WEBVTT - Markets React to New Tariff Deadline 0:00:00.040 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.080 --> 0:00:30.320 Paul, and I can't remember a guest a half hour ago. 0:00:31.160 --> 0:00:34.800 To remember a guest two days ago is unthinkable. It's 0:00:34.800 --> 0:00:37.000 a blur what we do. We have a great team, 0:00:37.040 --> 0:00:42.640 including said Benson, who keep us going forward. I remember exactly, Paul, 0:00:42.840 --> 0:00:46.880 what Nancy Lazar said ninety days ago or one hundred 0:00:46.920 --> 0:00:50.880 days ago, Folcus, this was the single most important piece 0:00:50.920 --> 0:00:54.720 of American wisdom from Nancy Lazarre. And she joins us 0:00:55.600 --> 0:00:58.920 again here this morning with too short a visit. She's 0:00:58.960 --> 0:01:04.399 with Piper Sandler. You said, it's a blogey reality for America. 0:01:04.800 --> 0:01:08.640 We're investing in government and all these derivative jobs, and 0:01:08.680 --> 0:01:12.560 we're not investing in the private sector to create a 0:01:12.720 --> 0:01:17.200 backbone of job formation and prosperity in America. Has that 0:01:17.240 --> 0:01:20.560 been amended in all the theatrics of the last three months. 0:01:21.000 --> 0:01:24.520 Well, the Big Beautiful Bill did indeed incentivize companies to 0:01:24.640 --> 0:01:27.760 invest more in the United States, and that is one 0:01:27.760 --> 0:01:30.240 of the positives you can say about the current the 0:01:30.280 --> 0:01:35.160 current legislation, companies can now fully expense their capital spending exactly. 0:01:35.240 --> 0:01:37.120 It sounds like LBJ one oh one. 0:01:37.560 --> 0:01:39.600 I'm not sure it's LBJ one on one. I might 0:01:39.640 --> 0:01:42.840 go to Ronald Reagan one oh one. He was really 0:01:42.840 --> 0:01:46.480 the first president to articulate the importance of investing in 0:01:46.800 --> 0:01:51.320 the economy through his accelerated Appreciation tax legislation. So now 0:01:51.360 --> 0:01:53.320 I wouldn't go back to the sixties. That's actually an 0:01:53.320 --> 0:01:56.240 inflationary period. I would certainly hope we're not going back here. 0:01:56.240 --> 0:01:58.440 You should just put me in the time this little 0:01:58.440 --> 0:02:01.000 bizarre time out you, Paul, Why don't you pick it 0:02:01.080 --> 0:02:01.480 up here? 0:02:01.600 --> 0:02:05.000 So there are some positive obviously, some positive pro growth 0:02:05.360 --> 0:02:07.280 parts of the legislation, which is the market had been 0:02:07.320 --> 0:02:10.720 anticipating when this president was elected. On the flip side, 0:02:10.800 --> 0:02:13.880 we've got the uncertainty of terriffs, a the cost of 0:02:13.919 --> 0:02:16.160 tariffs and who's going to bear that and be just 0:02:16.240 --> 0:02:18.760 kind of the uncertainty that that brings into corporate America. 0:02:18.880 --> 0:02:19.880 How do you balance those too? 0:02:20.440 --> 0:02:20.680 Well? 0:02:20.720 --> 0:02:23.080 I think near term, obviously terriffs are going to be 0:02:23.080 --> 0:02:26.000 the driving force creating the soft patch, as we're calling it, 0:02:26.040 --> 0:02:30.520 weaker economic activity. They are near term a negative. We're 0:02:30.520 --> 0:02:32.240 going to see it in two Q growth. Even though 0:02:32.320 --> 0:02:35.320 headline GDP will be two to three percent in the 0:02:35.360 --> 0:02:38.519 second quarter. Underneath the hood, if you look at private 0:02:38.560 --> 0:02:40.760 domestic demand, it's going to be closer to zero point 0:02:40.800 --> 0:02:42.800 five percent. The swing is due to trade. 0:02:42.919 --> 0:02:43.119 Right. 0:02:43.200 --> 0:02:44.960 Trade is a big drag on one Q. It's going 0:02:45.000 --> 0:02:47.359 to be an incremental support for two Q. So right 0:02:47.400 --> 0:02:50.400 now private demand is shifting down to abouzero point five 0:02:50.480 --> 0:02:53.400 two Q probably also into three Q. So near turm. 0:02:53.480 --> 0:02:56.520 The terriffs are indeed the driving force in the economy. 