Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Did you watch jd Vance's with the r n C.
Speaker 1: I saw some clips. Did you watch the whole thing?
Speaker 3: No?
Speaker 2: No, but I saw some. I saw some clips as well.
Speaker 1: Do you think he has read Trade Wars or Class warst.
Speaker 2: As far as you know, has jd Vance read the
Speaker 2: book you co authored with Michael Pettis.
Speaker 3: As far as I know, definitely, people on his staff have,
Speaker 3: and I would not be surprised if he has himself.
Speaker 2: Oh there you go. I did a deadlift one.
Speaker 1: Jim uh barges.
Speaker 2: This isn't after school Special, except.
Speaker 1: I've decided I'm going to base my entire personality going
Speaker 1: forward on campaigning for a strategic pork reserve in the US.
Speaker 2: Where's the best with imposta?
Speaker 1: These are the important question? Is that robots taking over
Speaker 1: the world?
Speaker 3: No.
Speaker 2: I think that like in a couple of years, the
Speaker 2: AI will do a really good job of making the
Speaker 2: Odd Lots podcast and people today, I don't really need
Speaker 2: to listen to Joe and Tracy anymore.
Speaker 3: We do have.
Speaker 1: The perfect You're listening to Lots more where we catch
Speaker 1: up with friends about what's going on right now.
Speaker 2: Because even when the odd lots is over. There's always
Speaker 2: lots more.
Speaker 1: And we really do have the perfect guest.
Speaker 2: We're here with our friend multi time guest Matt Klein.
Speaker 2: Everyone is reading from your hymnal must be pretty well also, listeners.
Speaker 2: In addition to reading the book, go check out his
Speaker 2: uh newsletter, the Overshoot, which is, you know, it's sort
Speaker 2: of like, you know how people used to subscribe to
Speaker 2: the Economist but then never read them in their famously
Speaker 2: piled up That's how I am with substacks, except Matt's
Speaker 2: is one of the ones that I regularly open.
Speaker 1: So you're going to say, like, Matt's is one of
Speaker 1: those newsletters though I don't read just like the economists. No,
Speaker 1: it's really good.
Speaker 3: Hey, something to subscribe. No, I appreciate that. That's that's
Speaker 3: very kind of so. Yeah.
Speaker 2: One of the things that is extremely trade wars are
Speaker 2: class wars coded, so to speak. And this is one
Speaker 2: of these ideas you don't here discuss popularly, particularly among
Speaker 2: politicians or really anyone. But it's like, oh, you're really
Speaker 2: in the know if you make this point. Is this
Speaker 2: notion that maybe the central role of the US dollar
Speaker 2: the reserve currency status is not so great for the US,
Speaker 2: and he has made that point in interviews and I
Speaker 2: think even in some testimonies that like he's not crazy
Speaker 2: about the dominance of the US dollar.
Speaker 3: Yeah, that's right. I mean I think he asked benchairman
Speaker 3: Jerome Powell up this a year ago. So yes, that's
Speaker 3: that's right.
Speaker 1: Wait, are you surprised at all that the dollars reserve
Speaker 1: currency status has been picked up as like a populist
Speaker 1: talking point? I mean seriously, I mean I'm.
Speaker 3: Going to say no, because he's not the first one. Right,
Speaker 3: So Josh Holly is also was you know, Pettes pilled
Speaker 3: as it were, And I remember when the book came out,
Speaker 3: like conversations with people on his staff, I didn't even think.
Speaker 3: I think before the book was efficiently released, I mean
Speaker 3: they somehow got some you know, early preprint or something.
Speaker 3: So it's definitely percolating the ideas and that segment of
Speaker 3: the Republican right. It's obviously also, I mean you probably
Speaker 3: saw the article that Robinson Mayer wrote, and he did.
Speaker 3: There's a lot of people in the Biden administration whove
Speaker 3: also read the book and I think gotten some good
Speaker 3: takeaways from it. So this is you know, it's interesting
Speaker 3: to see that having a really cross part is an
Speaker 3: appeal even if the types of people who liked him
Speaker 3: been very different from each other are very different and
Speaker 3: their priorities for other things, but they seem to appreciate
Speaker 3: the analysis we put together.
