WEBVTT - Trump’s Rosy Economic Message Faces a Reality Check 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.600 --> 0:00:15.520 Inflation is plummeting, incomes are rising fast, the roaring economy 0:00:15.760 --> 0:00:20.560 is roaring like never before. We are doing really well. 0:00:30.000 --> 0:00:33.160 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:33.320 --> 0:00:36.320 and this is trump Oenomics, the podcast that looks at 0:00:36.360 --> 0:00:39.320 the economic world of Donald Trump, how he's already shaped 0:00:39.320 --> 0:00:41.559 the global economy and what on earth is going to 0:00:41.560 --> 0:00:45.440 happen next. And we're recording this on Wednesday morning, Washington Time, 0:00:45.560 --> 0:00:48.840 not long after President Donald Trump delivered a nearly two 0:00:48.920 --> 0:00:51.839 hour State of the Union speech where he addressed one 0:00:51.840 --> 0:00:55.320 of his biggest audiences at what, in polling terms, may 0:00:55.360 --> 0:00:58.600 be the lowest point yet of his second term. In 0:00:58.640 --> 0:01:01.640 his speech, he returned again and again to the same 0:01:01.640 --> 0:01:05.640 message on the economy. Everything is going great and there 0:01:05.680 --> 0:01:07.920 is a lot that's going right with the US economy, 0:01:08.120 --> 0:01:10.760 certainly more than most economists would have expected. On the 0:01:10.880 --> 0:01:15.440 day the President unleashed his so called reciprocal tariffs last April, 0:01:16.080 --> 0:01:18.720 growth and productivity in the US were both a lot 0:01:18.800 --> 0:01:22.560 higher than any other G seven economy. And this despite 0:01:22.600 --> 0:01:26.880 those tariffs, which, as it happens, the Supreme Court overturned 0:01:27.160 --> 0:01:27.920 last Friday. 0:01:28.440 --> 0:01:32.440 One of the primary reasons for our countries studying economic 0:01:32.480 --> 0:01:37.320 turnaround were tariffs. I used these tariffs took in hundreds 0:01:37.319 --> 0:01:40.200 of billions of dollars to make great deals for our country, 0:01:40.720 --> 0:01:44.600 both economically and on a national security basis. 0:01:45.560 --> 0:01:48.200 He's going to work very hard, he said, to fill 0:01:48.440 --> 0:01:52.560 the whole left by those tariffs and continue to punish 0:01:52.560 --> 0:01:56.120 trading partners for what he considers to be very unfair practices. 0:01:56.320 --> 0:01:59.680 But in the meantime, we are plunged globally into more 0:01:59.760 --> 0:02:03.840 run certainty about exactly what the trade barriers are around 0:02:04.040 --> 0:02:06.600 the US economy, and a lot more talking about one 0:02:06.640 --> 0:02:11.600 of the president's least popular policies. The combination of that 0:02:11.720 --> 0:02:16.480 State of the Union and the Supreme Court judgment felt 0:02:16.480 --> 0:02:19.800 like a good time to take stock what those two 0:02:19.840 --> 0:02:23.919 things together mean for the President, and specifically what they 0:02:23.960 --> 0:02:27.799 mean for his economic offer as his party goes into 0:02:28.040 --> 0:02:31.200 the midterms in the fall. Does he have an answer 0:02:31.200 --> 0:02:34.480 to the affordability question? Or will a strong economy and 0:02:34.520 --> 0:02:37.760 potentially new leadership at the Federal Reserve mean he doesn't 0:02:37.800 --> 0:02:42.359 really need one. Josh Green is national correspondent at Bloomberg BusinessWeek, 0:02:42.560 --> 0:02:46.440 author of the New York Times bestseller Devil's Bargain, Steve Bannon, 0:02:46.520 --> 0:02:49.840 Donald Trump, and the National Uprising. Josh, Great to have 0:02:49.919 --> 0:02:53.119 you back. Great to be with you. And Anna Wong, 0:02:53.360 --> 0:02:56.760 a frequent participant on this show, chief US economist for 0:02:56.800 --> 0:02:59.640 Bloomberg Economics. Before that, she worked at the Federal Reserve, 0:03:00.160 --> 0:03:03.800 US Treasury and Donald Trump's White House Council of Economic 0:03:03.840 --> 0:03:11.680 Advisors during his first term. Great to be here. I'm 0:03:11.760 --> 0:03:14.480 kind of interested from both of you for your sort 0:03:14.520 --> 0:03:18.560 of top line thoughts on the actual state of the economy. 