0:02:56.560 --> 0:02:58.959 But as we go into twenty six, I think these 0:02:59.000 --> 0:03:02.240 other incentives to invest in the United States capital spending, 0:03:02.400 --> 0:03:06.560 supporting private sector in investment and in turn eventually jobs 0:03:06.800 --> 0:03:08.880 are going to be more important and the market quite 0:03:08.880 --> 0:03:12.359 frankly maybe looking through that. Except tariffs, they're here. They're 0:03:12.400 --> 0:03:15.239 here to stay. We even built them into our forecast. 0:03:15.600 --> 0:03:17.080 Near terms, they are going to show up in the 0:03:17.080 --> 0:03:19.400 inflation data more clearly as we go into three Q. 0:03:19.560 --> 0:03:21.919 You can already see it in the data. We highlight 0:03:21.960 --> 0:03:24.440 that this morning three Q will be a little bit 0:03:24.480 --> 0:03:28.000 more evident with price higher prices, both businesses and consumers 0:03:28.040 --> 0:03:31.280 are going to are paying these higher prices. That's giving 0:03:31.320 --> 0:03:32.680 us the soft Are we going to have a. 0:03:32.720 --> 0:03:36.080 David Stackman moment and later Reagan where we go, Oops, 0:03:36.200 --> 0:03:38.240 there went the fiscal budget. 0:03:39.200 --> 0:03:42.160 I think I think we may already be in that 0:03:42.760 --> 0:03:46.680 environment right now. I actually, when I look at the 0:03:46.720 --> 0:03:51.120 government spending data, I can see some incremental restraint. I 0:03:51.120 --> 0:03:53.320 think I get booed when I talk about that, but 0:03:53.640 --> 0:03:55.640 you can see it if you look very closely at 0:03:55.680 --> 0:04:00.520 the monthly Treasury statement. The federal outlaid data are starting 0:04:00.560 --> 0:04:05.760 to stall out. You're hearing it from companies, software, defense consultants. 0:04:06.320 --> 0:04:08.600 You are hearing companies say the government's being a little 0:04:08.600 --> 0:04:11.160 bit more stringy. You're seeing it in the job data. 0:04:11.240 --> 0:04:14.560 Federal employment has declined for the past five months. It's 0:04:14.600 --> 0:04:17.960 going to given what happened yesterday, it's likely to accelerate. 0:04:18.240 --> 0:04:21.240 Federal employment is likely to continue to decline. So I'm 0:04:21.279 --> 0:04:25.919 seeing government spending being chipped away. I might almost like 0:04:26.160 --> 0:04:28.599 a David Stockman moment, which is like, you know, wake 0:04:28.680 --> 0:04:31.800 up and smell the coffee. The the the deficit is 0:04:31.839 --> 0:04:35.720 way too big. Government spending is way too big. I think, 0:04:35.800 --> 0:04:38.800 I think people, some people within the administration understand that, 0:04:39.880 --> 0:04:43.760 and you are starting to see some incremental restraint, and 0:04:44.000 --> 0:04:46.200 not this year, but maybe next year. The deficit can 0:04:46.200 --> 0:04:47.880 come in a little bit better than expected. 0:04:48.480 --> 0:04:51.680 But definitely, I mean, just one big, beautiful bill. It 0:04:51.800 --> 0:04:55.560 adds to deficits debt and billions of dollars. The market 0:04:55.640 --> 0:04:56.120 doesn't care. 0:04:56.800 --> 0:05:01.920 Well again, it's it's it does incrementally add to the deficit. 0:05:01.960 --> 0:05:04.599 It keeps it about six and a half percent of 0:05:04.680 --> 0:05:06.840 gd of GDP. It's not going to be bigger than 0:05:06.839 --> 0:05:09.400 it otherwise would have been. Again, you're just extending these 0:05:09.440 --> 0:05:14.640 tax cuts. I don't disagree with you if the market 0:05:14.640 --> 0:05:16.920 doesn't care. And one of the reasons the market's looking 0:05:16.960 --> 0:05:20.279 through this is because, as I've said before to you, 0:05:20.360 --> 0:05:23.920 all capital spending is ugly duckling of economic data. And 0:05:23.960 --> 0:05:28.360 this bill reinforces the need to invest in this country. 0:05:28.520 --> 0:05:28.719 Right. 