to be said, 0:06:54.720 --> 0:06:58.680 show that Trump doesn't absolutely always chicken out, might actually 0:06:58.680 --> 0:07:03.919 make it easier for the administration to chicken out on 0:07:03.960 --> 0:07:06.360 this one, or to take a step. 0:07:06.080 --> 0:07:09.320 Back to contorted Trump in logical Yes. 0:07:09.200 --> 0:07:11.440 Now that we have shown that at least once you 0:07:11.560 --> 0:07:15.080 can't rely on Trump not to go through with a threat, 0:07:15.600 --> 0:07:18.080 and particularly when so far it looks as though the 0:07:18.120 --> 0:07:21.240 threat is working out for him. That makes it politically 0:07:21.360 --> 0:07:25.760 much easier for him to step back on the tariffs. 0:07:26.120 --> 0:07:28.800 At sure, you're sitting in DC, you spend more time 0:07:29.040 --> 0:07:32.720 trying to get into the brain of Donald Trump. That 0:07:32.800 --> 0:07:35.360 doesn't sound too uncomfortable. Does that ring true to you 0:07:35.440 --> 0:07:37.720 that that's how the White House might be thinking about it. 0:07:37.760 --> 0:07:42.240 Look, I think there's definitely some recalculating that's happening around 0:07:42.360 --> 0:07:45.280 the world in all those capitals that are dealing with 0:07:45.360 --> 0:07:49.400 the prospect of higher tariffs. You know, Donald Trump followed 0:07:49.400 --> 0:07:53.520 through on a pretty dramatic threat, and I think around 0:07:53.520 --> 0:07:56.240 tariffs he may do it again. But we may see 0:07:56.240 --> 0:07:58.480 a version of what we've seen in the wake of 0:07:58.520 --> 0:08:03.280 Iran is a pretty dramatic escalation and again an attempt 0:08:03.360 --> 0:08:07.400 to raise the leverage on other countries, to increase the 0:08:07.440 --> 0:08:10.880 heat to force people to the table. We've seen him 0:08:10.880 --> 0:08:14.440 do that actually during the ceasefire by threatening fifty percent 0:08:14.480 --> 0:08:18.000 tariffs on the EU because they weren't negotiating fast enough, 0:08:18.120 --> 0:08:22.080 and that prompted some pretty rapid action on the EU side, 0:08:22.120 --> 0:08:24.480 where they quickly jumped on some planes came to Washington 0:08:24.640 --> 0:08:28.120 and toxic accelerated at least for a few days. So 0:08:28.320 --> 0:08:30.920 we may see something like that again this time around. 0:08:31.080 --> 0:08:33.000 But I think in all of this we have to 0:08:33.040 --> 0:08:37.800 remember where Trump's trying to get to, right, and I 0:08:37.840 --> 0:08:40.000 think actually the first time he was asked about this 0:08:40.120 --> 0:08:45.040 taco acronym, he was had a kind of indignant response, 0:08:45.080 --> 0:08:48.360 but he also laid out very clearly how he negotiates, 0:08:48.400 --> 0:08:53.079 and he says, I throw out an extreme number that 0:08:53.160 --> 0:08:55.120 causes people to come to the table, and then we 0:08:55.200 --> 0:08:57.640 finally settle at a lower number. And that's what he's 0:08:57.640 --> 0:09:00.360 been doing here. The fact that we are now here 0:09:00.520 --> 0:09:04.000 in the end of June thinking about a ten percent 0:09:04.480 --> 0:09:07.520 tariff on the world, which a year ago would have 0:09:07.520 --> 0:09:12.200 been an incredibly dramatic policy gesture as some kind of 0:09:12.360 --> 0:09:16.720 benign option, means that Trump and the administration have actually 0:09:16.720 --> 0:09:19.840 succeeded in a way and doing what they do, which 0:09:19.880 --> 0:09:23.559 is shifting the framing, shifting the assumptions out there in 0:09:23.600 --> 0:09:26.839 the world about what's normal. Plus we should mention these 0:09:26.880 --> 0:09:30.160 pretty dramatic sectoral tariffs, So twenty five percent tariffs on 0:09:30.920 --> 0:09:34.960 cars coming into the United States, some looming investigations on 