0:03:18.680 --> 0:03:22.200 Does he have a solid story to sell voters about 0:03:22.200 --> 0:03:24.920 the economic achievements of the first year in office? And 0:03:24.960 --> 0:03:26.640 I guess the second part of that is where the 0:03:26.720 --> 0:03:31.400 voters are likely to listen to that message. Josh, you 0:03:31.440 --> 0:03:34.160 did sit through that State of the Union. There's a 0:03:34.160 --> 0:03:37.520 lot of focus on what he might say about affordability, 0:03:37.560 --> 0:03:39.880 the state of the economy. You know, I hear your pain. 0:03:40.320 --> 0:03:41.360 How do you think he did. 0:03:41.600 --> 0:03:43.680 The good news from a White House standpoint is they 0:03:43.680 --> 0:03:46.400 wanted him to focus on economic issues and the economy, 0:03:46.480 --> 0:03:48.560 and for the most part, he did so. I think 0:03:48.600 --> 0:03:51.720 the trouble with Trump's speech was that the address he 0:03:51.840 --> 0:03:54.840 gave sounded like something you'd hear from a president with 0:03:54.880 --> 0:03:58.280 eighty percent approval ratings. But Trump is mired in the 0:03:58.360 --> 0:04:02.720 high thirties, and instead of of empathizing with the many 0:04:02.800 --> 0:04:05.840 voters who tell polsters that they're struggling, they're upset about 0:04:05.840 --> 0:04:09.440 the economy, about tariffs, about the cost of living, Trump 0:04:09.480 --> 0:04:13.560 basically gave a two hour celebration of his own presidency. 0:04:13.920 --> 0:04:16.279 He said it's a golden age and that the country 0:04:16.400 --> 0:04:19.520 is bigger, richer, stronger than ever before. So if you're 0:04:19.520 --> 0:04:22.000 somebody who was listening hoping that things were going to 0:04:22.080 --> 0:04:24.279 turn around, that Trump might pivot in a new direction, 0:04:24.920 --> 0:04:28.280 might refocus his presidency around issues of affordability, I'm not 0:04:28.320 --> 0:04:31.440 sure that you came away feeling much better than you 0:04:31.440 --> 0:04:32.360 did going into the night. 0:04:33.240 --> 0:04:35.960 One pushback on that. There has been the criticism of him, 0:04:36.440 --> 0:04:39.080 that he's too gloomy about the state of the US, 0:04:39.240 --> 0:04:41.919 and that he has this kind of apocalyptic tone to 0:04:42.000 --> 0:04:45.640 him sometimes, whereas he was sort of sounding like some 0:04:45.839 --> 0:04:48.680 past presidents, at least in parts of the speech, being 0:04:48.760 --> 0:04:51.799 kind of uplifted about America. We can do anything together. 0:04:52.279 --> 0:04:56.000 You don't think that that positivity sells well with voters 0:04:56.040 --> 0:04:57.479 it has traditionally with America. 0:04:57.680 --> 0:05:00.400 The way I think about it is that presidents, especially 0:05:00.440 --> 0:05:02.840 in State of the Union, addresses what they generally try 0:05:02.839 --> 0:05:06.920 to do Republicans and Democrats is to balance optimism with empathy. 0:05:07.279 --> 0:05:10.280 Bill Clinton's famous line I Feel your Pain was an 0:05:10.320 --> 0:05:13.520 effort to say to Americans, I understand everybody isn't thrilled. 0:05:13.520 --> 0:05:16.120 Everything's not perfect, but I have your concerns in mind, 0:05:16.160 --> 0:05:19.440 and I'm working to make things better for you. Trump, fundamentally, 0:05:19.480 --> 0:05:22.680 I think, rejects nuance and prefers to speak instead and 0:05:22.800 --> 0:05:26.719 sweeping absolutes, and the absolutes we heard last night, I 0:05:26.760 --> 0:05:28.960 wrote some of them down as he got going. Nobody 0:05:29.000 --> 0:05:31.839 can believe what they're watching. We're winning so much that 0:05:31.920 --> 0:05:34.080 we really don't know what to do about it. If 0:05:34.120 --> 0:05:37.279 you're a Trump die hard, if you're doing great, maybe 0:05:37.320 --> 0:05:40.960 your AI company is booming, I think this speech probably resonated. 