0:05:29.040 --> 0:05:31.719 Let's go to first principles here, because some folks Nancy 0:05:31.800 --> 0:05:34.640 Lazar with this, with Piper Sandler thrilled she could be 0:05:34.680 --> 0:05:38.680 with this absolutely iconic and a view of the American economy. Okay, 0:05:38.720 --> 0:05:42.000 so consumption is sixty nine to seventy percent of GDP. 0:05:42.320 --> 0:05:47.040 How much is that private investment that Lazar need? How 0:05:47.200 --> 0:05:48.000 is it eleven? 0:05:48.360 --> 0:05:49.120 Now it's fourteen. 0:05:49.320 --> 0:05:52.080 Capital spending is about fourteen percent of GDP, So it 0:05:52.160 --> 0:05:55.520 is clearly less than the consumer. But again it's it's 0:05:55.560 --> 0:05:58.960 it's therefore it is underappreciated as a driver. It's the 0:05:59.120 --> 0:06:02.880 it's the multiply effects from capital spending that are so important. 0:06:03.120 --> 0:06:04.960 If you go around the country and you look at 0:06:05.040 --> 0:06:08.520 states from Georgia to South Carolina to Indiana where you've 0:06:08.520 --> 0:06:12.480 had very clear investment booms, those economies are doing well 0:06:12.520 --> 0:06:17.200 because of the multiplier you create services associated with these factories. 0:06:17.800 --> 0:06:18.760 And so listen to you. 0:06:19.200 --> 0:06:24.919 Are we back to a nineteen fifties nineteen sixties multiplier 0:06:25.200 --> 0:06:29.000 superiority of capital investment in manufacturing? 0:06:29.640 --> 0:06:32.599 I think so it's actually been unfolding for about fifteen years, 0:06:32.839 --> 0:06:35.680 and so I think at the end of the day, yes. 0:06:36.880 --> 0:06:40.560 Real quickly, how's a consumer out there? 0:06:40.960 --> 0:06:44.320 We call it the new smarter consumer. The consumer right 0:06:44.320 --> 0:06:48.320 now is reacting to these higher tariffy. Real consumer spending 0:06:48.360 --> 0:06:55.800 is stalling out. From services to machine to hardware. You 0:06:55.839 --> 0:06:58.080 are seeing the consumer pull back. The only thing we're 0:06:58.120 --> 0:07:02.120 buying right now are clothes. I'm certainly helping to do that. 0:07:02.160 --> 0:07:05.880 But yeah, the consumer is reacting to the uncertainty, to 0:07:06.320 --> 0:07:10.280 the higher prices. But we don't think the consumer is 0:07:10.680 --> 0:07:12.360 going to push us into our session. It takes a 0:07:12.400 --> 0:07:16.240 lot to push the consumer into negative territory. So stall speed, 0:07:16.320 --> 0:07:17.400 yes for session now. 0:07:17.480 --> 0:07:20.240 Nancy Lasare thank you so much. Viper SANDLERC. 0:07:25.760 --> 0:07:29.320 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:07:29.400 --> 0:07:32.400 weekday afternoons from seven to ten am. E's durn Listen 0:07:32.480 --> 0:07:36.040 on Applecarplay and Android Auto with the Bloomberg Business app, 0:07:36.200 --> 0:07:38.480 or watch us live on YouTube right. 0:07:38.360 --> 0:07:41.320 Now for Global Wall Street to treat Iconic I Lincoln 0:07:41.720 --> 0:07:46.160 at the Bank of Montreal, PIMO Capital Markets and what 0:07:46.360 --> 0:07:49.880 happens to John Tucker, Paul Sweeney and Tom King's world. 0:07:50.360 --> 0:07:52.960 If I get a five twenty five or a five 0:07:52.960 --> 0:07:55.360 point fifty yield and a thirty year bond. 0:07:56.880 --> 0:07:59.720 I think we would see some excitement in the equity market. 0:08:00.080 --> 0:08:03.640 By excitement, I mean to the downside. We've already tried 0:08:03.680 --> 0:08:06.320 to retest those levels in the past, and the reality 0:08:06.440 --> 0:08:09.240 is that risk assets can't handle it. We're not an 0:08:09.280 --> 0:08:14.240 economy made for thirty year bond yields at high So it. 0:08:14.240 --> 0:08:16.600 Seems like we're going to be getting tariffs here in 0:08:16.920 --> 0:08:20.200 that seems to be and probably aggressively. 0:08:20.280 --> 0:08:20.920 So what is it? 0:08:21.400 --> 0:08:22.760 What does that mean for the bond market? 