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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Did you watch jd Vance's with the r n C.

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Speaker 1: I saw some clips. Did you watch the whole thing?

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Speaker 3: No?

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Speaker 2: No, but I saw some. I saw some clips as well.

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Speaker 1: Do you think he has read Trade Wars or Class warst.

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Speaker 2: As far as you know, has jd Vance read the

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Speaker 2: book you co authored with Michael Pettis.

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Speaker 3: As far as I know, definitely, people on his staff have,

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Speaker 3: and I would not be surprised if he has himself.

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Speaker 2: Oh there you go. I did a deadlift one.

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Speaker 1: Jim uh barges.

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Speaker 2: This isn't after school Special, except.

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Speaker 1: I've decided I'm going to base my entire personality going

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Speaker 1: forward on campaigning for a strategic pork reserve in the US.

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Speaker 2: Where's the best with imposta?

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Speaker 1: These are the important question? Is that robots taking over

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Speaker 1: the world?

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Speaker 3: No.

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Speaker 2: I think that like in a couple of years, the

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Speaker 2: AI will do a really good job of making the

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Speaker 2: Odd Lots podcast and people today, I don't really need

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Speaker 2: to listen to Joe and Tracy anymore.

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Speaker 3: We do have.

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Speaker 1: The perfect You're listening to Lots more where we catch

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Speaker 1: up with friends about what's going on right now.

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Speaker 2: Because even when the odd lots is over. There's always

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Speaker 2: lots more.

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Speaker 1: And we really do have the perfect guest.

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Speaker 2: We're here with our friend multi time guest Matt Klein.

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Speaker 2: Everyone is reading from your hymnal must be pretty well also, listeners.

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Speaker 2: In addition to reading the book, go check out his

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Speaker 2: uh newsletter, the Overshoot, which is, you know, it's sort

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Speaker 2: of like, you know how people used to subscribe to

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Speaker 2: the Economist but then never read them in their famously

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Speaker 2: piled up That's how I am with substacks, except Matt's

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Speaker 2: is one of the ones that I regularly open.

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Speaker 1: So you're going to say, like, Matt's is one of

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Speaker 1: those newsletters though I don't read just like the economists. No,

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Speaker 1: it's really good.

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Speaker 3: Hey, something to subscribe. No, I appreciate that. That's that's

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Speaker 3: very kind of so. Yeah.

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Speaker 2: One of the things that is extremely trade wars are

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Speaker 2: class wars coded, so to speak. And this is one

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Speaker 2: of these ideas you don't here discuss popularly, particularly among

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Speaker 2: politicians or really anyone. But it's like, oh, you're really

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Speaker 2: in the know if you make this point. Is this

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Speaker 2: notion that maybe the central role of the US dollar

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Speaker 2: the reserve currency status is not so great for the US,

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Speaker 2: and he has made that point in interviews and I

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Speaker 2: think even in some testimonies that like he's not crazy

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Speaker 2: about the dominance of the US dollar.

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Speaker 3: Yeah, that's right. I mean I think he asked benchairman

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Speaker 3: Jerome Powell up this a year ago. So yes, that's

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Speaker 3: that's right.

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Speaker 1: Wait, are you surprised at all that the dollars reserve

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Speaker 1: currency status has been picked up as like a populist

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Speaker 1: talking point? I mean seriously, I mean I'm.

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Speaker 3: Going to say no, because he's not the first one. Right,

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Speaker 3: So Josh Holly is also was you know, Pettes pilled

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Speaker 3: as it were, And I remember when the book came out,

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Speaker 3: like conversations with people on his staff, I didn't even think.

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Speaker 3: I think before the book was efficiently released, I mean

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Speaker 3: they somehow got some you know, early preprint or something.

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Speaker 3: So it's definitely percolating the ideas and that segment of

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Speaker 3: the Republican right. It's obviously also, I mean you probably

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Speaker 3: saw the article that Robinson Mayer wrote, and he did.

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Speaker 3: There's a lot of people in the Biden administration whove

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Speaker 3: also read the book and I think gotten some good

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Speaker 3: takeaways from it. So this is you know, it's interesting

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Speaker 3: to see that having a really cross part is an

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Speaker 3: appeal even if the types of people who liked him

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Speaker 3: been very different from each other are very different and

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Speaker 3: their priorities for other things, but they seem to appreciate

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Speaker 3: the analysis we put together.

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Speaker 1: I mean, one thing that is true is it seems

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Speaker 1: like there's been a slight evolution or at least a

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Speaker 1: clarification in Trump's approach to the dollars. So do you remember,

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Speaker 1: like in the early days of his administration or when

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Speaker 1: he was running, he used to talk about, like a

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Speaker 1: lower dollar would be better for US trade, But then

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Speaker 1: he would also talk about how, you know, how great

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Speaker 1: the dollar was in the sense of its position in

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Speaker 1: the international financial system, and so it always we like

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Speaker 1: there was a little bit of tension there. But I

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Speaker 1: guess as time has gone on, he's sort of migrated

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Speaker 1: towards clearly like this idea that actually the preserve currency

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Speaker 1: status isn't that great for the American economy.