0:05:41.000 --> 0:05:43.960 But if you're somebody who isn't doing so well, who's anxious, 0:05:44.040 --> 0:05:47.880 who's struggling economically, again, I think it's a speech that 0:05:47.920 --> 0:05:50.480 would land in a way that would suggest maybe this 0:05:50.600 --> 0:05:53.479 president doesn't understand what I'm going through here. Doesn't sound 0:05:53.560 --> 0:05:55.680 like somebody who's about to solve my problems. And that 0:05:55.800 --> 0:05:58.320 was really the worry that a lot of Republicans and 0:05:58.360 --> 0:06:00.520 a lot of Republicans strategist said to me. It's great 0:06:00.520 --> 0:06:02.760 to have him focused on the economy, but we need 0:06:02.800 --> 0:06:04.680 to make clear he needs to make clear that he's 0:06:04.680 --> 0:06:07.120 going to hammer away on issues of affordability, and that 0:06:07.160 --> 0:06:08.960 really didn't come out in the speech last night at all. 0:06:09.640 --> 0:06:11.479 I think the idea that President Trump is not a 0:06:11.480 --> 0:06:14.600 great one for nuances is one of the more understated 0:06:14.839 --> 0:06:18.400 comments of his podcast. But Anna, is practically your job 0:06:18.440 --> 0:06:21.800 description to put the nuance back in from your perspective, 0:06:22.520 --> 0:06:24.800 that sort of two sided thing that I put at 0:06:24.839 --> 0:06:26.680 the beginning of the actual state of the economy. What's 0:06:26.720 --> 0:06:30.080 the actual story he has to sell and how do 0:06:30.120 --> 0:06:33.239 you think he's done in terms of selling it to voters. 0:06:33.680 --> 0:06:36.720 I think he's in the same rabbit hole as the 0:06:36.720 --> 0:06:40.239 Biden administration in the last year, you know, in twenty 0:06:40.279 --> 0:06:43.680 twenty four, which is that they're trying very hard to 0:06:43.880 --> 0:06:48.360 message some developments in the numbers, because you know, in 0:06:48.360 --> 0:06:53.080 inflation numbers, we have seen some progress. President Trump rattled 0:06:53.120 --> 0:06:57.000 off a list of things that had seen slowing inflation. 0:06:57.200 --> 0:07:01.200 I fact checked it. It's true. Eggs has plummeted forty 0:07:01.200 --> 0:07:07.160 eight percent in the last year, fruits, chicken, rents, and 0:07:07.680 --> 0:07:13.360 overall grocery bills have slowed in their inflation compared to 0:07:13.520 --> 0:07:17.280 the average during the Biden administration. But I think that's 0:07:17.600 --> 0:07:21.280 not the question that he needs to address in a 0:07:21.360 --> 0:07:25.080 State of Union speech. He wants to, you know, message 0:07:25.120 --> 0:07:28.440 those numbers out to his voters. But voters based on 0:07:28.480 --> 0:07:31.760 how they feel and when they go to the grocery 0:07:31.800 --> 0:07:34.680 shop and see that beef prices is now twenty two 0:07:34.800 --> 0:07:39.120 percent higher, they just don't feel that inflation is coming down, 0:07:39.200 --> 0:07:41.840 even though the numbers is saying that they are. The 0:07:41.920 --> 0:07:46.000 second thing that's really different in this economy compared to 0:07:46.080 --> 0:07:50.600 the Biden economy is real income. So real income growth 0:07:50.680 --> 0:07:54.720 during the four years of Biden was about two point 0:07:54.840 --> 0:07:58.200 nine percent every year, and in the first year of 0:07:58.280 --> 0:08:01.040 Trump we had seen it grows zero zero point two percent. 0:08:01.680 --> 0:08:06.080 And disposable income, real disposable income it grew zero point 0:08:06.160 --> 0:08:09.400 nine percent last year versus one point nine percent and 0:08:09.760 --> 0:08:13.000 on average in the four years Biden. So while in 0:08:13.040 --> 0:08:16.640 the Biden administration you have high inflation, but you also 0:08:16.720 --> 0:08:21.960 have higher real income growth. In the current administration, you 0:08:22.160 --> 0:08:25.880 definitely could feel the slow down of the labor market 0:08:25.880 --> 0:08:29.920 and then increasing sense of job in security, perhaps due 0:08:29.920 --> 0:08:33.200 to a combination of AI and also just you know, 0:08:33.480 --> 0:08:38.559 Doge tariffs. All that is causing job growth to be slowing. 0:08:38.640 --> 0:08:41.480 So I think the vibes are just not great, and 0:08:41.720 --> 0:08:45.440 a speech that just focuses on the numbers rather than 0:08:45.440 --> 0:08:48.560 the experiences of people is not going to win many hearts. 