0:08:24.200 --> 0:08:27.280 So I'll argue that to a large extent, tariffs are 0:08:27.320 --> 0:08:30.320 already priced in. We see it in tenure break evens, 0:08:30.360 --> 0:08:34.040 we see it in inflation futures. The reality is that 0:08:34.080 --> 0:08:37.880 we are looking for a summer of reflation, certainly on 0:08:37.920 --> 0:08:40.920 the good side. I think the fascinating aspect is that 0:08:41.200 --> 0:08:45.360 we still haven't seen it materialize in the realized data yet. 0:08:45.760 --> 0:08:48.640 Now next week we get CPI, there should be some 0:08:48.920 --> 0:08:52.000 signs of upward pressure, but the consensus is just zero 0:08:52.000 --> 0:08:54.880 point three, and that's relatively benign and good for the 0:08:54.920 --> 0:08:55.920 bond market overall. 0:08:56.360 --> 0:08:58.440 So the ten year treasury, I mean, we're sitting here 0:08:58.480 --> 0:09:01.000 at roughly four point four zero percent. What do you 0:09:01.000 --> 0:09:03.280 think maybe we end the year on the ten year 0:09:03.400 --> 0:09:04.000 US Treasury? 0:09:05.280 --> 0:09:08.320 Our forecast is that we end twenty twenty five with 0:09:08.400 --> 0:09:12.240 ten year yields at three eighty five. Now that might 0:09:12.360 --> 0:09:15.679 sound somewhat dramatic, but we were just at four eighteen 0:09:16.000 --> 0:09:18.439 at the beginning of July. So more than anything, it's 0:09:18.480 --> 0:09:19.319 going to be a range. 0:09:19.480 --> 0:09:22.720 So describe the bond vigilantes is an important statement here 0:09:22.760 --> 0:09:26.640 for mister Lingen. For the jargon is the linkage here, folks, 0:09:27.040 --> 0:09:32.240 of the bond price movement which changes the yield as 0:09:32.400 --> 0:09:36.559 we're buffeted in the economy and all and Lincoln are 0:09:36.600 --> 0:09:40.640 the bond vigilantes just so powerful the White House has 0:09:40.679 --> 0:09:43.480 to listen to ed Yard Denny and I and Lingoln. 0:09:45.000 --> 0:09:47.680 That's an interesting that's interesting question. I think to some 0:09:47.880 --> 0:09:52.920 extent the bond vigilantes had their day on the budget debate, 0:09:53.280 --> 0:09:56.600 and to some extent we've heard from Bessent that he 0:09:56.720 --> 0:09:59.880 is going to focus borrowing in the bills market, not 0:10:00.080 --> 0:10:03.439 further out the curve. So arguably the bond vigilantes won 0:10:03.559 --> 0:10:04.120 this round. 0:10:04.840 --> 0:10:07.600 I mean, we got to stop the show, folks. Ian 0:10:07.679 --> 0:10:10.560 knows how to press my buttons. Okay, Ian cut to 0:10:10.640 --> 0:10:11.200 the chase. 0:10:11.600 --> 0:10:12.120 The head of. 0:10:12.320 --> 0:10:17.840 CEA hugely criticized by the economic establishment, pushing against the giant. 0:10:17.920 --> 0:10:21.200 Peter Fisher from years ago says, we're going to load 0:10:21.240 --> 0:10:24.600 the boat on short term paper and change our duration 0:10:24.800 --> 0:10:26.640 and maybe we're then going to go out of my 0:10:26.760 --> 0:10:30.679 twenty year paper. My right Paul French, perpetuity bonds and 0:10:30.679 --> 0:10:34.800 the rest and discuss this should we shift the distribution 0:10:35.320 --> 0:10:37.920 of our debt because Steve Marin says we should. 0:10:39.440 --> 0:10:42.720 Well. One thing that I'll note is that the rest 0:10:42.760 --> 0:10:45.040 of the world is already doing this. The UK is 0:10:45.080 --> 0:10:47.600 doing this. We've heard from Bank of Japan that they're 0:10:47.640 --> 0:10:51.760 willing to be responsive to how the market is pricing 0:10:51.760 --> 0:10:54.520 in their borrowing needs. And we even saw Yellen do 0:10:54.600 --> 0:10:57.679 that in twenty and twenty three. And so the idea 0:10:57.760 --> 0:11:00.640 that Bessent is taking advantage of the low rates in 0:11:00.679 --> 0:11:03.400 the front end of the market is consistent with what 0:11:03.559 --> 0:11:06.160 the rest of the global sovereign debt market's doing. 