0:09:35.120 --> 0:09:39.600 semiconductors and copper and lumber, all of which are going 0:09:39.679 --> 0:09:41.880 to include not just the raw materials but products that 0:09:41.920 --> 0:09:45.200 are made of those things. You know, that being accepted 0:09:45.200 --> 0:09:48.680 as normal is to me still the mind blowing thing here, 0:09:48.920 --> 0:09:52.880 and that's perhaps Donald Trump's great achievement. I think, you know, 0:09:52.920 --> 0:09:56.520 you can say Trump always chickens out, but if financial 0:09:56.559 --> 0:10:00.319 markets read it as him chickening out, Trump actually wins 0:10:00.400 --> 0:10:04.480 because he gets what he wants, which is tariffs and 0:10:04.600 --> 0:10:05.640 the revenues that come. 0:10:05.520 --> 0:10:07.040 With them, I guess it's now it's going to be 0:10:07.040 --> 0:10:09.520 It's going to be Trump. Trump always cashes out, He's 0:10:09.559 --> 0:10:11.560 managed to come away, you know, he's cashed out. 0:10:12.960 --> 0:10:15.400 Or Trump always gets what he wants, or I mean, 0:10:15.440 --> 0:10:17.880 you know, there's all all sorts of acronyms and memes 0:10:17.880 --> 0:10:18.640 we can come up with. 0:10:19.240 --> 0:10:21.040 I think John, you and I had both seen this. 0:10:21.360 --> 0:10:24.600 To the slot, the chief economist of Apollo and sends 0:10:24.600 --> 0:10:28.080 around these influential notes and charts. This is something he'd 0:10:28.080 --> 0:10:30.319 framed as all sort of part of a cunning plan 0:10:30.640 --> 0:10:32.840 of Donald Trump's that we're going to end up in 0:10:32.880 --> 0:10:36.080 a place that we recognize as being modest, which isn't 0:10:36.120 --> 0:10:36.960 really modest at all. 0:10:37.120 --> 0:10:40.840 Yes, and there is a pretty real chance that will happen, 0:10:41.640 --> 0:10:44.440 because it gives him some grace. The specific suggestion that 0:10:44.480 --> 0:10:48.880 Towston comes up with is that the net, rather than 0:10:49.400 --> 0:10:51.920 that on the three month deadline, he will announce a 0:10:51.960 --> 0:10:58.520 twelve month further period and people can continue to get ready, 0:10:58.640 --> 0:11:01.480 but they can feel much more of a sense of 0:11:01.640 --> 0:11:06.440 certainty and not notice that the tariffs the US are 0:11:06.480 --> 0:11:08.600 charging of their highest since the nineteen thirties. 0:11:08.679 --> 0:11:10.920 So this would be July night saying or sometime before 0:11:11.000 --> 0:11:13.560 July nine's saying, actually, we're going so well with our 0:11:13.600 --> 0:11:15.640 trade negotiations, we're going to let them run another year. 0:11:15.760 --> 0:11:20.280 Yes, And I think the point there is that if 0:11:20.640 --> 0:11:25.840 inflation hasn't picked up due to tariffs after another twelve months, 0:11:26.800 --> 0:11:30.400 then there will be some degree of confidence that a 0:11:30.400 --> 0:11:32.920 lot of us, including myself, certainly have been wrong in 0:11:33.080 --> 0:11:37.680 thinking that tariffs would be directly inflationary. And similarly, if 0:11:37.840 --> 0:11:43.800 the most recent pmi's manufacturing surveys Japan, Eurozone, the UK, 0:11:43.960 --> 0:11:46.280 the US, they're all higher than they were three months ago. 0:11:46.679 --> 0:11:49.480 In the era when we've known about tariffs and when 0:11:49.720 --> 0:11:52.800 we've had the ten percent tariff. There are any number 0:11:52.840 --> 0:11:54.400 of reasons which you probably don't want to go into 0:11:54.440 --> 0:11:57.760 the weeds, why you might well expect the tariff effect 0:11:57.800 --> 0:12:00.680 to take a while to show itself. Give it another 0:12:00.720 --> 0:12:05.400 twelve months. If inflation does pick up, which most people 0:12:05.480 --> 0:12:09.080 on Wall Street think that it pretty much inevitably