0:08:49.520 --> 0:08:52.120 You've captured it in the sense of there's the higher prices. 0:08:52.600 --> 0:08:54.840 Eggs had risen a lot, and they were probably inevitably 0:08:54.840 --> 0:08:56.360 going to go down, but on a lot of things 0:08:56.400 --> 0:08:58.560 they had risen a lot in the Biden years and 0:08:58.600 --> 0:09:02.560 then have not come down. Even though we've obviously seen inflation, 0:09:02.679 --> 0:09:04.800 the rate of increase of prices go down, and then 0:09:04.840 --> 0:09:07.560 we did a big thing on affordability in the last 0:09:07.679 --> 0:09:10.760 few days, and even since President Trump took office, you 0:09:10.880 --> 0:09:13.880 have seen a bigg increase in some key areas. I 0:09:13.920 --> 0:09:17.720 think it's home insurance, utilities, electricity. You highlighted beef. So 0:09:17.760 --> 0:09:19.600 there are things that are moving in the right direction, 0:09:19.679 --> 0:09:23.000 and other things that have just continued to be expensive 0:09:23.320 --> 0:09:29.520 from a consumer's standpoint, without any action by the administration, Anna, 0:09:29.679 --> 0:09:33.600 do you see prospect for any of that looking better 0:09:33.760 --> 0:09:36.559 in the next six months. I noticed recently that you'd 0:09:36.600 --> 0:09:38.640 written a piece which sort of suggested you had been 0:09:39.120 --> 0:09:41.160 quite bullish coming into the start of this year, a 0:09:41.240 --> 0:09:43.400 number of pieces coming into place, and then some of 0:09:43.440 --> 0:09:45.160 those assumptions now being challenged. 0:09:46.360 --> 0:09:48.959 I would say that the more they do, the worst 0:09:49.000 --> 0:09:51.320 it will get, because the kind of things they are 0:09:51.800 --> 0:09:55.960 putting forth are populist policy that tends to have unintended 0:09:56.040 --> 0:09:59.760 consequences and backfire. The whole thing about credit card cap 0:10:00.160 --> 0:10:03.280 that likely is going to lead to increased credit and 0:10:03.360 --> 0:10:07.520 availability for the lower to mid income, so hurting the 0:10:07.559 --> 0:10:11.319 people precisely that they're trying to help. And then there's 0:10:11.440 --> 0:10:16.760 also the banning institutional investors from investing in homes that 0:10:17.200 --> 0:10:20.960 academic research on the impact of that was also clear 0:10:21.000 --> 0:10:25.440 it's going to reduce the supply of housing. And also 0:10:25.679 --> 0:10:30.679 the appointment of a new FED chair who, on the 0:10:30.679 --> 0:10:34.199 face of it, just does not seem any more doubvish 0:10:34.360 --> 0:10:38.280 than j. Powell, the current one, And if anything, the 0:10:38.520 --> 0:10:44.480 new FED chair nominee injected more monetary policy uncertainty and 0:10:44.559 --> 0:10:47.880 perhaps did his part in raising some kind of equity 0:10:47.960 --> 0:10:53.160 premium after that announcement, which I think was a contributing 0:10:53.240 --> 0:10:57.680 factor to the selloff in the markets. So and note 0:10:57.760 --> 0:11:03.040 that the stock was the one strong pillar of the 0:11:03.040 --> 0:11:07.319 Trump economy, and that was propping up the economy, and 0:11:07.400 --> 0:11:11.000 that one looks kind of shaky in twenty twenty six already. 0:11:11.120 --> 0:11:12.800 Although we should say that we're not in the business 0:11:12.840 --> 0:11:15.439 of offering stock market advice on this show. God help us, 0:11:15.600 --> 0:11:18.360 but Josh, we should at least touch on the other 0:11:18.400 --> 0:11:21.679 big event of the last week, the tariff judgment, because 0:11:21.679 --> 0:11:24.640 I guess the most striking thing for many in response 0:11:24.679 --> 0:11:29.280 to that not entirely surprising Supreme Court ruling that he 0:11:29.400 --> 0:11:33.200 hadn't the right to impose about at least half of 0:11:33.240 --> 0:11:36.440 the tariffs that he'd imposed last year. I guess the 0:11:36.520 --> 0:11:40.360 surprise was how determined he was to immediately bring the 0:11:40.440 --> 0:11:43.440 tariffs back, despite the fact that they're not very popular. 