0:11:06.960 --> 0:11:09.199 Ye, and I'm looking at the two ten spread here. 0:11:09.240 --> 0:11:11.480 I got my two year treasury let's call it three ninety, 0:11:12.600 --> 0:11:15.240 my tenure at four forty, So a fifty basis points 0:11:15.240 --> 0:11:19.839 steepening of the curve. Historically has that been a normalized 0:11:19.960 --> 0:11:21.920 level or how should we think about that? 0:11:23.280 --> 0:11:27.080 So it's positive it's upward sloping. That's consistent with what 0:11:27.120 --> 0:11:30.720 a curve normally is. I think the unique aspect of 0:11:30.800 --> 0:11:33.480 this is all it's being equal. We would expect the 0:11:33.520 --> 0:11:36.120 curve to be steeper led by the front end of 0:11:36.160 --> 0:11:39.720 the market. But the FED has so much uncertainty on 0:11:39.800 --> 0:11:42.560 whether or not they can start cutting again anytime soon 0:11:42.960 --> 0:11:46.000 that that's what's keeping the curve from being a steeper 0:11:46.040 --> 0:11:48.720 in here, which has been to the surprise. I would 0:11:48.720 --> 0:11:52.000 say to a lot of market participants of this cycle, Ian. 0:11:51.840 --> 0:11:54.280 Lincoln, too short a visit. We got to go talk Copper, 0:11:54.520 --> 0:11:58.200 Doctor Copper. We've been talking with doctor Lingoln of Female Capital. 0:11:58.240 --> 0:11:59.360 Market's absolutely brunt. 0:11:59.559 --> 0:12:03.440 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:12:03.480 --> 0:12:06.800 starting at seven am Eastern on Applecarplay and Android Auto 0:12:06.920 --> 0:12:09.880 with the Bloomberg Business app. You can also listen live 0:12:09.960 --> 0:12:13.560 on Amazon Alexa from our flagship New York station. Just 0:12:13.600 --> 0:12:16.120 say Alexa play Bloomberg eleven thirty. 0:12:16.440 --> 0:12:19.520 Truman over and I'm sure Douglas Serwin joins, US Professor 0:12:19.520 --> 0:12:23.800 of Economics at Dartmouth. Paul, you had a brilliant insight there. 0:12:23.880 --> 0:12:26.480 And where are we right now, Professor. 0:12:26.240 --> 0:12:28.040 Well, it depends on whether we're talking about the US 0:12:28.160 --> 0:12:29.520 or the rest of the world. You know, the rest 0:12:29.559 --> 0:12:32.600 of the world continues to trade, has not raised tariffs significantly, 0:12:33.000 --> 0:12:35.120 and I think what's hanging over the US is we're 0:12:35.320 --> 0:12:39.680 in between two possible equilibria. One could be higher tariffs, 0:12:39.880 --> 0:12:43.400 liberation day tariffs take effect, or maybe taking infect August first, 0:12:43.920 --> 0:12:47.560 or this uncertainty. So we have tarifs about ten percent 0:12:47.640 --> 0:12:49.560 or so. That's uncertainty about whether they're going to go 0:12:49.679 --> 0:12:51.920 higher and whether the deadlines will be extended or not, 0:12:52.440 --> 0:12:55.640 and they're both sort of bad equilibria. We don't want 0:12:55.679 --> 0:12:57.720 the high tariffs, but we also don't want to really 0:12:57.720 --> 0:13:00.439 live with us uncertainty about whether the tariffs that we 0:13:00.480 --> 0:13:03.000 have are going to be jumping up in coming months. 0:13:03.840 --> 0:13:08.880 Professor, from your perspective, who pays the cost of tariffs? 0:13:08.880 --> 0:13:09.240 Do we know? 0:13:10.800 --> 0:13:13.360 Actually we do know because we have these experiments from 0:13:13.400 --> 0:13:16.120 the first Trump term, and there's been about a half 0:13:16.120 --> 0:13:19.240 a dozen economics papers that have studying the issue. And 0:13:19.280 --> 0:13:23.480 it's domestic consumers. That is, the importers can't absorb those 0:13:23.480 --> 0:13:26.160 in those margins. In their margins, they can't absorb the tariffs, 0:13:26.360 --> 0:13:28.600 so they pass them along. Now that doesn't mean that 0:13:28.800 --> 0:13:31.880 final consumers us as households, necessarily pay all the tariff, 0:13:31.880 --> 0:13:36.080 because there are various stages and imported products sometimes are 0:13:36.080 --> 0:13:38.840 a small part of the final price that we pay. 0:13:39.240 --> 0:13:42.600 But there's no doubt that it's passed within this country. 