Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Bloomberg Markets. I'm Bonnie Quinn. We want to
Speaker 2: bring you an interview. Now is wool Street Week host
Speaker 2: David Weston, who's standing by with former US Treasury Secretary
Speaker 2: Larry Summers.
Speaker 3: David for our Bloomberg audiences worldwide. I'm David Weston. I
Speaker 3: am joined by former treasure Secretory Larry Summers of Harvard,
Speaker 3: a special contributor here. I'm wil Street. Larry, thank you
Speaker 3: for being here. It's a big day, whatever we want
Speaker 3: to call that day, liberation or something else. This afternoon
Speaker 3: we're due to hear about the tariffs. First set the stage.
Speaker 3: What's at stake?
Speaker 1: These are very consequential economic policies. They're consequential for prices,
Speaker 1: They're consequential for employment, they're consequential for America's foreign relations,
Speaker 1: they're consequential for national security, and frankly, I think the
Speaker 1: question is mostly how much damage is.
Speaker 4: Going to be done? You know, if you think about it, David, it's.
Speaker 1: Kind of a remarkable thing that this is the centerpiece
Speaker 1: of their economic program, and they're so nervous about its
Speaker 1: market impact that they have to announce it after the
Speaker 1: markets have closed, So it seems a kind of bizarre strategy,
Speaker 1: which I've been watching government policies a lot. I've never
Speaker 1: seen an announcement that was delayed until after the market closed,
Speaker 1: where the government was the one that was making the announcement.
Speaker 1: And frankly, it's a bit naive as a strategy since
Speaker 1: the indices and the futures continue to trade, so in
Speaker 1: so far as there's a market impact that's playing out,
Speaker 1: we'll still see it almost immediately.
Speaker 3: You're a distinguished macroeconomist with a lot of extension in
Speaker 3: extensive in Washington, dealing with the economy, what would you
Speaker 3: normally expect if, as predicted, we have substantial tariffts. However
Speaker 3: they're purtnsed out, we have a supply shock. Is that
Speaker 3: related to a demand shock?
Speaker 4: Sure?
Speaker 1: As far as markets are concerned, it's all going to
Speaker 1: be about what happens relative to what people expected.
Speaker 4: And markets have traded down.
Speaker 1: A lot over the last couple of weeks because people
Speaker 1: think that this is going to be bad. As far
Speaker 1: as the economic impact is concerned, the proximate impact is
Speaker 1: higher prices. When you have higher prices and people's incomes
Speaker 1: don't adjust immediately they have less money to spend on
Speaker 1: other things, and that means less demand, and that means
Speaker 1: fewer people employed, and that means less need for capacity
Speaker 1: expansion and less investment. And so this is a classic
Speaker 1: supply shock. The basic economics of this situation are just
Speaker 1: like the economics of an increase in the price of oil,
Speaker 1: which is always seen as the classic example of a
Speaker 1: hard stagflation kind of problem. And of course it puts
Speaker 1: the Feller Reserve in a very difficult position because.
Speaker 4: Usually all the signs go one way.
Speaker 1: But when inflation is going up, that would be a
Speaker 1: reason to raise interest rates.
Speaker 4: When unemployment's going up, that would be.
Speaker 1: A reason to reduce interest rates, And so it puts
Speaker 1: the Federal Reserve in a very difficult position. So we'll
Speaker 1: have to see how these tariffs are administered, just what
Speaker 1: form they take, before we can make an estimate of
Speaker 1: what the cumulative impact is going to be. But the
Speaker 1: direction of the impact is I think something that almost
Speaker 1: all econics would agree on. What is also surprising about
Speaker 1: this is that, yeah, economists always think protectionism is bad,
Speaker 1: but not all protectionism is equally bad. And a bunch
Speaker 1: of what the Trump administration is doing seems to me
Speaker 1: bad within the category of protectionism. I think, for example,
Speaker 1: of the tariffs on steel and aluminum, sixty times as
Speaker 1: many people work in industries that use those inputs as
Speaker 1: work in industries that produce steel and aluminum. So when
Speaker 1: you tariff inputs to American producers, it's not even good mercantilism.
Speaker 1: You're reducing the competitiveness of the producers. And so even
Speaker 1: if you just focus on things in terms of competitiveness
Speaker 1: and you don't think about the consumer interest at all,
Speaker 1: you're doing something that's can productive. And the other thing
Speaker 1: is this is like a football team that's trying to
Speaker 1: run a play in practice without a defense. This is
Speaker 1: going to hurt our economy before we get to any
Speaker 1: possible retaliation.
Speaker 4: And it's clear from what's been.
Speaker 1: Said, whether it's Canada or whether it's Europe, or whether
Speaker 1: it's China, that there's going to be retaliation, perhaps retaliation
Speaker 1: in twer forms, perhaps retaliation in terms of discrimination against
Speaker 1: other customers. And on top of that, you have the
Speaker 1: psychological effect. You know, there's data in the last few
Speaker 1: days suggesting that just because people are angry and upset,
Speaker 1: the demand for teslas is down significantly because people are
Speaker 1: unhappy with Elon musk Well.
Speaker 4: That kind of effect is.
Speaker 1: Going to attach to American producers around the world because
Speaker 1: everybody's thinking that their traditional friend has turned against them.
Speaker 1: So this is the kind of thing you discuss in
Speaker 1: the way we would usually discussh an oil price spike
Speaker 1: or an earthquake or a drought as a supply shock.
Speaker 4: But it's a thing we're doing to ourselves.
Speaker 3: This is not the only action from the Trump administration
Speaker 3: that's causing a lot of turmoil. One of them is
Speaker 3: close to you and you've talked about, and that is
Speaker 3: the move by the administration against certain elite universities, including
Speaker 3: your Harvard, and with the possible as I've seen it,
Speaker 3: possibly nine billion dollars of review. What are your thoughts
Speaker 3: about that?
Speaker 1: Look, there is a lot that should be fixed at Harvard,
Speaker 1: it should be fixed.
Speaker 4: At other universities.
Speaker 1: And in some ways it is shameful that there hasn't
Speaker 1: been more done to address anti Semitism, that there have
Speaker 1: been real accesses on DEI and the university should have
Speaker 1: done more, much more quickly to address that. But make
Speaker 1: no mistake, David, this is an authoritarian attempt to chill
Speaker 1: and punish potential adversaries. President Trump and his administration have
Speaker 1: made common cause with the neo Nazi AfD. There's a
Speaker 1: track record of who they've been in contact with and
Speaker 1: who supports them. This is not a genuine concern about
Speaker 1: anti semitism, and this is not a genuine concern about universities.
Speaker 1: They're going after judges, they're going after law firms, they're
Speaker 1: going after companies. So this is an attempt at being
Speaker 1: authoritarian towards your adversaries.
Speaker 4: And what we know.
Speaker 1: From history is that there's a lot of contagion. When
Speaker 1: people capitulate, people decide it's hopeless, and more people capitulate.
Speaker 1: When people have rectitude and stand up against it, it
Speaker 1: gives others strength. If Harvard University, with a fifty two
Speaker 1: billion dollar endowment, with its enormous prestige, with an alumni
Speaker 1: network in every aspect of American leadership second to none,
Speaker 1: if it cannot resist this authoritarian tendency, who can?
Speaker 4: So there is an enormous amount that is at stake here.
Speaker 3: Okay, Larry, thank you so very much for being with
Speaker 3: us on this important day. That's Larry Summers, former Treasure
Speaker 3: Sectory now of Harvard back to you
Speaker 2: And our thanks to wool Street host David Weston, the
Speaker 2: former Treasury Secretary Larry Somers,