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

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Speaker 2: This is Bloomberg Markets. I'm Bonnie Quinn. We want to

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Speaker 2: bring you an interview. Now is wool Street Week host

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Speaker 2: David Weston, who's standing by with former US Treasury Secretary

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Speaker 2: Larry Summers.

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Speaker 3: David for our Bloomberg audiences worldwide. I'm David Weston. I

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Speaker 3: am joined by former treasure Secretory Larry Summers of Harvard,

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Speaker 3: a special contributor here. I'm wil Street. Larry, thank you

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Speaker 3: for being here. It's a big day, whatever we want

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Speaker 3: to call that day, liberation or something else. This afternoon

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Speaker 3: we're due to hear about the tariffs. First set the stage.

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Speaker 3: What's at stake?

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Speaker 1: These are very consequential economic policies. They're consequential for prices,

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Speaker 1: They're consequential for employment, they're consequential for America's foreign relations,

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Speaker 1: they're consequential for national security, and frankly, I think the

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Speaker 1: question is mostly how much damage is.

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Speaker 4: Going to be done? You know, if you think about it, David, it's.

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Speaker 1: Kind of a remarkable thing that this is the centerpiece

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Speaker 1: of their economic program, and they're so nervous about its

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Speaker 1: market impact that they have to announce it after the

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Speaker 1: markets have closed, So it seems a kind of bizarre strategy,

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Speaker 1: which I've been watching government policies a lot. I've never

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Speaker 1: seen an announcement that was delayed until after the market closed,

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Speaker 1: where the government was the one that was making the announcement.

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Speaker 1: And frankly, it's a bit naive as a strategy since

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Speaker 1: the indices and the futures continue to trade, so in

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Speaker 1: so far as there's a market impact that's playing out,

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Speaker 1: we'll still see it almost immediately.

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Speaker 3: You're a distinguished macroeconomist with a lot of extension in

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Speaker 3: extensive in Washington, dealing with the economy, what would you

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Speaker 3: normally expect if, as predicted, we have substantial tariffts. However

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Speaker 3: they're purtnsed out, we have a supply shock. Is that

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Speaker 3: related to a demand shock?

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Speaker 4: Sure?

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Speaker 1: As far as markets are concerned, it's all going to

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Speaker 1: be about what happens relative to what people expected.

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Speaker 4: And markets have traded down.

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Speaker 1: A lot over the last couple of weeks because people

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Speaker 1: think that this is going to be bad. As far

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Speaker 1: as the economic impact is concerned, the proximate impact is

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Speaker 1: higher prices. When you have higher prices and people's incomes

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Speaker 1: don't adjust immediately they have less money to spend on

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Speaker 1: other things, and that means less demand, and that means

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Speaker 1: fewer people employed, and that means less need for capacity

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Speaker 1: expansion and less investment. And so this is a classic

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Speaker 1: supply shock. The basic economics of this situation are just

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Speaker 1: like the economics of an increase in the price of oil,

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Speaker 1: which is always seen as the classic example of a

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Speaker 1: hard stagflation kind of problem. And of course it puts

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Speaker 1: the Feller Reserve in a very difficult position because.

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Speaker 4: Usually all the signs go one way.

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Speaker 1: But when inflation is going up, that would be a

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Speaker 1: reason to raise interest rates.

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Speaker 4: When unemployment's going up, that would be.

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Speaker 1: A reason to reduce interest rates, And so it puts

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Speaker 1: the Federal Reserve in a very difficult position. So we'll

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Speaker 1: have to see how these tariffs are administered, just what

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Speaker 1: form they take, before we can make an estimate of

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Speaker 1: what the cumulative impact is going to be. But the

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Speaker 1: direction of the impact is I think something that almost

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Speaker 1: all econics would agree on. What is also surprising about

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Speaker 1: this is that, yeah, economists always think protectionism is bad,

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Speaker 1: but not all protectionism is equally bad. And a bunch

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Speaker 1: of what the Trump administration is doing seems to me

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Speaker 1: bad within the category of protectionism. I think, for example,

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Speaker 1: of the tariffs on steel and aluminum, sixty times as

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Speaker 1: many people work in industries that use those inputs as

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Speaker 1: work in industries that produce steel and aluminum. So when

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Speaker 1: you tariff inputs to American producers, it's not even good mercantilism.