Speaker 1: I mean, one thing that is true is it seems
Speaker 1: like there's been a slight evolution or at least a
Speaker 1: clarification in Trump's approach to the dollars. So do you remember,
Speaker 1: like in the early days of his administration or when
Speaker 1: he was running, he used to talk about, like a
Speaker 1: lower dollar would be better for US trade, But then
Speaker 1: he would also talk about how, you know, how great
Speaker 1: the dollar was in the sense of its position in
Speaker 1: the international financial system, and so it always we like
Speaker 1: there was a little bit of tension there. But I
Speaker 1: guess as time has gone on, he's sort of migrated
Speaker 1: towards clearly like this idea that actually the preserve currency
Speaker 1: status isn't that great for the American economy.
Speaker 3: Yeah, I don't know if I can. I don't feel
Speaker 3: comfortable saying what Trump's actual views are on this, because
Speaker 3: it is some point the words. But yeah, I mean,
Speaker 3: I think at least it would be more coherent to
Speaker 3: say say it the way it sort of the advances
Speaker 3: laid out that the use of the dollar outside the
Speaker 3: United States and its popularity as a place for foreigners
Speaker 3: to save money in dollars, that that has harmful effects
Speaker 3: the United States because it makes a dollar relatively more
Speaker 3: expensive than otherwise would be that at least is a
Speaker 3: coherent point if you can disagree with it, but it's
Speaker 3: coherent as opposed to saying we want the dollar to
Speaker 3: be cheaper and it's great that the dollars reserve currency.
Speaker 2: Wait, so, full disclosure, I have probably in my life
Speaker 2: in conversation, said something like, well, did you know that
Speaker 2: the dollar reserve currency status is not a privilege or
Speaker 2: a burden? But the only reason I said that is
Speaker 2: probably because I read it in your book or saw
Speaker 2: it in one of your tweets, And I actually don't
Speaker 2: even really remember the argument. I was just trying to
Speaker 2: sound intelligent and heterodoxy full disclosure. You're a smart guy,
Speaker 2: So if you believe something, I'll just probably accept it
Speaker 2: on faith. But what do you remind us? What is
Speaker 2: the gist here of why maybe it's not so good?
Speaker 3: Sure? So, basically, I mean, first of all, you know,
Speaker 3: people talk about their reserve currency, and that's a little
Speaker 3: bit of a misnomer, like the reason, yeah, people reserve dollars, right,
Speaker 3: I mean the dollar is significant just because the United
Speaker 3: States is really big, Right. There are other countries where
Speaker 3: their currencies are outside, like the UK is a really
Speaker 3: good example, Switzerland is a good example, France in some ways.
Speaker 3: But in general, what it means is that your financial system,
Speaker 3: your domestic financial system, has evolved and adapted to meet
Speaker 3: the needs of foreign savers and borrowers at least as
Speaker 3: much as people in your own country. And that means
Speaker 3: that what people outside your country want to do can
Speaker 3: potentially have big impacts on your domestic economy because that's
Speaker 3: where the adjustment ends up happening. And that can be
Speaker 3: good or it can be bad, depending upon or at
Speaker 3: least it needs it should be managed. Yeah, if it's
Speaker 3: not man some way, can lead a lot of real problems.
Speaker 3: So in the case of the United States, what this
Speaker 3: is meant is that over the past forty plus years
Speaker 3: or so, the overall preference of foreigners has been they
Speaker 3: want to spend less than they earn and save the
Speaker 3: difference by buying financial assets. And what that is meant
Speaker 3: is that Americans have to be on their side of
Speaker 3: this and borrow more selling financial assets to them in exchange.
Speaker 3: That's what has happened to have been the case for
Speaker 3: the past forty plus years. And what that's meant is
Speaker 3: that Americans have been borrowing more than otherwise they would.