0:11:43.520 --> 0:11:46.600 So I just wonder our administration officials kind of frustrated 0:11:46.640 --> 0:11:50.520 that he's doubling down on this unpopular policy. Resigned. Where 0:11:50.520 --> 0:11:51.600 do you think he stands on that? 0:11:51.840 --> 0:11:54.760 Certainly the resign and I think this falls under Anna's 0:11:54.760 --> 0:11:57.280 line that the more he does the worse it gets. 0:11:57.760 --> 0:12:01.720 Instituting a kind of slapdash ten percent now fifteen percent 0:12:02.040 --> 0:12:06.280 tariff regime to cobble back what the Supreme Court struck 0:12:06.320 --> 0:12:10.839 down is not something that is going to help cost 0:12:10.880 --> 0:12:15.280 of living issues, affordability. It's clear in every poll I've 0:12:15.360 --> 0:12:19.319 seen that he is deeply underwater on the issue of tariffs. 0:12:19.640 --> 0:12:23.520 Most Democrats, most independent voters, and a lot of Republican 0:12:23.600 --> 0:12:26.440 voters opposed to tariffs. They don't like, they don't like 0:12:26.600 --> 0:12:27.400 going into the election. 0:12:27.480 --> 0:12:30.440 Actually, it was the least popular even among his voters, 0:12:30.480 --> 0:12:31.440 it was the least popular. 0:12:31.600 --> 0:12:34.040 That's right, And there's almost a certainty this is going 0:12:34.080 --> 0:12:36.400 to cause, you know, continued disruption in the six months 0:12:36.480 --> 0:12:39.400 between now and the election. So this isn't something that 0:12:39.520 --> 0:12:43.559 I think is going to encourage a lot of Republican 0:12:43.640 --> 0:12:46.120 lawmakers to think things are going to get better now 0:12:46.400 --> 0:12:49.160 he's found the right message. I think instead it's more 0:12:49.200 --> 0:12:51.040 of the same. And one of the things that we 0:12:51.080 --> 0:12:53.320 know about Trump, that everybody around him knows about Trump 0:12:53.400 --> 0:12:57.480 is that Trump really truly does believe in tariffs, thinks 0:12:57.520 --> 0:13:01.280 they're the key to his economic policy, and views the 0:13:01.320 --> 0:13:05.160 issue in black and white. Winter loss terms, Trump can 0:13:05.200 --> 0:13:08.040 never acknowledge when he's lost, whether it's an election or 0:13:08.040 --> 0:13:10.160 a Supreme Court decision. So what you heard last night 0:13:10.600 --> 0:13:13.040 was that he was going to turn right back around 0:13:13.240 --> 0:13:16.080 and institute a new set of tariffs in order to 0:13:16.559 --> 0:13:19.080 his mind, regain the upper hand on an issue that 0:13:19.080 --> 0:13:19.720 he cares about. 0:13:20.720 --> 0:13:23.760 But the good news is that almost all countries and 0:13:23.840 --> 0:13:28.319 corporations want to keep the deal that they already made, 0:13:29.000 --> 0:13:33.040 right Scott, knowing that the legal power that I as 0:13:33.240 --> 0:13:36.600 President have to make a new deal could be far 0:13:36.679 --> 0:13:40.200 worse for them, and therefore they will continue to work 0:13:40.240 --> 0:13:43.600 along the same successful path that we had negotiated before 0:13:43.640 --> 0:13:47.960 the Supreme Court's unfortunate involvement. 0:13:48.559 --> 0:13:51.679 And Anna, when you think about the economic impact, I mean, 0:13:51.679 --> 0:13:53.959 there's a lot of different things going on here, because 0:13:53.960 --> 0:13:58.000 you've got a potential hole in the balance sheet that 0:13:58.080 --> 0:14:00.920 was about one hundred and forty billion dollars worth of 0:14:01.200 --> 0:14:05.240 tariff's cut down, some of it replaced potentially by this 0:14:05.280 --> 0:14:08.679 new blanket policy. And there's this question of maybe having 0:14:08.760 --> 0:14:11.520 to provide the refunds when the government is already borrowing 0:14:11.920 --> 0:14:15.120 quite a lot, though the government administration has resisted that 0:14:15.480 --> 0:14:18.520 idea so far. On the other hand, if you ended 0:14:18.600 --> 0:14:20.280 up just with the ten percent, it would be a 0:14:20.280 --> 0:14:22.520 simpler regime than we had before. So that could be 0:14:22.520 --> 0:14:25.400 beneficial for businesses. They might even find it easier to pay. 0:14:25.960 --> 0:14:27.880 On the other hand, we know it's not going to 0:14:27.920 --> 0:14:30.840 stay simple because there are lots of negotiations underway. So 0:14:30.960 --> 0:14:33.600 sort of net, how do you think about the impact 0:14:33.600 --> 0:14:34.920 of that ruling on the economy? 