0:13:43.080 --> 0:13:45.080 So it's not other countries paying the tariffs, it's we 0:13:45.200 --> 0:13:47.080 in the US will be paying for these tariffs. 0:13:48.240 --> 0:13:52.880 So, in terms of tariff policy, I think most people 0:13:52.880 --> 0:13:55.280 have kind of understood it and experienced it on a 0:13:55.559 --> 0:13:58.320 maybe a product by product or country by country basis. 0:13:59.640 --> 0:14:02.280 How affective are tariffs on kind of this kind of 0:14:02.280 --> 0:14:05.200 global approach that we're seeing from the Trump administration, and 0:14:05.320 --> 0:14:06.920 kind of what's the net effect. 0:14:08.720 --> 0:14:10.959 Well, you're absolutely right that in the past tariffs have 0:14:10.960 --> 0:14:13.959 been sort of piecemeal, either imposed on a particular product 0:14:14.040 --> 0:14:17.840 or particlar product coming from a particular country, anti dumping duties, 0:14:18.480 --> 0:14:21.200 duties target at China, and what have you. And so 0:14:21.280 --> 0:14:23.800 the easy thing about them, or one element of them, 0:14:23.880 --> 0:14:26.160 is that they're easily evaded. You just shift where you're 0:14:26.200 --> 0:14:30.240 importing from. You it's called trade diversion. You start importing 0:14:30.240 --> 0:14:32.120 more from Mexico, Vietnam instead of China. 0:14:32.240 --> 0:14:32.720 What happened. 0:14:33.040 --> 0:14:36.880 But if you're imposing these blanket tariffs on everyone, it 0:14:37.040 --> 0:14:39.760 really has a much bigger effect than all those piecemeal 0:14:39.800 --> 0:14:41.440 of tariffs that we've seen in the past. 0:14:41.760 --> 0:14:44.320 Dougr when I went back and I read the McKinley 0:14:44.360 --> 0:14:47.720 speech in Buffalo, New York, the day before President McKinley 0:14:47.800 --> 0:14:51.720 was assassinated. You've been eloquent on this. You said there 0:14:51.800 --> 0:14:56.480 was a shift in McKinley's certitude about tariffs. Can we 0:14:56.600 --> 0:14:59.800 see the same shift from President Trump? 0:15:01.400 --> 0:15:03.840 I don't think we see it yet, But I think 0:15:03.840 --> 0:15:05.800 what you see is this conviction that we ought to 0:15:05.800 --> 0:15:08.640 be imposing these tariffs being tempered by some of these advisors, 0:15:08.680 --> 0:15:12.600 particularly Scott Best at Treasury. And I think the market 0:15:12.640 --> 0:15:16.160 reaction to the April second announcement of the Liberation Day tariffs, 0:15:16.480 --> 0:15:18.880 that is, three or four days of consecutive one percent 0:15:18.920 --> 0:15:24.680 declines in major equities, the rise in bond yields, that 0:15:24.760 --> 0:15:29.920 may have spooked the administration and may temper how much 0:15:29.960 --> 0:15:31.440 they're willing to follow through. 0:15:31.360 --> 0:15:33.680 Your iconic book Against the Tide, I mean when you 0:15:33.720 --> 0:15:38.000 published that the glacier was just pulling back north of Hanover, 0:15:38.720 --> 0:15:42.600 New Hampshire. If you move to the modern day, Doug Irwin, 0:15:42.680 --> 0:15:49.440 with a new financialization of American capitalism, can the financial vigilantes, 0:15:49.480 --> 0:15:54.800 the copper vigilantes, Can they join ed Yard Denny's vigilantes. 0:15:55.480 --> 0:15:57.600 In some sense? Yes, I mean the dramatic rise in 0:15:57.680 --> 0:16:00.160 copper prices yesterday. I mean users are going to be 0:16:00.160 --> 0:16:03.520 paying a lot. This idea that you know, once again, 0:16:03.520 --> 0:16:05.280 other countries are going to pay the tariff. It won't 0:16:05.280 --> 0:16:08.280 be passed through to domestic crisis. We saw that with 0:16:08.360 --> 0:16:11.480 copper just yesterday. And when we see this on shoes 0:16:11.520 --> 0:16:14.280 and t shirts and electronics and all the other things 0:16:14.280 --> 0:16:17.920 that these broad terraffs may be applied on August first, 0:16:18.960 --> 0:16:20.920 you know, we're going to have a major impact on 0:16:20.960 --> 0:16:24.200 the economy and I think temper the ability to house 0:16:24.280 --> 0:16:26.120 make say yeah, we're going to go full speed ahead 0:16:26.120 --> 0:16:26.480 on this. 0:16:26.680 --> 0:16:28.920 For all of you across the nation. At treat Douglas, 0:16:29.040 --> 0:16:32.560 Erwin and Dartmouth College, we continue Paul Sweeny and Tom Keen. 0:16:32.640 --> 0:16:35.280 It is Bloomberg surveillance, Paul Professor. 