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Speaker 3: Yeah, I don't know if I can. I don't feel

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Speaker 3: comfortable saying what Trump's actual views are on this, because

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Speaker 3: it is some point the words. But yeah, I mean,

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Speaker 3: I think at least it would be more coherent to

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Speaker 3: say say it the way it sort of the advances

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Speaker 3: laid out that the use of the dollar outside the

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Speaker 3: United States and its popularity as a place for foreigners

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Speaker 3: to save money in dollars, that that has harmful effects

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Speaker 3: the United States because it makes a dollar relatively more

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Speaker 3: expensive than otherwise would be that at least is a

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Speaker 3: coherent point if you can disagree with it, but it's

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Speaker 3: coherent as opposed to saying we want the dollar to

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Speaker 3: be cheaper and it's great that the dollars reserve currency.

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Speaker 2: Wait, so, full disclosure, I have probably in my life

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Speaker 2: in conversation, said something like, well, did you know that

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Speaker 2: the dollar reserve currency status is not a privilege or

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Speaker 2: a burden? But the only reason I said that is

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Speaker 2: probably because I read it in your book or saw

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Speaker 2: it in one of your tweets, And I actually don't

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Speaker 2: even really remember the argument. I was just trying to

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Speaker 2: sound intelligent and heterodoxy full disclosure. You're a smart guy,

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Speaker 2: So if you believe something, I'll just probably accept it

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Speaker 2: on faith. But what do you remind us? What is

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Speaker 2: the gist here of why maybe it's not so good?

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Speaker 3: Sure? So, basically, I mean, first of all, you know,

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Speaker 3: people talk about their reserve currency, and that's a little

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Speaker 3: bit of a misnomer, like the reason, yeah, people reserve dollars, right,

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Speaker 3: I mean the dollar is significant just because the United

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Speaker 3: States is really big, Right. There are other countries where

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Speaker 3: their currencies are outside, like the UK is a really

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Speaker 3: good example, Switzerland is a good example, France in some ways.

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Speaker 3: But in general, what it means is that your financial system,

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Speaker 3: your domestic financial system, has evolved and adapted to meet

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Speaker 3: the needs of foreign savers and borrowers at least as

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Speaker 3: much as people in your own country. And that means

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Speaker 3: that what people outside your country want to do can

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Speaker 3: potentially have big impacts on your domestic economy because that's

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Speaker 3: where the adjustment ends up happening. And that can be

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Speaker 3: good or it can be bad, depending upon or at

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Speaker 3: least it needs it should be managed. Yeah, if it's

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Speaker 3: not man some way, can lead a lot of real problems.

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Speaker 3: So in the case of the United States, what this

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Speaker 3: is meant is that over the past forty plus years

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Speaker 3: or so, the overall preference of foreigners has been they

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Speaker 3: want to spend less than they earn and save the

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Speaker 3: difference by buying financial assets. And what that is meant

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Speaker 3: is that Americans have to be on their side of

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Speaker 3: this and borrow more selling financial assets to them in exchange.

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Speaker 3: That's what has happened to have been the case for

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Speaker 3: the past forty plus years. And what that's meant is

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Speaker 3: that Americans have been borrowing more than otherwise they would.

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Speaker 3: That means more debt, and it also means some combination

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Speaker 3: of either incomes being lower than the otherwise would be

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Speaker 3: or spending being higher. Now, whether this is good or bad,

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Speaker 3: or how it translates into what the American living standards

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Speaker 3: and living stands in the rest of the world, that

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Speaker 3: depends a lot of specifics, and that's where it's important

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Speaker 3: to get into kind of the nitty gritty and say, well,

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Speaker 3: we don't necessarily want to just you know, close the

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Speaker 3: trade deaf sip by any means necessary. One way to

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Speaker 3: do that, of course, is you just impoverish Americans so

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Speaker 3: they spend less. That's not good, right, which, by the way,

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Speaker 3: it used to be sort of the orthodox view of people, all, well,

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Speaker 3: if you don't like the current account deficit, it's because

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Speaker 3: the budget, the federal budget debtsit stubis we need to

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Speaker 3: raise taxes and cut spending. Which is essentially saying that

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Speaker 3: because other people in the rest of the world for

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Speaker 3: whatever reason, are choosing to live below their means, in

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Speaker 3: other words, spending less and consuming less than they're producing,

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Speaker 3: that therefore Americans have to live worse off. And that

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Speaker 3: doesn't make sense. Obviously, it'd be better if people in

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Speaker 3: the rest of the world live better, and that would

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Speaker 3: encourage a healthy rebalancey in the US where we were

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Speaker 3: genering more income selling the foreigners. But that's you know,

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Speaker 3: if that's not going to happen, then the question is

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Speaker 3: what do you do about it? And you know, we

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Speaker 3: wrote in the book most of the book is just

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Speaker 3: sort of explaining all this in more detail, providing some

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Speaker 3: historical context, showing it across different countries and time periods.