0:14:35.480 --> 0:14:39.440 So I mentioned that if the administration doesn't do anything, 0:14:39.520 --> 0:14:43.200 the economy was going to boom this year. Why one 0:14:43.240 --> 0:14:47.360 of the key factor was that trade policy uncertainty has 0:14:47.440 --> 0:14:51.480 been coming down sharply and that maximum drag from last 0:14:51.520 --> 0:14:53.480 year has already happened. 0:14:53.560 --> 0:14:55.840 And you know, and to be clear, it was the 0:14:55.960 --> 0:14:59.280 uncertainty that you thought was most costly. Yes, you haven't 0:14:59.320 --> 0:15:02.320 seen big spike in inflation as a result or anything else. 0:15:02.360 --> 0:15:04.400 It's just the sheer uncertainty for businesses. 0:15:04.400 --> 0:15:07.960 And then exactly, and when we were going through earning 0:15:08.040 --> 0:15:11.240 transcripts of you know, the during the earning season for 0:15:11.560 --> 0:15:15.040 the fourth quarter and third quarter, we noticed that a 0:15:15.080 --> 0:15:18.800 lot of firms already have put in place plans to 0:15:19.120 --> 0:15:23.640 respond to this these tariffs, mostly by cost efficiency savings 0:15:23.640 --> 0:15:28.760 such as not hiring or diversifying supply chain and also automation. 0:15:29.200 --> 0:15:32.360 So part of the AI story of how firms across 0:15:32.480 --> 0:15:37.080 various sectors are adopting automation is a response to these 0:15:37.080 --> 0:15:42.760 increasing costs from tariffs and from labor. So suddenly, you know, 0:15:43.000 --> 0:15:46.080 it puts in doubt whether these tariffs will remain in 0:15:46.120 --> 0:15:49.560 place because even though the administration is going to use 0:15:49.600 --> 0:15:53.720 one twenty two, it's just a stop gap measure it 0:15:53.880 --> 0:15:57.000 and the Congress has also expressed that they are not 0:15:57.320 --> 0:16:01.520 likely to have enough votes to put these tariff permanently 0:16:01.560 --> 0:16:04.320 in place. So then what do firms do? I mean, 0:16:04.400 --> 0:16:07.640 they already a lot of them have already made decisions, 0:16:07.800 --> 0:16:12.240 investment decisions and also on diversifying the supply chains and 0:16:12.360 --> 0:16:16.600 automation in response to the past tariffs. So I think 0:16:16.640 --> 0:16:21.480 that just injected some kind of more decision uncertainty from 0:16:21.560 --> 0:16:26.880 firms perspective. It's unclear whether it's net positive or negative. 0:16:26.960 --> 0:16:31.240 You're literally scratching your head as you say that embodiment 0:16:31.280 --> 0:16:32.680 of a head scratcher. 0:16:32.800 --> 0:16:34.960 Yes, because when you think about that one hundred and 0:16:34.960 --> 0:16:38.720 forty billion or to one hundred and seventy billion potential refund, 0:16:39.360 --> 0:16:44.360 So is this adding to the expected cash holding of firms, 0:16:44.800 --> 0:16:49.880 meaning that well, sadley, they're gonna plow all those expected 0:16:50.480 --> 0:16:54.960 cash flow into investment. Is this gonna even fuel this 0:16:55.120 --> 0:16:59.600 investment boom and generating more inflation? That would be the 0:16:59.600 --> 0:17:02.840 opposite of what you think that by lowering tariffs you 0:17:02.920 --> 0:17:07.040 would actually reduce inflation. No, it's actually the other whereound. 0:17:07.480 --> 0:17:10.760 On the other hand, you know, if he has threatened 0:17:10.800 --> 0:17:13.439 that he will raise the global tariff by fifteen percent, 0:17:13.800 --> 0:17:17.240 and according to our trade team's calculation, that will bring 0:17:17.400 --> 0:17:21.040 the effective US teriff freight to twelve point one pretty close, 0:17:21.200 --> 0:17:23.399 not far off, yeah, yeah, not far off from the 0:17:23.440 --> 0:17:27.960 previous one. But what that didn't reveal is the compositional 0:17:28.119 --> 0:17:32.000 shift of the tariffs. You see, so the flat tariff 0:17:32.160 --> 0:17:35.360 will benefit China and the ones who received a very 0:17:35.400 --> 0:17:40.080 higher rate under the reciprocal terraf regime. So firms have 0:17:40.200 --> 0:17:45.000 made decisions diversifying supply chains in response to the reciprocal 0:17:45.080 --> 0:17:48.240 the composition of the reciprocal tariffs, So when you now 0:17:48.280 --> 0:17:53.359 have a flat tariff, that also changes your supply to calculations. 