Speaker 3: That means more debt, and it also means some combination
Speaker 3: of either incomes being lower than the otherwise would be
Speaker 3: or spending being higher. Now, whether this is good or bad,
Speaker 3: or how it translates into what the American living standards
Speaker 3: and living stands in the rest of the world, that
Speaker 3: depends a lot of specifics, and that's where it's important
Speaker 3: to get into kind of the nitty gritty and say, well,
Speaker 3: we don't necessarily want to just you know, close the
Speaker 3: trade deaf sip by any means necessary. One way to
Speaker 3: do that, of course, is you just impoverish Americans so
Speaker 3: they spend less. That's not good, right, which, by the way,
Speaker 3: it used to be sort of the orthodox view of people, all, well,
Speaker 3: if you don't like the current account deficit, it's because
Speaker 3: the budget, the federal budget debtsit stubis we need to
Speaker 3: raise taxes and cut spending. Which is essentially saying that
Speaker 3: because other people in the rest of the world for
Speaker 3: whatever reason, are choosing to live below their means, in
Speaker 3: other words, spending less and consuming less than they're producing,
Speaker 3: that therefore Americans have to live worse off. And that
Speaker 3: doesn't make sense. Obviously, it'd be better if people in
Speaker 3: the rest of the world live better, and that would
Speaker 3: encourage a healthy rebalancey in the US where we were
Speaker 3: genering more income selling the foreigners. But that's you know,
Speaker 3: if that's not going to happen, then the question is
Speaker 3: what do you do about it? And you know, we
Speaker 3: wrote in the book most of the book is just
Speaker 3: sort of explaining all this in more detail, providing some
Speaker 3: historical context, showing it across different countries and time periods.
Speaker 3: But you know, the conclusion we did say, okay, well
Speaker 3: you've read all this, hopefully you understood it and taking
Speaker 3: it in like what is that? What are the implications
Speaker 3: for a country like the United States. And you know,
Speaker 3: Michael and I had a bit of a you know,
Speaker 3: discussion about how to put that writing. The coclusion was
Speaker 3: very hard to sort of synthesize different points of view,
Speaker 3: and I think we came to a good sort of
Speaker 3: constructive synthesis here and basically saying, if you think that
Speaker 3: foreigners and can change their behavior and they're just going
Speaker 3: to continually be this net inflow of finance in the
Speaker 3: United States, and you know, the corollary being that people
Speaker 3: in the rest of the world are going to be
Speaker 3: producing a bunch of things are not using for themselves
Speaker 3: and selling it to Americans, then there are things that
Speaker 3: the US can do to make that as beneficial for
Speaker 3: Americans as possible. The first thing is if someone is
Speaker 3: going to be borrowing, because someone in the US is
Speaker 3: gonna be borrowing to offset this, it should be the
Speaker 3: federal government because you know their ability to service the
Speaker 3: debt and not face runs. And so if it's going
Speaker 3: to be much better than a private sector, the private
Speaker 3: sector borrows even if people still want to buy dollar
Speaker 3: assets and not always going to want to buy those
Speaker 3: private assets, and that great real problems. That's what happened
Speaker 3: in the two thousands, right there was there was never
Speaker 3: a situation where foreigners stopped wanting to hold dollars. They
Speaker 3: just wanted to stop holding particular types of dollars, and
Speaker 3: that created all sorts of runs. If it's the federal
Speaker 3: government's less likely to be an issued. Okay, so that's
Speaker 3: that's one thing that's like step one. Then step two
Speaker 3: is because you want to make sure your private sector
Speaker 3: is not being reasonably you know, burdened by this, and
Speaker 3: then you say, okay, well we should figure out useful
Speaker 3: things we can do with the money, right, I mean,
Speaker 3: if the government has been borrowing a lot more than otherwise,
Speaker 3: would be as well find things that are constructive. So
Speaker 3: one thing you could do, which I think would make
Speaker 3: sense to say, okay, well, obviously, you know, you have
Speaker 3: a society with some people are poorer than others, some
Speaker 3: people are more financially constrained than others, some people are
Speaker 3: more indebted in than others. If we can, you know,
Speaker 3: to a certain extent, increase overall incomes and living standards
Speaker 3: for people, that would be constructive. Right. People would have
Speaker 3: more money, they'd be more financially secure, less curious, they
Speaker 3: could buy more things that would be good for jobs
Speaker 3: and incomes and well being and social being and so forth.