will 0:12:09.240 --> 0:12:15.960 to some extent, that becomes a big issue for Donald Trump, 0:12:16.080 --> 0:12:19.440 because that's one thing he must not allow to happen, 0:12:19.559 --> 0:12:25.720 is inflation to start increasing again. And it becomes almost 0:12:25.880 --> 0:12:29.120 like a put option or a balancing mechanism that if 0:12:29.120 --> 0:12:32.640 inflation takes off, if people begin to think it's your 0:12:32.760 --> 0:12:35.480 stupid ten percent tariff, which is meaning our prices are 0:12:35.480 --> 0:12:39.760 going up, that will become a major inhibiting factor. That 0:12:39.840 --> 0:12:42.000 will probably be the end of the tariff agender. 0:12:42.640 --> 0:12:44.320 It is worth getting into a little bit because one 0:12:44.320 --> 0:12:46.840 of the other reasons for complacency, it was not just 0:12:47.480 --> 0:12:53.200 taco being a fun acronym and people starting to believe 0:12:53.200 --> 0:12:55.640 in it, but there was also this sense that the 0:12:55.720 --> 0:12:58.440 economic pain that we've been sort of quote unquote promised 0:12:58.760 --> 0:13:02.840 from these tariff rates a significant increase, as Sean reminds us, 0:13:02.880 --> 0:13:06.480 in historical terms, the fact that that was not slowing 0:13:06.480 --> 0:13:09.640 the economy in a visible way and was not adding 0:13:09.679 --> 0:13:12.000 to inflation in an invisible way. I think was another 0:13:12.080 --> 0:13:14.959 factor that has led people to be more relaxed about 0:13:14.960 --> 0:13:15.760 these high tariffs. 0:13:15.800 --> 0:13:15.880 Now. 0:13:15.880 --> 0:13:21.000 I was looking at the analysis that are US economists 0:13:21.080 --> 0:13:24.200 have done whether we should expect any kind of meaningful 0:13:24.240 --> 0:13:27.040 increase inflation later in the year. I mean, so far, 0:13:27.120 --> 0:13:30.800 they're not. They're not seeing it. They're seeing importers US 0:13:30.920 --> 0:13:33.920 companies taking the full brunt of the tariffs, so they're 0:13:33.960 --> 0:13:37.559 not getting any discounts from the exporting countries, which is 0:13:37.559 --> 0:13:40.359 obviously you know, Donald Trump had said it's the exporters 0:13:40.360 --> 0:13:42.360 that are paying these tariffs. So far, that's not been 0:13:42.400 --> 0:13:45.480 the case, at least at the border. They are, by 0:13:45.559 --> 0:13:48.960 and large, we're seeing it's the squeeze in profit margins 0:13:49.280 --> 0:13:52.200 rather than an increase in prices. 0:13:52.520 --> 0:13:56.280 I think one of the things with trade and tariffs 0:13:56.640 --> 0:14:01.400 is we always expect this kind of dramatic reaction in 0:14:01.440 --> 0:14:04.600 the economy, and we expect an immediate reaction in the economy. 0:14:04.600 --> 0:14:06.719 And we know that going into these tariffs is a 0:14:06.800 --> 0:14:08.920 huge build up of inventories, for example here in the 0:14:09.000 --> 0:14:12.360 United States, and the products that are on the shelves today, 0:14:12.480 --> 0:14:16.439 by and large are things oftentimes that were imported before 0:14:16.760 --> 0:14:20.440 the tariffs went into place in April, So you were 0:14:20.440 --> 0:14:24.280 never going to see a dramatic, immediate impact on inflation 0:14:24.920 --> 0:14:27.360 from these tariffs, although we should point out that steel 0:14:27.400 --> 0:14:31.640 prices in the United States have risen sharply, aluminum prices 0:14:31.680 --> 0:14:35.200 have risen sharply, and so some of the inputs that 0:14:35.240 --> 0:14:39.120 are tariff most dramatically have reacted fairly quickly. But when 0:14:39.200 --> 0:14:43.040 it kind of flows through to the consumer end, there's 0:14:43.120 --> 0:14:46.320 lots of stops on the way where you can take 0:14:46.360 --> 0:14:48.600 a little bit off in terms