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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. What a day, Haunty,

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Speaker 1: what a day?

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Speaker 2: Another day, another crazy day. I don't know. I'm I'm

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Speaker 2: I'm getting a little tired. Is tired of the words?

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Speaker 1: I'm not, I'm exhilarated. I am not getting tired. I

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Speaker 1: think this is why we get up in the morning.

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Speaker 1: But as we are talking right now, which is April third,

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Speaker 1: nas X down four point eight percent.

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Speaker 2: Yeah, obviously this is all because of Liberation Day and

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Speaker 2: Donald Trump announcing his new reciprocal tariffs, which turned out

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Speaker 2: to be a lot worse than a lot of professional

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Speaker 2: analysts and economists had been expecting.

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Speaker 1: Yeah, I'm sure the market's just totally taken aback, Tom Orleck.

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Speaker 1: How surprised were you by yesterday?

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Speaker 3: We took him seriously, but not seriously.

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Speaker 1: I did a dead lest.

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Speaker 2: I'm both the most popular trader, most successful trader at Citadel.

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Speaker 3: That is going viral.

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Speaker 2: Uh barges.

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Speaker 1: This isn't after school special, except.

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Speaker 2: I've decided I'm going to base my entire personality going

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Speaker 2: forward on campaigning for a strategic pork reserve in the US.

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Speaker 3: Black goal.

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Speaker 2: These are the important question. Is it robots taking over

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Speaker 2: the world? No.

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Speaker 1: I think that like in a couple of years, the

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Speaker 1: AI will do a really good job of making the

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Speaker 1: Odd Lots podcast. One day that person will have the

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Speaker 1: mandate of heaven.

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Speaker 2: How do I get more popular and successful?

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Speaker 3: We do have the.

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Speaker 2: You're listening to lots More where we catch up with

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Speaker 2: friends about what's going on right now, because.

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Speaker 1: Even when the Odd Lots is over, there's always lots.

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Speaker 2: More And we really do have the perfect guest.

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Speaker 3: So on the campaign trail, Trump was talking about sixty

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Speaker 3: percent tariffs on China, twenty percent tariffs on everybody else,

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Speaker 3: and I think the reaction from wool Street and the

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Speaker 3: reaction from most in the economics profession will this is

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Speaker 3: red meat for the campaign trail. This is not a

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Speaker 3: serious proposal. The US economy, the global economy, the global

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Speaker 3: trade system wouldn't be able to survive tariffs at this level.

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Speaker 3: And now here we are on April third, one day

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Speaker 3: after Liberation Day, and we've got tariffs at that level

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Speaker 3: for China. If you add it up, tariffs may even

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Speaker 3: be a bit higher than sixty percent. So it's a

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Speaker 3: huge shock. And I think the question people are going

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Speaker 3: to be asking is what's being liberated from what is

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Speaker 3: the US being liberated from unfair trade practices from China

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Speaker 3: and Europe? Or are US workers about to be liberated

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Speaker 3: from their jobs and US investors liberated from their returns?

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Speaker 2: Yeah, kind of two different outcomes there, Tom, you were

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Speaker 2: at our Washington, DC event.

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Speaker 3: You think, by the way, thank you.

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Speaker 2: You gave this great presentation showing some of your favorite

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Speaker 2: charts at the moment, and you kind of made the

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Speaker 2: point that when it comes to trade, the US has

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Speaker 2: some legitimate grievances. Can you kind of walk us through that,

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Speaker 2: especially in relation to China? And then also if you

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Speaker 2: think these tariffs are actually going to start alleviating some

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Speaker 2: of those grievances.

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Speaker 3: So I think it's interesting, Tracy, if we go back

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Speaker 3: to the nineteen nineties, it was the kind of unipolar

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Speaker 3: moment for the United States. Right the Soviet Union had collapsed,

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Speaker 3: China was still an early stage of its development. Its

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Speaker 3: GDP was a kind of tiny fraction of that of

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Speaker 3: the United States, and so the argument for free markets

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Speaker 3: really made a lot of sense. Let's have low tariff barriers.

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Speaker 3: US firms are the most competitive firms in the world.

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Speaker 3: They're going to be the biggest winners from low trade barriers,

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Speaker 3: and guess what additional bonus if we trade with China.

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Speaker 3: That's going to be a force for market reform in China,

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Speaker 3: and maybe the whisper it quietly a force for democratic

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Speaker 3: reform in China. That's not how things played out. Over

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Speaker 3: the years that followed. China developed really quickly up to

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Speaker 3: the point where it became a rival to the United

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Speaker 3: States for that biggest economy in the world, biggest geopolitical

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Speaker 3: power spot. And China didn't reform its economy, it didn't

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Speaker 3: become more market based, and it certainly didn't reform its

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Speaker 3: political system. And the US had a huge trade deficit,

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Speaker 3: and a lot of that trade deficit was with China.