Speaker 3: That's one thing you could do, pretty straightforwardly. Another thing
Speaker 3: you could do is you could say, we have a
Speaker 3: lot of unmet investment needs. We know what they are
Speaker 3: just because the various reasons you know, where there have
Speaker 3: been backlogs and even done them, or the things we
Speaker 3: think we're going to need in the future, and you
Speaker 3: can say we can borrow, have the treasury borrow at
Speaker 3: you know, relatively lower rates than otherwise would be the case,
Speaker 3: and support the financing of these investments that would be
Speaker 3: productive and hopefully again make people's living standards higher in
Speaker 3: the future. And then the last thing that I think
Speaker 3: would make sense in this context is to the extent
Speaker 3: that foreigners are consuming less than you'd otherwise expect based
Speaker 3: on what they're producing, and they're creating relatives to that
Speaker 3: and excess of production and selling it. You just want
Speaker 3: to make sure that America's ability to produce things, or
Speaker 3: whatever country we're talking about here doesn't have to be
Speaker 3: the US could be like the UK isn't unreasonably displaced.
Speaker 3: There are reasons why it's good to have a sufficiently large,
Speaker 3: diversified complex manufacturing sector in your country, for productivity reasons,
Speaker 3: for national security reasons, and you want to be able
Speaker 3: to preserve that and not have it unreasonably Obviously they're
Speaker 3: technological changes or whatever things like that happens, you know,
Speaker 3: it doesn't necessarily make sense for the US to have
Speaker 3: a huge T shirt manufacturing industry, but you don't want
Speaker 3: to have a situation where, because of people's saving preferences
Speaker 3: which are totally unrelated, that like the US manufacturing sector
Speaker 3: or for other countries that supplies is not unreasonably demolished,
Speaker 3: and so some it makes sense in that case that
Speaker 3: have some government spending set aside to make sure there
Speaker 3: is always demand for American manufacturing. And if you have
Speaker 3: this perspective, which is what we laid out in the book,
Speaker 3: you can, I think reasonably say that in many ways,
Speaker 3: a lot of we've seen in the past three years
Speaker 3: has really been you know, consistent with that that kind
Speaker 3: of policy making. I think that's constructive.
Speaker 1: The one thing, well, there are a lot of things
Speaker 1: that I don't get nowadays, but one thing that I
Speaker 1: really don't get is like Trump, the Trump administration, Like,
Speaker 1: insofar as they've laid it out so far, they seem
Speaker 1: to want like disparate and conflicting things. So, you know,
Speaker 1: a weaker dollar, a change in the dollars reserve status,
Speaker 1: maybe a reduction in the trade deficit, lower interest rates
Speaker 1: of inflation, and lower inflation Yeah, lower inflation seems to
Speaker 1: be like the big contradiction here. And I also feel
Speaker 1: like you could make a very strong argument that if
Speaker 1: we've learned anything from the past few years in terms
Speaker 1: of Americans economic preferences, it's that Americans hate inflation a
Speaker 1: lot more than they seem to like full employment. Right, So, like,
Speaker 1: how does all this come together and actually impact prices?
Speaker 3: Sure? Well, so these are all great questions. First of all,
Speaker 3: as we wrote the book before it became apparent that
Speaker 3: people hated inflation more than they hated full employment unemployment,
Speaker 3: so that you know, that's our fault. I guess I
Speaker 3: still think it's better to have a full employment and
Speaker 3: a little more inflation than the other way around. But
Speaker 3: you know, my linch may faery, But yeah, I agree
Speaker 3: that it is contradictory. I mean, I think you could
Speaker 3: plausibly put together a sort of a reflationist agenda, the
Speaker 3: kind of thing that would have made a lot of
Speaker 3: sense and say two thousand nine twenty ten. You know,
Speaker 3: but does that fully make sense now? Or if it
Speaker 3: does make sense now, like, are people prepared to accept
Speaker 3: the full consequences of that? And I think the answer
Speaker 3: is probably no, Right, I mean, first of all, compressing
Speaker 3: the trade deficit for two sides. Then right, you can
Speaker 3: lower imports, so you can raise exports. If you do
Speaker 3: it by lowering imports, then again, I mean one way
Speaker 3: of doing that is you somehow manage to make more
Speaker 3: things domestically and so you have less need imports stuff. Okay, fine,
Speaker 3: Or you do it by just buying less stuff domestically
Speaker 3: because you're poor, or you're just buying less stuff. So
Speaker 3: again there's like all these different layers of how this
Speaker 3: plays out. Also for exports. By the way, you can
Speaker 3: increase exports because you're selling less stuff in your home
Speaker 3: market but you're able to sell it somewhere else, or
Speaker 3: because you're just producing more and as a consequence, you know,
Speaker 3: whatever share as export goes up. So there's four different
Speaker 3: possibilities there. You can have different combinations. They all have
Speaker 3: different implications for living standards, for potential interactions with how
Speaker 3: much spare resources are available and what that might mean
Speaker 3: for inflation. And so you know, it's dangerous to oversimplify
Speaker 3: these things and just say like, oh, we want to
Speaker 3: have a narrow or trade depths. I mean, what you
Speaker 3: should care about is things like financial stability, things like
Speaker 3: full employment, things like making sure that you know you're
Speaker 3: having a diversified, you know, sophisticated domestic production base. That's tricky,
Speaker 3: but I mean that's kind of I think how it
Speaker 3: would makes sense to prioritize things, right.