0:16:35.320 --> 0:16:39.200 Some of the pushback on the tariff policies is centered 0:16:39.240 --> 0:16:42.400 on this concern that it may slow US economic growth 0:16:42.400 --> 0:16:45.960 and it may push up inflation. How do you few 0:16:46.320 --> 0:16:47.240 view those risks. 0:16:48.760 --> 0:16:52.560 I think they're absolutely correct to be thinking in those terms. 0:16:52.840 --> 0:16:54.920 You know, once again, there is about a dozen different 0:16:55.280 --> 0:16:58.960 simulations and models out there. Private sector, academia, think tanks 0:16:58.960 --> 0:17:01.960 and what have you, And there's never a positive GDP 0:17:02.040 --> 0:17:05.640 impact from tariffs, and there's never a negative price effect 0:17:05.760 --> 0:17:09.040 of these tariffs. The questions of the magnitudes, and of 0:17:09.040 --> 0:17:11.840 course the magnitudes will depend a lot on what tariffs 0:17:11.840 --> 0:17:14.400 we actually see implemented. You know about a commentator say, 0:17:14.400 --> 0:17:16.720 we don't see the data today. Well, we haven't really 0:17:16.760 --> 0:17:19.000 imposed a lot of the tariffs that have been proposed. 0:17:20.040 --> 0:17:23.479 We haven't imposed those that have been proposed, and so 0:17:23.600 --> 0:17:25.680 when we do, I think that's when we'll start seeing 0:17:25.720 --> 0:17:26.879 big effects on the data. 0:17:27.040 --> 0:17:31.639 Discuss, professor, the reciprocity. McKinley in that famous speech before 0:17:31.680 --> 0:17:34.919 his tragic death, he mentioned reciprocity is a path to 0:17:34.960 --> 0:17:38.720 get out of onerous tariffs. If I look at Korea 0:17:39.280 --> 0:17:43.360 or Japan, the President's correct, they won't take our General Motors, 0:17:43.840 --> 0:17:49.000 our GM, Cadillac Escalades or whatever. Tell me about reciprocity 0:17:49.080 --> 0:17:50.840 with Asia, Professor. 0:17:51.640 --> 0:17:53.960 Sure, Well, the interesting thing about Korea is we have 0:17:53.960 --> 0:17:56.080 a free trade agreement with Korea, so the tariff that 0:17:56.080 --> 0:18:00.439 they apply in US products is zero. So then you 0:18:00.480 --> 0:18:02.800 have to say, well, what's exactly the problem of selling 0:18:02.880 --> 0:18:06.600 in Korea? Are there non tariff barriers? Are there other 0:18:06.640 --> 0:18:10.679 financial factors and capital flows that are driving the bilateral imbalance, 0:18:11.040 --> 0:18:13.199 and because that's what the administration is really focused on. 0:18:13.640 --> 0:18:16.280 The you know, with those reciprocal tears that they announced 0:18:16.320 --> 0:18:19.520 on Liberation Day, they said, well, we're just taxing them 0:18:19.520 --> 0:18:21.880 the way they tax us. Well it wasn't that way 0:18:21.880 --> 0:18:23.680 at all in terms of the formula they used. It's 0:18:23.680 --> 0:18:26.960 all based on the trade deficit that we have bilaterally, 0:18:27.320 --> 0:18:31.800 and once again, trade deficits don't really necessarily indicate trade barriers. 0:18:32.040 --> 0:18:34.720 We have trade surplus and trade deaths with countries that 0:18:34.760 --> 0:18:36.600 we have free trade rooms with where the tariffs are 0:18:36.680 --> 0:18:39.600 zero on both sides. We have a trade surplus with Australia. 0:18:40.119 --> 0:18:43.960 So those are very imperfect measures of what government policy 0:18:44.040 --> 0:18:45.160 worth respect trade are. 0:18:45.400 --> 0:18:49.680 What is the best path or process for our central 0:18:49.760 --> 0:18:52.679 bank to deal with this tariff shock. 0:18:54.720 --> 0:18:57.359 That's a great question, a very important one. You know, 0:18:57.440 --> 0:18:59.480 I think the standard responses you sort of have to 0:18:59.480 --> 0:19:03.440 look through the price effects, but you can't look through 0:19:03.560 --> 0:19:04.520 the GDP effects. 