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Speaker 3: But you know, the conclusion we did say, okay, well

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Speaker 3: you've read all this, hopefully you understood it and taking

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Speaker 3: it in like what is that? What are the implications

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Speaker 3: for a country like the United States. And you know,

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Speaker 3: Michael and I had a bit of a you know,

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Speaker 3: discussion about how to put that writing. The coclusion was

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Speaker 3: very hard to sort of synthesize different points of view,

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Speaker 3: and I think we came to a good sort of

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Speaker 3: constructive synthesis here and basically saying, if you think that

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Speaker 3: foreigners and can change their behavior and they're just going

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Speaker 3: to continually be this net inflow of finance in the

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Speaker 3: United States, and you know, the corollary being that people

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Speaker 3: in the rest of the world are going to be

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Speaker 3: producing a bunch of things are not using for themselves

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Speaker 3: and selling it to Americans, then there are things that

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Speaker 3: the US can do to make that as beneficial for

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Speaker 3: Americans as possible. The first thing is if someone is

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Speaker 3: going to be borrowing, because someone in the US is

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Speaker 3: gonna be borrowing to offset this, it should be the

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Speaker 3: federal government because you know their ability to service the

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Speaker 3: debt and not face runs. And so if it's going

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Speaker 3: to be much better than a private sector, the private

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Speaker 3: sector borrows even if people still want to buy dollar

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Speaker 3: assets and not always going to want to buy those

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Speaker 3: private assets, and that great real problems. That's what happened

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Speaker 3: in the two thousands, right there was there was never

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Speaker 3: a situation where foreigners stopped wanting to hold dollars. They

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Speaker 3: just wanted to stop holding particular types of dollars, and

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Speaker 3: that created all sorts of runs. If it's the federal

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Speaker 3: government's less likely to be an issued. Okay, so that's

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Speaker 3: that's one thing that's like step one. Then step two

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Speaker 3: is because you want to make sure your private sector

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Speaker 3: is not being reasonably you know, burdened by this, and

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Speaker 3: then you say, okay, well we should figure out useful

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Speaker 3: things we can do with the money, right, I mean,

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Speaker 3: if the government has been borrowing a lot more than otherwise,

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Speaker 3: would be as well find things that are constructive. So

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Speaker 3: one thing you could do, which I think would make

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Speaker 3: sense to say, okay, well, obviously, you know, you have

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Speaker 3: a society with some people are poorer than others, some

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Speaker 3: people are more financially constrained than others, some people are

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Speaker 3: more indebted in than others. If we can, you know,

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Speaker 3: to a certain extent, increase overall incomes and living standards

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Speaker 3: for people, that would be constructive. Right. People would have

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Speaker 3: more money, they'd be more financially secure, less curious, they

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Speaker 3: could buy more things that would be good for jobs

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Speaker 3: and incomes and well being and social being and so forth.

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Speaker 3: That's one thing you could do, pretty straightforwardly. Another thing

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Speaker 3: you could do is you could say, we have a

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Speaker 3: lot of unmet investment needs. We know what they are

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Speaker 3: just because the various reasons you know, where there have

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Speaker 3: been backlogs and even done them, or the things we

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Speaker 3: think we're going to need in the future, and you

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Speaker 3: can say we can borrow, have the treasury borrow at

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Speaker 3: you know, relatively lower rates than otherwise would be the case,

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Speaker 3: and support the financing of these investments that would be

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Speaker 3: productive and hopefully again make people's living standards higher in

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Speaker 3: the future. And then the last thing that I think

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Speaker 3: would make sense in this context is to the extent

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Speaker 3: that foreigners are consuming less than you'd otherwise expect based

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Speaker 3: on what they're producing, and they're creating relatives to that

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Speaker 3: and excess of production and selling it. You just want

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Speaker 3: to make sure that America's ability to produce things, or

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Speaker 3: whatever country we're talking about here doesn't have to be

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Speaker 3: the US could be like the UK isn't unreasonably displaced.

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Speaker 3: There are reasons why it's good to have a sufficiently large,

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Speaker 3: diversified complex manufacturing sector in your country, for productivity reasons,

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Speaker 3: for national security reasons, and you want to be able

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Speaker 3: to preserve that and not have it unreasonably Obviously they're

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Speaker 3: technological changes or whatever things like that happens, you know,

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Speaker 3: it doesn't necessarily make sense for the US to have

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Speaker 3: a huge T shirt manufacturing industry, but you don't want

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Speaker 3: to have a situation where, because of people's saving preferences

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Speaker 3: which are totally unrelated, that like the US manufacturing sector

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Speaker 3: or for other countries that supplies is not unreasonably demolished,

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Speaker 3: and so some it makes sense in that case that

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Speaker 3: have some government spending set aside to make sure there

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Speaker 3: is always demand for American manufacturing. And if you have

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Speaker 3: this perspective, which is what we laid out in the book,

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Speaker 3: you can, I think reasonably say that in many ways,

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Speaker 3: a lot of we've seen in the past three years

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Speaker 3: has really been you know, consistent with that that kind

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Speaker 3: of policy making. I think that's constructive.

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Speaker 1: The one thing, well, there are a lot of things

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Speaker 1: that I don't get nowadays, but one thing that I

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Speaker 1: really don't get is like Trump, the Trump administration, Like,

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Speaker 1: insofar as they've laid it out so far, they seem

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Speaker 1: to want like disparate and conflicting things. So, you know,

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Speaker 1: a weaker dollar, a change in the dollars reserve status,

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Speaker 1: maybe a reduction in the trade deficit, lower interest rates

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Speaker 1: of inflation, and lower inflation Yeah, lower inflation seems to

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Speaker 1: be like the big contradiction here. And I also feel

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Speaker 1: like you could make a very strong argument that if

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Speaker 1: we've learned anything from the past few years in terms

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Speaker 1: of Americans economic preferences, it's that Americans hate inflation a

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Speaker 1: lot more than they seem to like full employment. Right, So, like,

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Speaker 1: how does all this come together and actually impact prices?