Speaker 2: A lot of this is about are you addressing the
Speaker 2: symptom or the underlying issue.
Speaker 1: Well, if the dollar.
Speaker 2: We're less central in the global economy, would the constrain
Speaker 2: foreign policy insofar as sometimes we seize the dollar assets
Speaker 2: of other countries, or we cut off individuals, companies, and
Speaker 2: countries from banks to have access to the dollar system.
Speaker 2: Does that have a constraining a security effect?
Speaker 3: Potentially if you look back historically that some of the
Speaker 3: people who were most in favor of maintaining the status
Speaker 3: call have been people in the national security establishment who
Speaker 3: look at from that perspective. So that's a potential issue.
Speaker 3: The flip side, though, is like, what what are the
Speaker 3: other currencies that lay a larger role potentially? I mean
Speaker 3: one I think obvious one which nobody talked about anymore
Speaker 3: for reasons they don't understand, but would be the Euro. Right, Like,
Speaker 3: the European economy in the aggregate is very large. It
Speaker 3: is sophisticated, has got a lot of stuff that The
Speaker 3: European financial market in the aggregate is again large, it
Speaker 3: is open, but there's a lot of issues they have
Speaker 3: in terms of fragmentation, in terms of legal regime, in
Speaker 3: terms of just weird ideological biases against you know, government
Speaker 3: borrowing particularly you know, again encourage the fragmentation, and so
Speaker 3: that basically they're really punching below their weight. I mean,
Speaker 3: that's sort of the most obvious one. You can also
Speaker 3: talk about Yuan, which is a different story, but like
Speaker 3: Europe's so obvious one. And so from foreign policy, like
Speaker 3: there are situations where sometimes you have disagreements in the
Speaker 3: US and Europeans about foreign policy. But the really big
Speaker 3: stuff that's happened recently there's been locks up, and same
Speaker 3: thing with Japan and Switzerland, and so you could have
Speaker 3: a more diverse, pluralistic regime of financial systems. And nevertheless,
Speaker 3: you know, for when things matter, I mean, you talk
Speaker 3: about sanctions and banks, like there's an element where cutting
Speaker 3: off banks is important, but also what it is is
Speaker 3: like you are being cut off from our real economy
Speaker 3: as well, and to the extent that the real economy
Speaker 3: of the US and allies writ large is still very
Speaker 3: large relative to the global total, and very very large
Speaker 3: when it comes to you know, certain sort of essential
Speaker 3: high tech components. You'd be able to swing a big
Speaker 3: stick if you want to. Even if that were not
Speaker 3: the case, I think that people shouldn't They should not
Speaker 3: be so afraid of that outcome that they you know,
Speaker 3: ignore what's gooding and policy. And by the way, I
Speaker 3: should also add that sometimes you hear people make an
Speaker 3: argument that sanctions are bad because it undermines the reserve status,
Speaker 3: which I mean, that's just circular, right, Like the whole
Speaker 3: value of reserve status are being popular is that you
Speaker 3: can do sanctions, then you can't do something like I mean,
Speaker 3: that doesn't make sense.
Speaker 1: Again, you have the threat of sanctions, is there. This
Speaker 1: might be a kind of weird question, but you know,
Speaker 1: you talked about the conclusions in your book and the
Speaker 1: idea of Okay, well, we can't really force foreign countries
Speaker 1: to necessarily change their behavior, and so if the US
Speaker 1: really wants to reduce the dollar's role as a reserve currency,
Speaker 1: then like, here are some things that the US could do.