0:17:52.680 --> 0:17:54.679 And I will struck by and he's obviously you know 0:17:54.760 --> 0:17:58.400 him quite well. But this whole debate about refunds about 0:17:58.800 --> 0:18:02.040 the burden of town tariffs is not necessarily one that 0:18:02.080 --> 0:18:04.640 the administration wants to get into. And I noticed that 0:18:04.720 --> 0:18:08.280 the National Economic Council Director Kevin Hassett has condemned a 0:18:08.400 --> 0:18:11.480 New York Federal Reserve study that showed that US companies 0:18:11.520 --> 0:18:13.600 were bearing most of the tariff burden. I think you 0:18:13.720 --> 0:18:16.600 had said, we've discussed that in the past, you would 0:18:16.640 --> 0:18:18.000 more or less say that, but he said it's an 0:18:18.040 --> 0:18:21.200 embarrassment and the people associated with it should be disciplined. 0:18:21.280 --> 0:18:22.480 What did you think when you saw that? 0:18:22.920 --> 0:18:25.080 Well, when I heard that, I thought, has got a 0:18:25.080 --> 0:18:28.520 bit emotional. You know, it's a bit odd because that 0:18:28.760 --> 0:18:33.600 study was so well circulated in the mainstream, and also 0:18:33.640 --> 0:18:37.000 a lot of people have similar finding, and the techniques 0:18:37.040 --> 0:18:40.440 behind it is not that controversial, and you know, Kevin 0:18:40.480 --> 0:18:43.760 has it just credit. Did later on apologized, and he 0:18:43.880 --> 0:18:47.000 did say that he got a bit emotional. And I 0:18:47.040 --> 0:18:49.879 think the reason why it was an emotional issue he 0:18:49.960 --> 0:18:54.240 had that instinct was because this particular set of authors 0:18:54.320 --> 0:18:57.560 from New York Fed also came out charging out the 0:18:57.600 --> 0:19:01.960 gate in twenty eighteen with a very similar study and 0:19:02.640 --> 0:19:06.600 dominated the kind of like the mainstream, the oxygen of 0:19:06.680 --> 0:19:10.480 the mainstream discussion of the burden of tariff back then, 0:19:10.840 --> 0:19:12.720 so it was like a kind of like an eight 0:19:12.800 --> 0:19:14.000 to nine year thing. 0:19:14.440 --> 0:19:16.000 And the issue, I. 0:19:15.960 --> 0:19:20.520 Think that the issue, even though I said that that 0:19:20.680 --> 0:19:23.720 the finding of that piece, to me is not controversial 0:19:23.760 --> 0:19:26.159 because when we looked at impro prices, we also have 0:19:26.560 --> 0:19:29.480 come to the same conclusion. But I think the issue, 0:19:29.640 --> 0:19:32.840 the bones the administration have to pick with that piece 0:19:33.280 --> 0:19:36.719 is that it just focused on one thing, the price, 0:19:37.320 --> 0:19:40.280 when the burden of terrorists could be born in a 0:19:40.359 --> 0:19:45.119 variety of ways. For example, from China's perspective, Chinese exporters 0:19:45.720 --> 0:19:49.800 are seeing a hit in sales in quantities. Did the 0:19:49.840 --> 0:19:53.600 study compute whether you know, in fact China is selling 0:19:53.720 --> 0:19:58.320 less on that dimension? Are they also considering how US 0:19:58.320 --> 0:20:01.119 exporters have read you see for a higher price, so 0:20:01.200 --> 0:20:04.520 you has actually experienced a positive terms of trade shock 0:20:04.640 --> 0:20:08.520 last year where the export prices was rising faster than 0:20:08.600 --> 0:20:11.280 import prices. So there are a lot of things that 0:20:11.280 --> 0:20:15.040 that paper didn't consider, which to the administration seemed very 0:20:15.160 --> 0:20:18.520 one sided. So that's why they got very emotional about it. 0:20:30.240 --> 0:20:33.320 Josh. The politics of this is interesting, right because you've 0:20:33.320 --> 0:20:36.720 had I think the Democrats are said to be quite 0:20:36.880 --> 0:20:39.560 excited about the possibility of running with this sort of 0:20:39.600 --> 0:20:43.080 refund Americans should get their money back kind of line. 0:20:43.720 --> 0:20:46.600 It certainly is unhelpful to have lots of discussion about 0:20:46.640 --> 0:20:49.680 who's paid the price of tariffs and whether or not 0:20:49.760 --> 0:20:52.000 they should get their money back. What's the level of 0:20:52.040 --> 0:20:54.400 nervousness around that in the administration? Do you think? 