WEBVTT - Former US Treasury Secretary Lawrence H. Summers Talks What to Expect with Impending Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>This is Bloomberg Markets. I'm Bonnie Quinn. We want to

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<v Speaker 2>bring you an interview. Now is wool Street Week host

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<v Speaker 2>David Weston, who's standing by with former US Treasury Secretary

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<v Speaker 2>Larry Summers.

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<v Speaker 3>David for our Bloomberg audiences worldwide. I'm David Weston. I

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<v Speaker 3>am joined by former treasure Secretory Larry Summers of Harvard,

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

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

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<v Speaker 3>to call that day, liberation or something else. This afternoon

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<v Speaker 3>we're due to hear about the tariffs. First set the stage.

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<v Speaker 3>What's at stake?

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<v Speaker 1>These are very consequential economic policies. They're consequential for prices,

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<v Speaker 1>They're consequential for employment, they're consequential for America's foreign relations,

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<v Speaker 1>they're consequential for national security, and frankly, I think the

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<v Speaker 1>question is mostly how much damage is.

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

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<v Speaker 1>Kind of a remarkable thing that this is the centerpiece

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<v Speaker 1>of their economic program, and they're so nervous about its

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<v Speaker 1>market impact that they have to announce it after the

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<v Speaker 1>markets have closed, So it seems a kind of bizarre strategy,

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<v Speaker 1>which I've been watching government policies a lot. I've never

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<v Speaker 1>seen an announcement that was delayed until after the market closed,

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<v Speaker 1>where the government was the one that was making the announcement.

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<v Speaker 1>And frankly, it's a bit naive as a strategy since

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<v Speaker 1>the indices and the futures continue to trade, so in

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<v Speaker 1>so far as there's a market impact that's playing out,

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<v Speaker 1>we'll still see it almost immediately.

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<v Speaker 3>You're a distinguished macroeconomist with a lot of extension in

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<v Speaker 3>extensive in Washington, dealing with the economy, what would you

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<v Speaker 3>normally expect if, as predicted, we have substantial tariffts. However

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

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<v Speaker 3>related to a demand shock?

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<v Speaker 4>Sure?

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<v Speaker 1>As far as markets are concerned, it's all going to

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<v Speaker 1>be about what happens relative to what people expected.

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<v Speaker 4>And markets have traded down.

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<v Speaker 1>A lot over the last couple of weeks because people

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<v Speaker 1>think that this is going to be bad. As far

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<v Speaker 1>as the economic impact is concerned, the proximate impact is

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<v Speaker 1>higher prices. When you have higher prices and people's incomes

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<v Speaker 1>don't adjust immediately they have less money to spend on

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<v Speaker 1>other things, and that means less demand, and that means

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<v Speaker 1>fewer people employed, and that means less need for capacity

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<v Speaker 1>expansion and less investment. And so this is a classic

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<v Speaker 1>supply shock. The basic economics of this situation are just

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<v Speaker 1>like the economics of an increase in the price of oil,

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<v Speaker 1>which is always seen as the classic example of a

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<v Speaker 1>hard stagflation kind of problem. And of course it puts

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<v Speaker 1>the Feller Reserve in a very difficult position because.

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<v Speaker 4>Usually all the signs go one way.

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<v Speaker 1>But when inflation is going up, that would be a

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<v Speaker 1>reason to raise interest rates.

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<v Speaker 4>When unemployment's going up, that would be.

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<v Speaker 1>A reason to reduce interest rates, And so it puts

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<v Speaker 1>the Federal Reserve in a very difficult position. So we'll

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<v Speaker 1>have to see how these tariffs are administered, just what

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<v Speaker 1>form they take, before we can make an estimate of

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<v Speaker 1>what the cumulative impact is going to be. But the

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<v Speaker 1>direction of the impact is I think something that almost

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<v Speaker 1>all econics would agree on. What is also surprising about

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<v Speaker 1>this is that, yeah, economists always think protectionism is bad,

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<v Speaker 1>but not all protectionism is equally bad. And a bunch

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<v Speaker 1>of what the Trump administration is doing seems to me