Speaker 1: I guess my question is like, is there anything more
Speaker 1: like aggressive that Yeah?
Speaker 3: Yeah, absolutely right, and so actually you're absolutely right. So
Speaker 3: what I laid out to you was, if we assume
Speaker 3: that nothing's going to change on the outside world, here's
Speaker 3: how we can adapt US policy to be as beneficial
Speaker 3: as possible. The alternative, which we also discussed in conclusion,
Speaker 3: this is where again Michael and I were kind of
Speaker 3: trying to figure out how to put all this together
Speaker 3: in a way that was coherent. Is you say, you know,
Speaker 3: screw that, we're just gonna We're just gonna both you know,
Speaker 3: it's their problem, right, And basically what you would do
Speaker 3: is you have some kind of you know, capital controls
Speaker 3: or what the IMF now calls capital flow management measures
Speaker 3: I think is the term they came up with like
Speaker 3: ten years ago to But you know, if it's literally
Speaker 3: the case that foreigners cannot buy us financial assets or
Speaker 3: you make it prohatively expensive for them to do that,
Speaker 3: that would have all sorts of other effects. And basically
Speaker 3: what that would be very chaotic, or could be very kotic,
Speaker 3: could be very you know, a narcic could end up
Speaker 3: leading to an overall poor world. Certainly, I think then
Speaker 3: the one where we have a kind of constructive approach.
Speaker 3: But if your view is foreigners are never going to change,
Speaker 3: and you don't want to do the things we laid out.
Speaker 3: Because to be clear, the alternative path that I mentioned earlier,
Speaker 3: it does come I think it's overall beneficial, but it
Speaker 3: does come with one specific cost. What is that federal
Speaker 3: debt would probably rise to GDP. I think overall that's
Speaker 3: not a problem, but that is like one specific thing
Speaker 3: you could point to, and if you for some reason
Speaker 3: really don't want that, then the alternative is you say, look,
Speaker 3: you have these, you know you the rest of the
Speaker 3: world collectively produce more then you use. You can't sell
Speaker 3: unless you sell to us. So now we're saying you
Speaker 3: can't sell to us, good luck figure it out. That's
Speaker 3: going to hurt Americans initially at first, but it's going
Speaker 3: to hurt other people more probably, And so that's where
Speaker 3: that as the alternative. I mean, you can sort of see,
Speaker 3: I mean they stent that there have been people and
Speaker 3: across the political spectrum feeling receptive to what we wrote
Speaker 3: in the book. I mean you can see that as
Speaker 3: being a divide like which approach you prefer. I mean,
Speaker 3: I think you can tell from what I'm saying what
Speaker 3: I think makes more sense. Obviously, Another really good thing
Speaker 3: would be, you know, the places that have these sort
Speaker 3: of persistent under periods of under consumption, you know, Europe
Speaker 3: and China most obviously, but not exclusively, if they you know,
Speaker 3: increase their own living standards, that would also be very
Speaker 3: helpful increasing consumption and investment where appropriate. But if that's
Speaker 3: not going to happen, or you've not skeptical, if you're
Speaker 3: not sure it's going to happen, then it's okay. Well
Speaker 3: you can really try to force them to try to
Speaker 3: figure it out, or you say, okay, we're just going
Speaker 3: to take advantage of ourselves and you know, a relatively
Speaker 3: you know, constructive positive some way.
Speaker 2: So there was a great interview this week. Trump said
Speaker 2: it down with our colleagues over at Bloomberg Business Week
Speaker 2: and talked to a bunch of things. And I know,
Speaker 2: I mean, this is sort of obvious. He loves President McKinley.
Speaker 2: He called him the tariff King. McKinley made this country rich.
Speaker 2: Can you give like the thirty second sixty second summary
Speaker 2: of McKinley's trade policy and what would it mean in
Speaker 2: practice or what would the impacts be if we brought
Speaker 2: out the McKinley playbook today.
Speaker 3: Oh man, well, you know what happens to be the case.
Speaker 3: I just actually finished reading a book, a history of
Speaker 3: the Gilded Age, and ended with the election of McKinley.
Speaker 3: So of course I didn't like get the McKinley. I
Speaker 3: will say the big increase in tariffs preceded McKinley, and
Speaker 3: that was it was I we're going embarrass myself, And
Speaker 3: they preceded McKinley. And in fact, there was an election
Speaker 3: before where the Democrat won. I guess the Garfield was
Speaker 3: against the tariffs, but they didn't and managed to repeal them.