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Speaker 3: Sure? Well, so these are all great questions. First of all,

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Speaker 3: as we wrote the book before it became apparent that

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Speaker 3: people hated inflation more than they hated full employment unemployment,

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Speaker 3: so that you know, that's our fault. I guess I

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Speaker 3: still think it's better to have a full employment and

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Speaker 3: a little more inflation than the other way around. But

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Speaker 3: you know, my linch may faery, But yeah, I agree

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Speaker 3: that it is contradictory. I mean, I think you could

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Speaker 3: plausibly put together a sort of a reflationist agenda, the

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Speaker 3: kind of thing that would have made a lot of

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Speaker 3: sense and say two thousand nine twenty ten. You know,

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Speaker 3: but does that fully make sense now? Or if it

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Speaker 3: does make sense now, like, are people prepared to accept

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Speaker 3: the full consequences of that? And I think the answer

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Speaker 3: is probably no, Right, I mean, first of all, compressing

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Speaker 3: the trade deficit for two sides. Then right, you can

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Speaker 3: lower imports, so you can raise exports. If you do

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Speaker 3: it by lowering imports, then again, I mean one way

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Speaker 3: of doing that is you somehow manage to make more

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Speaker 3: things domestically and so you have less need imports stuff. Okay, fine,

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Speaker 3: Or you do it by just buying less stuff domestically

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Speaker 3: because you're poor, or you're just buying less stuff. So

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Speaker 3: again there's like all these different layers of how this

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Speaker 3: plays out. Also for exports. By the way, you can

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Speaker 3: increase exports because you're selling less stuff in your home

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Speaker 3: market but you're able to sell it somewhere else, or

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Speaker 3: because you're just producing more and as a consequence, you know,

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Speaker 3: whatever share as export goes up. So there's four different

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Speaker 3: possibilities there. You can have different combinations. They all have

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Speaker 3: different implications for living standards, for potential interactions with how

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Speaker 3: much spare resources are available and what that might mean

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Speaker 3: for inflation. And so you know, it's dangerous to oversimplify

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Speaker 3: these things and just say like, oh, we want to

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Speaker 3: have a narrow or trade depths. I mean, what you

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Speaker 3: should care about is things like financial stability, things like

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Speaker 3: full employment, things like making sure that you know you're

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Speaker 3: having a diversified, you know, sophisticated domestic production base. That's tricky,

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Speaker 3: but I mean that's kind of I think how it

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Speaker 3: would makes sense to prioritize things, right.

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Speaker 2: A lot of this is about are you addressing the

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Speaker 2: symptom or the underlying issue.

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Speaker 1: Well, if the dollar.

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Speaker 2: We're less central in the global economy, would the constrain

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Speaker 2: foreign policy insofar as sometimes we seize the dollar assets

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Speaker 2: of other countries, or we cut off individuals, companies, and

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Speaker 2: countries from banks to have access to the dollar system.

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Speaker 2: Does that have a constraining a security effect?

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Speaker 3: Potentially if you look back historically that some of the

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Speaker 3: people who were most in favor of maintaining the status

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Speaker 3: call have been people in the national security establishment who

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Speaker 3: look at from that perspective. So that's a potential issue.

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Speaker 3: The flip side, though, is like, what what are the

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Speaker 3: other currencies that lay a larger role potentially? I mean

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Speaker 3: one I think obvious one which nobody talked about anymore

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Speaker 3: for reasons they don't understand, but would be the Euro. Right, Like,

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Speaker 3: the European economy in the aggregate is very large. It

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Speaker 3: is sophisticated, has got a lot of stuff that The

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Speaker 3: European financial market in the aggregate is again large, it

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Speaker 3: is open, but there's a lot of issues they have

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Speaker 3: in terms of fragmentation, in terms of legal regime, in

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Speaker 3: terms of just weird ideological biases against you know, government

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Speaker 3: borrowing particularly you know, again encourage the fragmentation, and so

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Speaker 3: that basically they're really punching below their weight. I mean,

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Speaker 3: that's sort of the most obvious one. You can also

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Speaker 3: talk about Yuan, which is a different story, but like

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Speaker 3: Europe's so obvious one. And so from foreign policy, like

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Speaker 3: there are situations where sometimes you have disagreements in the

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Speaker 3: US and Europeans about foreign policy. But the really big

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Speaker 3: stuff that's happened recently there's been locks up, and same

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Speaker 3: thing with Japan and Switzerland, and so you could have

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Speaker 3: a more diverse, pluralistic regime of financial systems. And nevertheless,

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Speaker 3: you know, for when things matter, I mean, you talk

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Speaker 3: about sanctions and banks, like there's an element where cutting

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Speaker 3: off banks is important, but also what it is is

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Speaker 3: like you are being cut off from our real economy

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Speaker 3: as well, and to the extent that the real economy

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Speaker 3: of the US and allies writ large is still very

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Speaker 3: large relative to the global total, and very very large

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Speaker 3: when it comes to you know, certain sort of essential

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Speaker 3: high tech components. You'd be able to swing a big

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Speaker 3: stick if you want to. Even if that were not

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Speaker 3: the case, I think that people shouldn't They should not

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Speaker 3: be so afraid of that outcome that they you know,

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Speaker 3: ignore what's gooding and policy. And by the way, I

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Speaker 3: should also add that sometimes you hear people make an

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Speaker 3: argument that sanctions are bad because it undermines the reserve status,

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Speaker 3: which I mean, that's just circular, right, Like the whole

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Speaker 3: value of reserve status are being popular is that you

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Speaker 3: can do sanctions, then you can't do something like I mean,

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Speaker 3: that doesn't make sense.