of costs, you can 0:14:48.840 --> 0:14:51.400 rely on inventories and so on. I was talking to 0:14:51.440 --> 0:14:55.040 someone yesterday who works for an agency that does kind 0:14:55.040 --> 0:14:59.000 of credit ratings for trade finance, and these are two 0:14:59.000 --> 0:15:04.080 companies involved in trade transactions, and they do the credit 0:15:04.120 --> 0:15:05.960 ratings on the companies, and they say, one of the 0:15:06.000 --> 0:15:10.320 things that they're seeing is a lot of small businesses 0:15:10.840 --> 0:15:13.640 really getting hit hard on the cash flow side because 0:15:13.640 --> 0:15:17.040 suddenly they're paying these tariffs that are that they weren't 0:15:17.040 --> 0:15:20.960 expecting to pay three four, six months ago. And the 0:15:21.000 --> 0:15:22.880 point that this person was making to me is that 0:15:22.920 --> 0:15:26.680 they can weather that for now, they can stretch payment 0:15:26.800 --> 0:15:29.520 terms for a little bit, but over the next sixty days, 0:15:29.960 --> 0:15:32.400 the whole game is going to change because the cash 0:15:32.440 --> 0:15:34.440 flow situation for a lot of these small business is 0:15:34.840 --> 0:15:38.160 is going to get a lot more dramatic. The payment 0:15:38.360 --> 0:15:41.200 terms being extend is going to have an impact on 0:15:41.280 --> 0:15:43.360 credit ratings, which will have an impact on access to 0:15:43.760 --> 0:15:46.200 capital and so on. And so by the end of 0:15:46.240 --> 0:15:49.240 the summer, this person was predicting, you're really going to 0:15:49.320 --> 0:15:53.600 see an impact that's much clearer and so on, and 0:15:53.960 --> 0:15:57.680 that rings true. A lot of companies will tell you, yes, 0:15:57.880 --> 0:16:00.200 we've sucked it up for now, but I've just had 0:16:00.280 --> 0:16:04.480 two months, three months of losses and at some point 0:16:04.520 --> 0:16:06.960 I need to adjust and I need to increase prices 0:16:07.080 --> 0:16:09.440 and so on. So I think there's a delayed response 0:16:09.720 --> 0:16:12.960 in the economy. And the final thing is this is, 0:16:13.680 --> 0:16:16.920 you know, the impact on an economy is we're talking 0:16:16.920 --> 0:16:20.800 about often in the tenths of percentage points in drag 0:16:20.920 --> 0:16:24.200 on growth, maybe a full percentage point in terms of 0:16:24.200 --> 0:16:28.200 a drag on growth. That is not something that is 0:16:28.560 --> 0:16:32.840 kind of felt immediately. It's an accumulation of things moving slower. 0:16:33.120 --> 0:16:35.840 It's interesting though, so if you look at most of 0:16:35.480 --> 0:16:39.080 our estimates, and that you know, the Bloomberg Economics estimates 0:16:39.200 --> 0:16:42.000 sort of across the board. Actually, the biggest impact when 0:16:42.040 --> 0:16:46.400 we look at the impact on Europe of Donald Trump's 0:16:46.880 --> 0:16:51.800 trade policies on China, uncertainty is that, you know, when 0:16:51.800 --> 0:16:54.680 they sort of break down the components, by far, the 0:16:54.720 --> 0:16:59.680 biggest chunk of the hit is uncertainty. And as I 0:16:59.720 --> 0:17:03.440 said before, that's not going to go away with endless ceasefires, 0:17:03.560 --> 0:17:09.960 short term fixes truces. So that seems to me a 0:17:09.960 --> 0:17:13.240 pretty pretty significant thing for the future because people could 0:17:13.280 --> 0:17:16.600 just decide, and we're seeing this with foreign investment as well, 0:17:16.720 --> 0:17:19.000 to just decide, I don't want any piece of it 0:17:19.040 --> 0:17:22.280 because I just need certainty, even if I'm paying higher tariffs, 0:17:22.280 --> 0:17:24.680 I just don't want to be dealing with the uncertainty 0:17:24.720 --> 0:17:26.959 of being inside the US or trading with the US. 0:17:27.440 --> 0:17:30.520 Yes, now, picking up on that point where I suspect 0:17:30.560 --> 0:17:32.919 this issue is going to move is towards flows of 0:17:32.960 --> 0:17:36.639 capital rather than trade blows, because you can close off 0:17:36.920 --> 0:17:42.240 capital flows very swiftly. Indeed, and ultimately, we have a 0:17:42.280 --> 0:17:44.960 proposal in the One Big Beautiful Bill Act that would 0:17:44.960 --> 0:17:49.840 allow direct reprisal taxation on foreign capital in the US, 0:17:50.000 --> 0:17:52.600 which would have a very interesting effect on its current 0:17:52.760 --> 0:17:56.439 role in the global financial system. But it's also the 0:17:56.520 --> 0:18:00.399 case that a universal tariff is at this moment a 0:18:00.920 --> 0:18:07.240 tariff on or attacks on US company's profits. And one 0:18:07.320 --> 0:18:10.600 of the big trends of the last ten to fifteen 0:18:10.640 --> 0:18:14.119 years has been the ineluctable flow of capital into the 0:18:14.280 --> 0:18:18.480 US chasing the higher profit margins, the higher profits generated 0:18:18.520 --> 0:18:22.879 by big US companies. So what we do have with 0:18:23.000 --> 0:18:28.719 the ten percent baseline? Does we all know? It's changes 0:18:28.760 --> 0:18:29.960 at the margin that matter. 0:18:30.040 --> 0:18:31.760 There's people are reason at the margin to get out 0:18:31.800 --> 0:18:32.080 of the EUA. 0:18:32.520 --> 0:18:36.440 Yes, the odds that you will steadily see capital which 0:18:36.480 --> 0:18:39.840 has flowed in dramatic way to the US and twas 0:18:39.880 --> 0:18:43.680 not ever. Thus, it's remarkable how big the US stock 0:18:43.720 --> 0:18:45.520 market is compared to the rest of the world. It's 0:18:45.560 --> 0:18:50.080 never been bigger, and so on. That could lead to 0:18:50.760 --> 0:18:54.480 pretty serious problems years down the road, which may not 0:18:54.560 --> 0:18:59.280 be possible to directly Again, econometricians will have all kinds 0:18:59.320 --> 0:19:02.800 of arguments that's exactly why these problems are happening. But 0:19:02.840 --> 0:19:06.399 it will be harder to borrow in the US because 0:19:06.520 --> 0:19:08.560 rates will be going up and it will be harder 0:19:08.600 --> 0:19:14.280 for companies to access abundant capital because their profits and 0:19:13.840 --> 0:19:19.639 they no longer trade at the same attractive valuations. Meanwhile, 0:19:20.680 --> 0:19:25.639 any return of capital to Europe and Japan will presumably 0:19:25.680 --> 0:19:27.200 have that much more of a positive effect. 0:19:27.240 --> 0:19:27.359 There. 0:19:27.440 --> 0:19:29.960 There's something we keep coming back to about, Yeah, the 0:19:30.000 --> 0:19:33.520 reasons for people to stay as invested in the US 0:19:33.520 --> 0:19:36.080 market as they are. You mentioned it. If we're thinking 0:19:36.119 --> 0:19:39.880 of things that have changed since Liberation Day, I mean, 0:19:39.920 --> 0:19:42.800 one thing that has become very apparent is the very 0:19:42.880 --> 0:19:47.000 high cost of the big, beautiful bill. Yes, and how 0:19:47.240 --> 0:19:49.439 quite how beautiful it is, and how big it is 0:19:49.520 --> 0:19:51.960 in so many ways that might not have been anticipated. 0:19:52.280 --> 0:19:54.760 And in fact, we have a story running about how 0:19:55.200 --> 0:19:59.480 the three point four trillion dollar cost of making the 0:19:59.520 --> 0:20:03.280 twenty si seventeen tax cuts, the Trump one tax cuts permanent, 0:20:03.840 --> 0:20:07.840 that the Senate Republicans are hoping to just wish that 0:20:07.920 --> 0:20:10.240 away and just say, well, that's no change in policy 0:20:10.280 --> 0:20:11.880 at all, so we don't have to count that three 0:20:11.920 --> 0:20:15.320 point four trilliant. One thing that any investor, any