Speaker 3: So you had a big increase that was you know
Speaker 3: from I'm going to but your memory. Yeah. The point
Speaker 3: is the tariffs had been raised in the eighteen eighties,
Speaker 3: very early, very early to in state high The thing
Speaker 3: that arguably was really helpful for McKinley specifically, is you
Speaker 3: had big discoveries of gold reserves in the late eighteen
Speaker 3: nineties and exploitation of those reserves, and that east global
Speaker 3: monetary conditions after a long period in which gold supplies
Speaker 3: were dwindling relative to you know, financial needs, and so
Speaker 3: that probably more than anything else, was significant. That wasn't
Speaker 3: obviously helpful just for the United States's helpful for everyone.
Speaker 3: And so if I were to sort of pinpoint something specifically,
Speaker 3: that would be, you know, if you have a big
Speaker 3: campaign about the golds. I mean that's partly also why
Speaker 3: you know, like the Brian campaign kind of fizzled. It
Speaker 3: was like, okay, well you're talking about how gold is
Speaker 3: so restrictive right at the time when gold supply is
Speaker 3: going up, like nobody's carrious, huh. And so that I
Speaker 3: think was definitely a helpful tale end for McKinley. More
Speaker 3: broadly for the US. I mean, it really goes back
Speaker 3: to the Napoleonic Wars, you know, a long time earlier,
Speaker 3: where the US has just cut off, you know, against
Speaker 3: its will, from trade with Europeans. You know, that was
Speaker 3: a very extreme trade baron that forced the development of
Speaker 3: an indigenous industry. And then ever since then you had,
Speaker 3: obviously with some fluctuations over time, but support for very
Speaker 3: kinds of protective tariffs that lasted basically until the end
Speaker 3: of World War Two, with fluctuations up and down.
Speaker 2: Well, well, what happened we regardless of what happened with McKinley,
Speaker 2: we know Trump likes tariffs. He imposed tariffs on China.
Speaker 2: Biden has continued and increased tariffs, and we also have
Speaker 2: like tariffs on other countries too. I think there's some
Speaker 2: European tariffs. But let's say we had like a much
Speaker 2: more regressive terriff Regham. What happens if we try to
Speaker 2: implement some of these policies that you hear people dream about.
Speaker 2: It's like, oh, we don't even need an income tax anymore.
Speaker 2: We could just do it all with tariffs. Like what
Speaker 2: happens if we get like true hardcore tariffs around the world? Like,
Speaker 2: how does that play outenview?
Speaker 3: So arithmetically, I don't think it's possible to place income tax.
Speaker 3: I'll go with tariffs. And I mean, just it's sort
Speaker 3: of rough ballpark here. Imports are something like ten percent
Speaker 3: of GDP. So even if you I mean the amount
Speaker 3: you'd have to tax those imports to the offset the
Speaker 3: income tax revenue, which is, you know, about ten percent
Speaker 3: GDP and it's pretty high. So that's and that assumes,
Speaker 3: of course that we would you know, import the amount
Speaker 3: of stuff. So I just got all that. In general,
Speaker 3: what you would expect to happen is that if you
Speaker 3: put tariffs on things, then it means that because the
Speaker 3: price is more expensive to import it from abroad, that
Speaker 3: you encourage production of that thing in the United States.
Speaker 3: And if you do it for everything, then it's moved
Speaker 3: a lot of stuff. Now what that does with the
Speaker 3: trade balance is ambiguous, because presumably that creates an incentive
Speaker 3: because the US is a large domestic market to invest
Speaker 3: in the United States to be able to produce those things.
Speaker 3: Oh yeah, and maybe you say that's the gold policy,
Speaker 3: But that doesn't necessarily mean it's going to have impact
Speaker 3: on the trade balance because you still to import all
Speaker 3: the stuff to invest I mean not importing everything, right,
Speaker 3: but there's going to be a degree you know, you're
Speaker 3: building up your capacity unless you're squeezing consumption some other way, right,
Speaker 3: Like something has to give. And so that's why I mean,
Speaker 3: usually what ends up happening is the textbook thing is
Speaker 3: that your currency will appreciate if you put on tariffs.