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Speaker 1: Again, you have the threat of sanctions, is there. This

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Speaker 1: might be a kind of weird question, but you know,

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Speaker 1: you talked about the conclusions in your book and the

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Speaker 1: idea of Okay, well, we can't really force foreign countries

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Speaker 1: to necessarily change their behavior, and so if the US

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Speaker 1: really wants to reduce the dollar's role as a reserve currency,

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Speaker 1: then like, here are some things that the US could do.

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Speaker 1: I guess my question is like, is there anything more

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Speaker 1: like aggressive that Yeah?

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Speaker 3: Yeah, absolutely right, and so actually you're absolutely right. So

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Speaker 3: what I laid out to you was, if we assume

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Speaker 3: that nothing's going to change on the outside world, here's

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Speaker 3: how we can adapt US policy to be as beneficial

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Speaker 3: as possible. The alternative, which we also discussed in conclusion,

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Speaker 3: this is where again Michael and I were kind of

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Speaker 3: trying to figure out how to put all this together

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Speaker 3: in a way that was coherent. Is you say, you know,

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Speaker 3: screw that, we're just gonna We're just gonna both you know,

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Speaker 3: it's their problem, right, And basically what you would do

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Speaker 3: is you have some kind of you know, capital controls

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Speaker 3: or what the IMF now calls capital flow management measures

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Speaker 3: I think is the term they came up with like

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Speaker 3: ten years ago to But you know, if it's literally

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Speaker 3: the case that foreigners cannot buy us financial assets or

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Speaker 3: you make it prohatively expensive for them to do that,

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Speaker 3: that would have all sorts of other effects. And basically

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Speaker 3: what that would be very chaotic, or could be very kotic,

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Speaker 3: could be very you know, a narcic could end up

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Speaker 3: leading to an overall poor world. Certainly, I think then

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Speaker 3: the one where we have a kind of constructive approach.

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Speaker 3: But if your view is foreigners are never going to change,

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Speaker 3: and you don't want to do the things we laid out.

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Speaker 3: Because to be clear, the alternative path that I mentioned earlier,

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Speaker 3: it does come I think it's overall beneficial, but it

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Speaker 3: does come with one specific cost. What is that federal

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Speaker 3: debt would probably rise to GDP. I think overall that's

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Speaker 3: not a problem, but that is like one specific thing

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Speaker 3: you could point to, and if you for some reason

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Speaker 3: really don't want that, then the alternative is you say, look,

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Speaker 3: you have these, you know you the rest of the

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Speaker 3: world collectively produce more then you use. You can't sell

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Speaker 3: unless you sell to us. So now we're saying you

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Speaker 3: can't sell to us, good luck figure it out. That's

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Speaker 3: going to hurt Americans initially at first, but it's going

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Speaker 3: to hurt other people more probably, And so that's where

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Speaker 3: that as the alternative. I mean, you can sort of see,

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Speaker 3: I mean they stent that there have been people and

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Speaker 3: across the political spectrum feeling receptive to what we wrote

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Speaker 3: in the book. I mean you can see that as

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Speaker 3: being a divide like which approach you prefer. I mean,

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Speaker 3: I think you can tell from what I'm saying what

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Speaker 3: I think makes more sense. Obviously, Another really good thing

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Speaker 3: would be, you know, the places that have these sort

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Speaker 3: of persistent under periods of under consumption, you know, Europe

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Speaker 3: and China most obviously, but not exclusively, if they you know,

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Speaker 3: increase their own living standards, that would also be very

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Speaker 3: helpful increasing consumption and investment where appropriate. But if that's

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Speaker 3: not going to happen, or you've not skeptical, if you're

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Speaker 3: not sure it's going to happen, then it's okay. Well

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Speaker 3: you can really try to force them to try to

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Speaker 3: figure it out, or you say, okay, we're just going

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Speaker 3: to take advantage of ourselves and you know, a relatively

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Speaker 3: you know, constructive positive some way.

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Speaker 2: So there was a great interview this week. Trump said

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Speaker 2: it down with our colleagues over at Bloomberg Business Week

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Speaker 2: and talked to a bunch of things. And I know,

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Speaker 2: I mean, this is sort of obvious. He loves President McKinley.

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Speaker 2: He called him the tariff King. McKinley made this country rich.

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Speaker 2: Can you give like the thirty second sixty second summary

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Speaker 2: of McKinley's trade policy and what would it mean in

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Speaker 2: practice or what would the impacts be if we brought

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Speaker 2: out the McKinley playbook today.

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Speaker 3: Oh man, well, you know what happens to be the case.

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Speaker 3: I just actually finished reading a book, a history of

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Speaker 3: the Gilded Age, and ended with the election of McKinley.

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Speaker 3: So of course I didn't like get the McKinley. I

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Speaker 3: will say the big increase in tariffs preceded McKinley, and

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Speaker 3: that was it was I we're going embarrass myself, And

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Speaker 3: they preceded McKinley. And in fact, there was an election

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Speaker 3: before where the Democrat won. I guess the Garfield was

435
00:19:46,600 --> 00:19:49,520
Speaker 3: against the tariffs, but they didn't and managed to repeal them.