0:19:04.720 --> 0:19:05.920 Thank you. 0:19:05.440 --> 0:19:08.040 If so, This is really why the said will be 0:19:08.080 --> 0:19:11.080 in a conundrum if we see higher prices and lower growth. 0:19:11.560 --> 0:19:13.640 You know, on one hand, you want a titan to 0:19:13.680 --> 0:19:15.360 take care of the price impact. On the other hand, 0:19:15.400 --> 0:19:17.800 you want to loosen to take care of the GDP effect. 0:19:18.920 --> 0:19:21.639 I think it really depends on what sort of configuration 0:19:21.680 --> 0:19:25.320 of chaffs we see in August and coming months. 0:19:25.840 --> 0:19:28.240 Brilliant. I can't say enough about that. I was a 0:19:28.280 --> 0:19:31.199 set up question, folks. I knew where Professor Irwin was 0:19:31.240 --> 0:19:33.680 going and a major shout out to all the work 0:19:33.720 --> 0:19:36.560 of Jeffrey Frankel at a college. It's in Boston. It's 0:19:36.560 --> 0:19:39.320 on the Charles Rivers. It's one of those schools in Boston. 0:19:39.920 --> 0:19:43.399 Jeffrey Frankel said, don't forget GDP and the calculus of 0:19:43.440 --> 0:19:47.520 what Central Bank should and could and will do. Douglas 0:19:47.520 --> 0:19:49.000 Irwin is it Dartmouth. 0:19:55.359 --> 0:19:59.240 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:19:59.320 --> 0:20:03.000 starting at seven on Applecarplay and Android Auto with the 0:20:03.000 --> 0:20:06.160 Bloomberg Business app. You can also watch us live every 0:20:06.200 --> 0:20:09.480 weekday on YouTube and always on the Bloomberg Terminal. 0:20:09.840 --> 0:20:15.280 A little perspective. Chicago long ago was the bedrock of 0:20:15.359 --> 0:20:21.800 American isolationism. I lived it with my grandparents. Were entities 0:20:21.880 --> 0:20:25.200 out there a million years ago and out of nineteen 0:20:25.280 --> 0:20:31.400 twenty two, one organization in Chicago battled the inherent Midwest 0:20:31.480 --> 0:20:34.840 isolizationism of America. It was sort of like Ike out 0:20:34.880 --> 0:20:38.000 in Kansas a million years ago, and that was the 0:20:38.119 --> 0:20:43.200 Chicago Council on Global Affairs. It is a sterling, sterling group. 0:20:43.240 --> 0:20:47.399 Michael Moscow, all sorts of great names of Midwest, William Day, 0:20:47.480 --> 0:20:50.920 all sorts of names of a Midwest business, Eva Adalder 0:20:51.640 --> 0:20:54.440 as well as the chief executive officer. And they have 0:20:54.520 --> 0:20:58.040 scored a coup. It's like the Cubs getting a middle relief. 0:20:58.359 --> 0:21:03.840 In September. Avenja Murray from London to Chicago now President, 0:21:03.920 --> 0:21:08.320 chief Executive Officer of Chicago Council of Global Affairs Leslie 0:21:08.320 --> 0:21:11.679 first of all for all of Bloomberg, congratulations. What is 0:21:11.720 --> 0:21:18.360 it like to go from London and parachute into Chicago, Illinois. 0:21:18.840 --> 0:21:25.280 You know, in today's world, it feels exciting, it feels 0:21:25.840 --> 0:21:30.960 normal in one sense. I mean, and thank you for 0:21:31.000 --> 0:21:35.760 that brilliant welcome and introduction the Chicago Council on Global Affairs. 0:21:35.840 --> 0:21:40.760 You just nailed it. Nineteen twenty two, on the back 0:21:41.000 --> 0:21:44.760 of America's rejection of the Treaty of Versailles of the 0:21:44.840 --> 0:21:47.920 League of Nations and that group of men and women 0:21:48.000 --> 0:21:51.479 being very concerned about keeping America globally engaged. But you know, 0:21:51.880 --> 0:21:55.159 as you know, I was at Chathamhouse. Chutthamhouse and the 0:21:55.240 --> 0:22:01.119 Chicago Council are both nonpartisan, independent membership base organizations in 0:22:01.200 --> 0:22:09.160 two really tremendously vibrant, dynamic cities with very large financial bases. 0:22:09.200 --> 0:22:13.200 So in that sense it feels very familiar. But Chicago, 0:22:13.400 --> 0:22:15.879