Speaker 3: That's how it's sort of supposed to work. I mean,
Speaker 3: maybe it doesn't always do that, but by the way,
Speaker 3: that's why the textbook answer is that tariffs hurt your exporters.
Speaker 3: It's not because that like retaliation although that is certainly
Speaker 3: a factor. It's because the currency effect means that your
Speaker 3: imports are the same and then your export. That's the
Speaker 3: sort of traditional argument. Now you can argue that there's
Speaker 3: specific cases where that might not be the case. It
Speaker 3: pritpends on whether it's revenue usual. Right, if you have
Speaker 3: a ten percent tariff on all imports and you don't
Speaker 3: offset that with some tax cut or spending increase elsewhere,
Speaker 3: which is not what anyone suggesting, but leg just hypothetically,
Speaker 3: that's something like a fiscal tightening of around one percent
Speaker 3: of GDP And obviously and that skewed towards in many
Speaker 3: ways consumer goods. So like that might reduce the trade
Speaker 3: deficit insofar as it reduces income and spending power. But
Speaker 3: that's not something that makes you, I mean, that's not say,
Speaker 3: a good thing, right, So it's a form, it's it's
Speaker 3: like a weird way of doing, like a sales tax
Speaker 3: or something in that kind of scenario. The other broader
Speaker 3: picture is if you are focused on shifting the composition
Speaker 3: of economic activity, which is what you're essentially trying to
Speaker 3: do with a sort of universal tariff, you're saying, you know,
Speaker 3: we actually do want to make more T shirts in
Speaker 3: the United States versus import them. And assuming you're already
Speaker 3: and this is a big assumption, but assuming you're already
Speaker 3: at sort of full capacity in terms of your labor
Speaker 3: and material and capital resources that are available in your country,
Speaker 3: then that means that people are going to be doing
Speaker 3: there's gonna be some shift for people doing stop doing
Speaker 3: things they were doing that presumably now people think are
Speaker 3: valuable to switch to doing other things that we need
Speaker 3: that we you know, because we're you know, we're cut
Speaker 3: off now ten percent tariff probably not gonna do that.
Speaker 3: So it's like small percent terms sort of like one
Speaker 3: hundred percent tariff or whatever like that. There's a point
Speaker 3: at which that would happen if we just sort of
Speaker 3: stretch out, you know, and think about what this means
Speaker 3: in theory. And that's the argument for a while, you know,
Speaker 3: it makes people worse off, and why it impoverishes you
Speaker 3: over time because the thinking being like if you used
Speaker 3: to be going from making some valuable software healthcare thing
Speaker 3: and now you're doing you know, T shirt assembly or something, right,
Speaker 3: I mean, this is like you're going to be poor
Speaker 3: as a society, and so do you want to do that,
Speaker 3: and like the argument normally is no. Now that's different
Speaker 3: from talking now the teriffs that we actually have right now.
Speaker 3: You know that both that Trump did and that Biden
Speaker 3: have done are much more targeted on specific countries and industries.
Speaker 3: So it's not really equivalent to that. And you can
Speaker 3: argue that's for national security reasons as much as anything else,
Speaker 3: and so that's like more complex. But I mean we're
Speaker 3: talking about it's like what the conception of broad based
Speaker 3: tariffs like that I think is the way to think
Speaker 3: about it.
Speaker 1: Since we're talking books, and since I asked earlier if
Speaker 1: you thought jd Vance had read Trade Wars or Class Wars?
Speaker 1: Have you read Hillbilly Elogy?
Speaker 3: I'm not.
Speaker 1: Oh, I read it, that's Matt. I thought you would
Speaker 1: have read it. I mean it has that whole lot
Speaker 1: of like hallowing out of the Ross Belt kind of theme.
Speaker 3: Supposedly, No, I know it does. I don't know. This
Speaker 3: is you know, shameful on my part, But I only
Speaker 3: have so much Henry books. I like reading, you know,
Speaker 3: history books more than anything else. So I'm not I'm
Speaker 3: not read it. You know I've read articles about.
Speaker 1: It, haven't we all?
Speaker 2: Yes, lots more is produced by Carmen Rodriguez and dash
Speaker 2: Ol Bennett, with help from Moses Onam and Kill Brooks.
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