436
00:19:49,560 --> 00:19:51,479
Speaker 3: So you had a big increase that was you know

437
00:19:51,520 --> 00:19:55,280
Speaker 3: from I'm going to but your memory. Yeah. The point

438
00:19:55,320 --> 00:19:57,479
Speaker 3: is the tariffs had been raised in the eighteen eighties,

439
00:19:58,560 --> 00:20:01,400
Speaker 3: very early, very early to in state high The thing

440
00:20:01,400 --> 00:20:04,040
Speaker 3: that arguably was really helpful for McKinley specifically, is you

441
00:20:04,119 --> 00:20:07,280
Speaker 3: had big discoveries of gold reserves in the late eighteen

442
00:20:07,359 --> 00:20:10,439
Speaker 3: nineties and exploitation of those reserves, and that east global

443
00:20:10,440 --> 00:20:13,040
Speaker 3: monetary conditions after a long period in which gold supplies

444
00:20:13,040 --> 00:20:17,040
Speaker 3: were dwindling relative to you know, financial needs, and so

445
00:20:17,320 --> 00:20:20,480
Speaker 3: that probably more than anything else, was significant. That wasn't

446
00:20:20,480 --> 00:20:22,560
Speaker 3: obviously helpful just for the United States's helpful for everyone.

447
00:20:22,840 --> 00:20:25,240
Speaker 3: And so if I were to sort of pinpoint something specifically,

448
00:20:25,400 --> 00:20:27,240
Speaker 3: that would be, you know, if you have a big

449
00:20:27,280 --> 00:20:29,240
Speaker 3: campaign about the golds. I mean that's partly also why

450
00:20:29,440 --> 00:20:31,080
Speaker 3: you know, like the Brian campaign kind of fizzled. It

451
00:20:31,080 --> 00:20:32,879
Speaker 3: was like, okay, well you're talking about how gold is

452
00:20:32,920 --> 00:20:35,920
Speaker 3: so restrictive right at the time when gold supply is

453
00:20:35,960 --> 00:20:38,560
Speaker 3: going up, like nobody's carrious, huh. And so that I

454
00:20:38,560 --> 00:20:41,439
Speaker 3: think was definitely a helpful tale end for McKinley. More

455
00:20:41,480 --> 00:20:44,120
Speaker 3: broadly for the US. I mean, it really goes back

456
00:20:44,119 --> 00:20:47,399
Speaker 3: to the Napoleonic Wars, you know, a long time earlier,

457
00:20:47,400 --> 00:20:49,720
Speaker 3: where the US has just cut off, you know, against

458
00:20:49,720 --> 00:20:52,159
Speaker 3: its will, from trade with Europeans. You know, that was

459
00:20:52,200 --> 00:20:54,159
Speaker 3: a very extreme trade baron that forced the development of

460
00:20:54,160 --> 00:20:57,120
Speaker 3: an indigenous industry. And then ever since then you had,

461
00:20:57,440 --> 00:20:59,960
Speaker 3: obviously with some fluctuations over time, but support for very

462
00:21:00,200 --> 00:21:03,199
Speaker 3: kinds of protective tariffs that lasted basically until the end

463
00:21:03,240 --> 00:21:05,359
Speaker 3: of World War Two, with fluctuations up and down.

464
00:21:06,119 --> 00:21:09,119
Speaker 2: Well, well, what happened we regardless of what happened with McKinley,

465
00:21:09,200 --> 00:21:12,679
Speaker 2: we know Trump likes tariffs. He imposed tariffs on China.

466
00:21:13,160 --> 00:21:16,560
Speaker 2: Biden has continued and increased tariffs, and we also have

467
00:21:16,640 --> 00:21:18,679
Speaker 2: like tariffs on other countries too. I think there's some

468
00:21:18,720 --> 00:21:21,040
Speaker 2: European tariffs. But let's say we had like a much

469
00:21:21,080 --> 00:21:24,399
Speaker 2: more regressive terriff Regham. What happens if we try to

470
00:21:24,440 --> 00:21:26,920
Speaker 2: implement some of these policies that you hear people dream about.

471
00:21:26,920 --> 00:21:29,240
Speaker 2: It's like, oh, we don't even need an income tax anymore.

472
00:21:29,280 --> 00:21:31,439
Speaker 2: We could just do it all with tariffs. Like what

473
00:21:31,560 --> 00:21:35,399
Speaker 2: happens if we get like true hardcore tariffs around the world? Like,

474
00:21:35,400 --> 00:21:36,679
Speaker 2: how does that play outenview?

475
00:21:37,040 --> 00:21:39,360
Speaker 3: So arithmetically, I don't think it's possible to place income tax.

476
00:21:39,440 --> 00:21:41,200
Speaker 3: I'll go with tariffs. And I mean, just it's sort

477
00:21:41,200 --> 00:21:43,800
Speaker 3: of rough ballpark here. Imports are something like ten percent

478
00:21:43,840 --> 00:21:48,600
Speaker 3: of GDP. So even if you I mean the amount

479
00:21:48,600 --> 00:21:51,159
Speaker 3: you'd have to tax those imports to the offset the

480
00:21:51,280 --> 00:21:53,760
Speaker 3: income tax revenue, which is, you know, about ten percent

481
00:21:53,800 --> 00:21:56,560
Speaker 3: GDP and it's pretty high. So that's and that assumes,

482
00:21:56,600 --> 00:21:58,359
Speaker 3: of course that we would you know, import the amount

483
00:21:58,359 --> 00:22:01,160
Speaker 3: of stuff. So I just got all that. In general,

484
00:22:01,280 --> 00:22:03,439
Speaker 3: what you would expect to happen is that if you

485
00:22:03,480 --> 00:22:06,480
Speaker 3: put tariffs on things, then it means that because the

486
00:22:06,520 --> 00:22:09,080
Speaker 3: price is more expensive to import it from abroad, that

487
00:22:09,119 --> 00:22:12,080
Speaker 3: you encourage production of that thing in the United States.