policy 0:20:15.359 --> 0:20:18.080 maker around the world would have to conclude looking at 0:20:18.119 --> 0:20:21.600 this is taratt are not going to go any lower 0:20:21.840 --> 0:20:25.240 than they are now because he really needs the money, Chawn, 0:20:25.359 --> 0:20:28.240 he needs that offsetting revenue. I think is it four 0:20:28.320 --> 0:20:32.000 hundred potentially four hundred billion a year. 0:20:32.600 --> 0:20:34.879 I mean, we'll see it's been about forty billion dollars 0:20:34.960 --> 0:20:38.879 that has been collected in the first two months of 0:20:38.920 --> 0:20:42.840 these terroffts. I think it was twenty two billion in May, 0:20:43.240 --> 0:20:45.879 just to give you an idea. Before the tariffs went 0:20:45.920 --> 0:20:48.919 into place, they were collecting six seven billion dollars in 0:20:49.000 --> 0:20:50.000 duties a month. 0:20:50.040 --> 0:20:52.920 So the incidents are that they could go much depending 0:20:52.920 --> 0:20:54.520 on what you think about July Nut, you could go 0:20:54.600 --> 0:20:56.560 much higher and make it absolutely the make a dent 0:20:56.840 --> 0:20:57.200 in there. 0:20:57.400 --> 0:21:00.439 Yeah. So look, I mean we could be looking at uh, 0:21:00.760 --> 0:21:05.040 you know, thirty billion dollars a month, almost four hundred 0:21:05.080 --> 0:21:09.280 billion dollars a year in terms of tariff revenues before long. 0:21:09.680 --> 0:21:13.560 That would absolutely make a dent in the costs of 0:21:13.800 --> 0:21:16.880 the big beautiful bill. And this gets into also how 0:21:16.920 --> 0:21:20.800 you score this thing. Economists will tell you though, that 0:21:20.840 --> 0:21:24.560 four hundred billion dollars is tax revenues, and some people 0:21:24.640 --> 0:21:26.320 have been out there saying this is the biggest tax 0:21:26.359 --> 0:21:29.320 increase put in place in the US since the nineteen eighties. 0:21:29.480 --> 0:21:32.040 And that's how we should be thinking about this, and 0:21:32.080 --> 0:21:34.560 that in itself may be a drag on growth in 0:21:34.600 --> 0:21:38.920 the economy, which might mean fewer tax revenues on the 0:21:38.920 --> 0:21:42.760 income and business tax side the longer run. So I 0:21:42.760 --> 0:21:47.000 mean yes, in theory today it offsets things, but the 0:21:47.080 --> 0:21:51.600 economic effects of that tax increase are likely to pull 0:21:51.640 --> 0:21:53.679 things down a little bit. And that's where if you 0:21:54.080 --> 0:21:57.200 the Congressional budget off is. All sorts of fiscal geeks 0:21:57.560 --> 0:21:59.240 in America have been looking at this, and one of 0:21:59.280 --> 0:22:01.199 the things that are really strong with is how to account 0:22:01.280 --> 0:22:04.040 for this tariff revenue and the impact of tariff's on 0:22:04.040 --> 0:22:06.440 the economy. And it's the same thing over at the FED. 0:22:06.560 --> 0:22:10.840 Because the US hasn't seen anything like this. I mean 0:22:10.920 --> 0:22:13.159 that the only analog. 0:22:13.040 --> 0:22:14.600 To since the nineteenth century. 0:22:14.680 --> 0:22:18.439 Yeah, well, well is the nineteen thirty smooth Holly tariff 0:22:18.480 --> 0:22:19.119 bill right. 0:22:19.160 --> 0:22:21.280 Well, and before that, I would say, when we depended 0:22:21.320 --> 0:22:23.720 more on tariff revenue than you know before. 0:22:23.400 --> 0:22:26.080 What happened in the nineteenth century, Yeah, but when it 0:22:26.080 --> 0:22:29.200 was a much smaller economy, government was much smaller, uh 0:22:29.359 --> 0:22:32.880 and and so on. So, but that's a long time ago. 0:22:32.920 --> 0:22:35.880 There aren't many living economists today who remember going through 0:22:36.160 --> 0:22:38.639 the after effects of the nineteen thirty Smooth Holly tarifil. 0:22:38.640 --> 0:22:39.800