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Speaker 1: You're reducing the competitiveness of the producers. And so even

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Speaker 1: if you just focus on things in terms of competitiveness

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Speaker 1: and you don't think about the consumer interest at all,

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Speaker 1: you're doing something that's can productive. And the other thing

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Speaker 1: is this is like a football team that's trying to

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Speaker 1: run a play in practice without a defense. This is

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Speaker 1: going to hurt our economy before we get to any

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Speaker 1: possible retaliation.

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Speaker 4: And it's clear from what's been.

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Speaker 1: Said, whether it's Canada or whether it's Europe, or whether

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Speaker 1: it's China, that there's going to be retaliation, perhaps retaliation

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Speaker 1: in twer forms, perhaps retaliation in terms of discrimination against

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Speaker 1: other customers. And on top of that, you have the

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Speaker 1: psychological effect. You know, there's data in the last few

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Speaker 1: days suggesting that just because people are angry and upset,

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Speaker 1: the demand for teslas is down significantly because people are

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Speaker 1: unhappy with Elon musk Well.

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Speaker 4: That kind of effect is.

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Speaker 1: Going to attach to American producers around the world because

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Speaker 1: everybody's thinking that their traditional friend has turned against them.

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Speaker 1: So this is the kind of thing you discuss in

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Speaker 1: the way we would usually discussh an oil price spike

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Speaker 1: or an earthquake or a drought as a supply shock.

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Speaker 4: But it's a thing we're doing to ourselves.

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Speaker 3: This is not the only action from the Trump administration

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Speaker 3: that's causing a lot of turmoil. One of them is

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Speaker 3: close to you and you've talked about, and that is

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Speaker 3: the move by the administration against certain elite universities, including

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Speaker 3: your Harvard, and with the possible as I've seen it,

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Speaker 3: possibly nine billion dollars of review. What are your thoughts

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Speaker 3: about that?

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Speaker 1: Look, there is a lot that should be fixed at Harvard,

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Speaker 1: it should be fixed.

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Speaker 4: At other universities.

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Speaker 1: And in some ways it is shameful that there hasn't

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Speaker 1: been more done to address anti Semitism, that there have

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Speaker 1: been real accesses on DEI and the university should have

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Speaker 1: done more, much more quickly to address that. But make

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Speaker 1: no mistake, David, this is an authoritarian attempt to chill

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Speaker 1: and punish potential adversaries. President Trump and his administration have

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Speaker 1: made common cause with the neo Nazi AfD. There's a

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Speaker 1: track record of who they've been in contact with and

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Speaker 1: who supports them. This is not a genuine concern about

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Speaker 1: anti semitism, and this is not a genuine concern about universities.

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Speaker 1: They're going after judges, they're going after law firms, they're

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Speaker 1: going after companies. So this is an attempt at being

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Speaker 1: authoritarian towards your adversaries.

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Speaker 4: And what we know.

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Speaker 1: From history is that there's a lot of contagion. When

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Speaker 1: people capitulate, people decide it's hopeless, and more people capitulate.

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Speaker 1: When people have rectitude and stand up against it, it

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Speaker 1: gives others strength. If Harvard University, with a fifty two

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Speaker 1: billion dollar endowment, with its enormous prestige, with an alumni

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Speaker 1: network in every aspect of American leadership second to none,

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Speaker 1: if it cannot resist this authoritarian tendency, who can?

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Speaker 4: So there is an enormous amount that is at stake here.

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Speaker 3: Okay, Larry, thank you so very much for being with

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Speaker 3: us on this important day. That's Larry Summers, former Treasure

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Speaker 3: Sectory now of Harvard back to you

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Speaker 2: And our thanks to wool Street host David Weston, the

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Speaker 2: former Treasury Secretary Larry Somers,