488
00:22:12,080 --> 00:22:13,720
Speaker 3: And if you do it for everything, then it's moved

489
00:22:13,720 --> 00:22:15,520
Speaker 3: a lot of stuff. Now what that does with the

490
00:22:15,560 --> 00:22:19,400
Speaker 3: trade balance is ambiguous, because presumably that creates an incentive

491
00:22:19,400 --> 00:22:22,640
Speaker 3: because the US is a large domestic market to invest

492
00:22:22,680 --> 00:22:24,640
Speaker 3: in the United States to be able to produce those things.

493
00:22:24,680 --> 00:22:26,959
Speaker 3: Oh yeah, and maybe you say that's the gold policy,

494
00:22:27,040 --> 00:22:28,680
Speaker 3: But that doesn't necessarily mean it's going to have impact

495
00:22:28,720 --> 00:22:30,239
Speaker 3: on the trade balance because you still to import all

496
00:22:30,240 --> 00:22:32,560
Speaker 3: the stuff to invest I mean not importing everything, right,

497
00:22:32,600 --> 00:22:34,400
Speaker 3: but there's going to be a degree you know, you're

498
00:22:34,400 --> 00:22:38,160
Speaker 3: building up your capacity unless you're squeezing consumption some other way, right,

499
00:22:38,200 --> 00:22:40,440
Speaker 3: Like something has to give. And so that's why I mean,

500
00:22:40,560 --> 00:22:42,600
Speaker 3: usually what ends up happening is the textbook thing is

501
00:22:42,600 --> 00:22:45,600
Speaker 3: that your currency will appreciate if you put on tariffs.

502
00:22:45,840 --> 00:22:47,439
Speaker 3: That's how it's sort of supposed to work. I mean,

503
00:22:47,440 --> 00:22:48,960
Speaker 3: maybe it doesn't always do that, but by the way,

504
00:22:48,960 --> 00:22:51,760
Speaker 3: that's why the textbook answer is that tariffs hurt your exporters.

505
00:22:52,040 --> 00:22:55,840
Speaker 3: It's not because that like retaliation although that is certainly

506
00:22:55,840 --> 00:22:58,520
Speaker 3: a factor. It's because the currency effect means that your

507
00:22:58,520 --> 00:23:00,919
Speaker 3: imports are the same and then your export. That's the

508
00:23:01,240 --> 00:23:02,880
Speaker 3: sort of traditional argument. Now you can argue that there's

509
00:23:02,880 --> 00:23:04,439
Speaker 3: specific cases where that might not be the case. It

510
00:23:04,440 --> 00:23:06,560
Speaker 3: pritpends on whether it's revenue usual. Right, if you have

511
00:23:06,560 --> 00:23:10,320
Speaker 3: a ten percent tariff on all imports and you don't

512
00:23:10,480 --> 00:23:12,800
Speaker 3: offset that with some tax cut or spending increase elsewhere,

513
00:23:12,800 --> 00:23:15,080
Speaker 3: which is not what anyone suggesting, but leg just hypothetically,

514
00:23:15,400 --> 00:23:17,920
Speaker 3: that's something like a fiscal tightening of around one percent

515
00:23:17,960 --> 00:23:22,200
Speaker 3: of GDP And obviously and that skewed towards in many

516
00:23:22,240 --> 00:23:25,359
Speaker 3: ways consumer goods. So like that might reduce the trade

517
00:23:25,520 --> 00:23:28,639
Speaker 3: deficit insofar as it reduces income and spending power. But

518
00:23:28,640 --> 00:23:31,160
Speaker 3: that's not something that makes you, I mean, that's not say,

519
00:23:31,200 --> 00:23:32,640
Speaker 3: a good thing, right, So it's a form, it's it's

520
00:23:32,640 --> 00:23:34,400
Speaker 3: like a weird way of doing, like a sales tax

521
00:23:34,480 --> 00:23:37,199
Speaker 3: or something in that kind of scenario. The other broader

522
00:23:37,240 --> 00:23:40,840
Speaker 3: picture is if you are focused on shifting the composition

523
00:23:40,880 --> 00:23:44,199
Speaker 3: of economic activity, which is what you're essentially trying to

524
00:23:44,240 --> 00:23:47,320
Speaker 3: do with a sort of universal tariff, you're saying, you know,

525
00:23:47,359 --> 00:23:49,359
Speaker 3: we actually do want to make more T shirts in

526
00:23:49,400 --> 00:23:53,119
Speaker 3: the United States versus import them. And assuming you're already

527
00:23:53,119 --> 00:23:54,720
Speaker 3: and this is a big assumption, but assuming you're already

528
00:23:54,720 --> 00:23:57,399
Speaker 3: at sort of full capacity in terms of your labor

529
00:23:57,440 --> 00:24:00,000
Speaker 3: and material and capital resources that are available in your country,

530
00:24:00,280 --> 00:24:01,800
Speaker 3: then that means that people are going to be doing

531
00:24:01,920 --> 00:24:04,120
Speaker 3: there's gonna be some shift for people doing stop doing

532
00:24:04,160 --> 00:24:06,719
Speaker 3: things they were doing that presumably now people think are

533
00:24:06,760 --> 00:24:08,960
Speaker 3: valuable to switch to doing other things that we need

534
00:24:09,280 --> 00:24:11,320
Speaker 3: that we you know, because we're you know, we're cut

535
00:24:11,359 --> 00:24:13,080
Speaker 3: off now ten percent tariff probably not gonna do that.