0:20:54.760 --> 0:20:57.040 I think there's a lot of nervousness. Trump's claim is 0:20:57.040 --> 0:20:59.879 that tariffs aren't taxes, that it's this wonderful windfall for 0:20:59.880 --> 0:21:02.639 the American people, and Democrats are essentially calling this bluff 0:21:02.640 --> 0:21:04.479 and saying, all right, if it's a windfall, give all 0:21:04.520 --> 0:21:07.080 this money back, where's the money. Note thing that stood 0:21:07.080 --> 0:21:09.640 out about the address to me last night was that 0:21:09.680 --> 0:21:13.520 in the past Trump has promised a number of goodies 0:21:13.560 --> 0:21:16.600 to American voters, whether it was a ten percent cap 0:21:16.640 --> 0:21:20.480 on credit card interest or two thousand dollars refund checks. 0:21:20.800 --> 0:21:22.320 I didn't hear any of that last night. I don't 0:21:22.320 --> 0:21:25.159 believe you mentioned credit card interest at all. And so 0:21:25.359 --> 0:21:29.639 this would be another case of voters having their expectations raised, 0:21:29.680 --> 0:21:33.000 in this case by Democratic politicians that they've got some 0:21:33.080 --> 0:21:35.359 money coming in and then if that money doesn't show up, 0:21:35.440 --> 0:21:37.480 is it doesn't seem like it's gonna I wouldn't bet 0:21:37.520 --> 0:21:38.200 on it anyway. 0:21:38.280 --> 0:21:40.760 With Teriffrey film basically said you can find us for it. 0:21:41.000 --> 0:21:43.080 Yeah, with the two thousand dollars check, that's going to 0:21:43.119 --> 0:21:46.320 add to voter frustration and disappointment. And I think that's 0:21:46.359 --> 0:21:49.240 the real political risk that Republicans in the White House 0:21:49.240 --> 0:21:52.280 are worrying about. They have a hard enough job as 0:21:52.320 --> 0:21:56.520 it is convincing Americans that the economy is actually in 0:21:56.560 --> 0:21:58.359 a pretty good shape. They even have some facts on 0:21:58.400 --> 0:22:01.520 their side. And if you look at polls of public sentiment, 0:22:01.560 --> 0:22:05.119 of consumer sentiment of how voters feel about Trump tariffs 0:22:05.119 --> 0:22:08.760 in the economy, they're terrible. The numbers are in the toilet, 0:22:08.800 --> 0:22:12.320 disappointing voters on maybe getting a new stimmy check is 0:22:12.359 --> 0:22:15.360 only going to make things tougher for Republicans in November. 0:22:15.760 --> 0:22:18.760 But there is a bit of money coming to voters 0:22:18.840 --> 0:22:22.119 as a result of a big, beautiful bill. And I 0:22:22.160 --> 0:22:25.280 guess one question still with Josh, I wonder do they 0:22:25.320 --> 0:22:29.639 feel they need new proposals, new legislation to talk about 0:22:30.119 --> 0:22:33.040 or is there a possibility they could just talk more 0:22:33.080 --> 0:22:36.240 convincingly about the stuff that's actually coming down the track, 0:22:36.320 --> 0:22:39.800 including some money in people's pockets from the tax bill 0:22:39.880 --> 0:22:40.359 last year. 0:22:41.520 --> 0:22:44.440 Yeah, I think, being realistic, most Republicans would be thrilled 0:22:44.520 --> 0:22:48.520 if Trump simply focused on stuff that he's already delivered, 0:22:48.600 --> 0:22:53.000 described it accurately, and hammered away at that message over 0:22:53.040 --> 0:22:54.919 the next six months. I mean. The trouble is that 0:22:54.960 --> 0:22:59.320 Trump is serially prone to hyperbole an exaggeration, and we 0:22:59.400 --> 0:23:02.320 had all sorts of examples of this. Last night he 0:23:02.400 --> 0:23:05.280 boasted about dollar ninety nine gas prices. 0:23:05.680 --> 0:23:08.440 I noticed that Lackney once again, CNN. 0:23:08.080 --> 0:23:11.000