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<v Speaker 1>bad within the category of protectionism. I think, for example,

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<v Speaker 1>of the tariffs on steel and aluminum, sixty times as

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<v Speaker 1>many people work in industries that use those inputs as

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<v Speaker 1>work in industries that produce steel and aluminum. So when

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

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<v Speaker 1>You're reducing the competitiveness of the producers. And so even

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<v Speaker 1>if you just focus on things in terms of competitiveness

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<v Speaker 1>and you don't think about the consumer interest at all,

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

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<v Speaker 1>is this is like a football team that's trying to

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<v Speaker 1>run a play in practice without a defense. This is

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<v Speaker 1>going to hurt our economy before we get to any

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<v Speaker 1>possible retaliation.

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<v Speaker 4>And it's clear from what's been.

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<v Speaker 1>Said, whether it's Canada or whether it's Europe, or whether

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<v Speaker 1>it's China, that there's going to be retaliation, perhaps retaliation

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<v Speaker 1>in twer forms, perhaps retaliation in terms of discrimination against

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<v Speaker 1>other customers. And on top of that, you have the

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

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<v Speaker 1>days suggesting that just because people are angry and upset,

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<v Speaker 1>the demand for teslas is down significantly because people are

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<v Speaker 1>unhappy with Elon musk Well.

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<v Speaker 4>That kind of effect is.

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<v Speaker 1>Going to attach to American producers around the world because

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<v Speaker 1>everybody's thinking that their traditional friend has turned against them.

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<v Speaker 1>So this is the kind of thing you discuss in

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<v Speaker 1>the way we would usually discussh an oil price spike

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<v Speaker 1>or an earthquake or a drought as a supply shock.

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<v Speaker 4>But it's a thing we're doing to ourselves.

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<v Speaker 3>This is not the only action from the Trump administration

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<v Speaker 3>that's causing a lot of turmoil. One of them is

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<v Speaker 3>close to you and you've talked about, and that is

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<v Speaker 3>the move by the administration against certain elite universities, including

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<v Speaker 3>your Harvard, and with the possible as I've seen it,

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<v Speaker 3>possibly nine billion dollars of review. What are your thoughts

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<v Speaker 3>about that?

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<v Speaker 1>Look, there is a lot that should be fixed at Harvard,

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<v Speaker 1>it should be fixed.

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<v Speaker 4>At other universities.

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<v Speaker 1>And in some ways it is shameful that there hasn't

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<v Speaker 1>been more done to address anti Semitism, that there have

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<v Speaker 1>been real accesses on DEI and the university should have

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<v Speaker 1>done more, much more quickly to address that. But make

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<v Speaker 1>no mistake, David, this is an authoritarian attempt to chill

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<v Speaker 1>and punish potential adversaries. President Trump and his administration have

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<v Speaker 1>made common cause with the neo Nazi AfD. There's a

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<v Speaker 1>track record of who they've been in contact with and

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<v Speaker 1>who supports them. This is not a genuine concern about

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<v Speaker 1>anti semitism, and this is not a genuine concern about universities.

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<v Speaker 1>They're going after judges, they're going after law firms, they're

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<v Speaker 1>going after companies. So this is an attempt at being

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<v Speaker 1>authoritarian towards your adversaries.

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<v Speaker 4>And what we know.

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<v Speaker 1>From history is that there's a lot of contagion. When

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<v Speaker 1>people capitulate, people decide it's hopeless, and more people capitulate.

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<v Speaker 1>When people have rectitude and stand up against it, it

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<v Speaker 1>gives others strength. If Harvard University, with a fifty two

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<v Speaker 1>billion dollar endowment, with its enormous prestige, with an alumni

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<v Speaker 1>network in every aspect of American leadership second to none,

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<v Speaker 1>if it cannot resist this authoritarian tendency, who can?

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<v Speaker 4>So there is an enormous amount that is at stake here.

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<v Speaker 3>Okay, Larry, thank you so very much for being with

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

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<v Speaker 3>Sectory now of Harvard back to you

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<v Speaker 2>And our thanks to wool Street host David Weston, the

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<v Speaker 2>former Treasury Secretary Larry Somers,