536
00:24:13,119 --> 00:24:14,639
Speaker 3: So it's like small percent terms sort of like one

537
00:24:14,680 --> 00:24:16,760
Speaker 3: hundred percent tariff or whatever like that. There's a point

538
00:24:16,800 --> 00:24:18,119
Speaker 3: at which that would happen if we just sort of

539
00:24:18,280 --> 00:24:20,960
Speaker 3: stretch out, you know, and think about what this means

540
00:24:20,960 --> 00:24:23,399
Speaker 3: in theory. And that's the argument for a while, you know,

541
00:24:23,400 --> 00:24:25,560
Speaker 3: it makes people worse off, and why it impoverishes you

542
00:24:25,600 --> 00:24:28,080
Speaker 3: over time because the thinking being like if you used

543
00:24:28,119 --> 00:24:32,000
Speaker 3: to be going from making some valuable software healthcare thing

544
00:24:32,000 --> 00:24:35,280
Speaker 3: and now you're doing you know, T shirt assembly or something, right,

545
00:24:35,240 --> 00:24:37,120
Speaker 3: I mean, this is like you're going to be poor

546
00:24:37,160 --> 00:24:38,879
Speaker 3: as a society, and so do you want to do that,

547
00:24:38,880 --> 00:24:41,680
Speaker 3: and like the argument normally is no. Now that's different

548
00:24:41,680 --> 00:24:44,359
Speaker 3: from talking now the teriffs that we actually have right now.

549
00:24:44,560 --> 00:24:46,480
Speaker 3: You know that both that Trump did and that Biden

550
00:24:46,560 --> 00:24:49,040
Speaker 3: have done are much more targeted on specific countries and industries.

551
00:24:49,080 --> 00:24:50,760
Speaker 3: So it's not really equivalent to that. And you can

552
00:24:50,840 --> 00:24:53,680
Speaker 3: argue that's for national security reasons as much as anything else,

553
00:24:53,680 --> 00:24:55,840
Speaker 3: and so that's like more complex. But I mean we're

554
00:24:55,880 --> 00:24:58,400
Speaker 3: talking about it's like what the conception of broad based

555
00:24:58,400 --> 00:24:59,719
Speaker 3: tariffs like that I think is the way to think

556
00:24:59,760 --> 00:25:00,000
Speaker 3: about it.

557
00:25:00,800 --> 00:25:03,720
Speaker 1: Since we're talking books, and since I asked earlier if

558
00:25:03,720 --> 00:25:06,200
Speaker 1: you thought jd Vance had read Trade Wars or Class Wars?

559
00:25:06,200 --> 00:25:07,479
Speaker 1: Have you read Hillbilly Elogy?

560
00:25:08,240 --> 00:25:08,560
Speaker 3: I'm not.

561
00:25:08,960 --> 00:25:12,000
Speaker 1: Oh, I read it, that's Matt. I thought you would

562
00:25:12,040 --> 00:25:14,359
Speaker 1: have read it. I mean it has that whole lot

563
00:25:14,400 --> 00:25:17,080
Speaker 1: of like hallowing out of the Ross Belt kind of theme.

564
00:25:17,320 --> 00:25:20,000
Speaker 3: Supposedly, No, I know it does. I don't know. This

565
00:25:20,160 --> 00:25:21,840
Speaker 3: is you know, shameful on my part, But I only

566
00:25:21,880 --> 00:25:23,520
Speaker 3: have so much Henry books. I like reading, you know,

567
00:25:23,760 --> 00:25:26,960
Speaker 3: history books more than anything else. So I'm not I'm

568
00:25:26,960 --> 00:25:28,760
Speaker 3: not read it. You know I've read articles about.

569
00:25:28,520 --> 00:25:30,720
Speaker 1: It, haven't we all?

570
00:25:30,920 --> 00:25:38,600
Speaker 2: Yes, lots more is produced by Carmen Rodriguez and dash

571
00:25:38,640 --> 00:25:41,320
Speaker 2: Ol Bennett, with help from Moses Onam and Kill Brooks.

572
00:25:41,720 --> 00:25:44,879
Speaker 1: Our sound engineer is Blake Maples. Sage Bauman is the

573
00:25:44,920 --> 00:25:46,440
Speaker 1: head of Bloomberg Podcasts.

574
00:25:46,760 --> 00:25:50,119
Speaker 2: Please rate, review, and subscribe to Odd, Lots and Lots

575
00:25:50,119 --> 00:25:53,040
Speaker 2: More on your favorite podcast platforms.

576
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Speaker 1: And remember that Bloomberg subscribers can listen to all our

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578
00:25:59,680 --> 00:26:02,800
Speaker 1: the listen. Thank