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Speaker 3: So jobs were being lost, opportunities teas were being lost,

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Speaker 3: and even worse, they were being lost to America's biggest

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Speaker 3: geopolitical rival. And that just doesn't make a huge amount

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Speaker 3: of sense. And I think the Trump team and Trump

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Speaker 3: himself deserve a bunch of credit for calling that out

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Speaker 3: back in twenty sixteen and saying, this isn't the deal

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Speaker 3: we signed up for in the nineteen nineties, This isn't

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Speaker 3: the deal we signed up for when we invited China

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Speaker 3: into the wto something has to change. Question is, well,

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Speaker 3: now we've got these sweeping tariffs, is this going to

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Speaker 3: deliver the realignment which Trump wants or could there be

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Speaker 3: a sort of significant adverse consequence for the United States.

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Speaker 3: Could the United States end up just cutting itself off

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Speaker 3: from the rest of the world and actually accelerating its

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Speaker 3: own decline, its own fading as a global power, rather

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Speaker 3: than restoring American greatness as President Trump intents.

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Speaker 1: Well, right now, if you look at the market, it's

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Speaker 1: clearly the latter and the tariffs are not just on China.

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Speaker 1: They're on countries that many people would say are friends

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Speaker 1: or allies, or countries that have not risen an industrial

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Speaker 1: might at the expense of the United States.

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Speaker 2: Narrow New Yeah Island in the South.

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Speaker 1: You know, you started your answer by saying, when this

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Speaker 1: was thrown out on the campaign trail, it was perceived

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Speaker 1: that the global trading system could never survive something like this.

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Speaker 1: We don't know. Maybe there will be renegotiations. So the

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Speaker 1: White House is not giving that indication as of the

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Speaker 1: time we're talking about this. They're not indicating that they're

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Speaker 1: going to back trackers of the market. They're not saying

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Speaker 1: this is the start of deal talks. Can the global

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Speaker 1: trading system survive the level of tariffs that we see,

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Speaker 1: assuming this is what's said.

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Speaker 3: So it's a difficult question to answer because we just

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Speaker 3: haven't seen such big tariffs introduced in recent history, so

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Speaker 3: we don't have much data we can use to estimate

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Speaker 3: the impact. That said, we're making best efforts. What we've

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Speaker 3: done is we've taken a computable general equilibrium model of

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Speaker 3: the global economy. Is the same model which some of

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Speaker 3: the economists that the World Trade Organization use, and we've

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Speaker 3: used it to estimate the impact of this tariff shock.

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Speaker 3: And if we focus for a moment on the China

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Speaker 3: piece of it, well, if you put sixty percent China

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Speaker 3: tariffs into the model, it tells you that that pretty

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Speaker 3: much wipes out US China trade. And that's pretty consequential, right,

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Speaker 3: the world's two biggest economies, a Chinese economy, which is

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Speaker 3: the home to major US supply chains for Apple and others.

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Speaker 3: If those two economies just stop trading with each other,

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Speaker 3: that's a huge, huge shock to the system. Thinking about

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Speaker 3: the rest of the world, well, most places haven't been

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Speaker 3: hit by such high tariffs, but still a pretty significant shock. Europe,

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Speaker 3: for example, now facing twenty percent tariffs when they sell

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Speaker 3: to the United States. If you plug that into the

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Speaker 3: big model, well that tells you europe exports to the

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Speaker 3: United States dropped by around fifty percent. So these are

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Speaker 3: huge consequential negative shocks to the global trade system.

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Speaker 2: When it comes to inflation, I mean, lots of economists

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Speaker 2: right now are ratcheting up their inflation forecasts and ratcheting

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Speaker 2: down their GDP forecast. To your point on inflation, how

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Speaker 2: much of the ultimate results the increase in prices of

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Speaker 2: imports into America. How much does that depend on companies

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Speaker 2: absorbing the costs? And how do you go about trying

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Speaker 2: to analyze that because it seems kind of, you know,

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Speaker 2: a bit of a wild card.

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Speaker 3: Yeah, I think it's a huge uncertainty. So if we

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Speaker 3: think about Trump one and the trade war with China,

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Speaker 3: back then, a couple of things happened. So firstly, we

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Speaker 3: had dollar appreciation and that offset some of the impact

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Speaker 3: of the tariffs. Secondly, we had transshipment, so China carried

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Speaker 3: on selling to the United States, but the goods went

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Speaker 3: through Vietnam or they went through Mexico, and that meant

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Speaker 3: they dodged the tariffs. And thirdly, we had retailers absorbing

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Speaker 3: some of the shock in lower margins rather than passing

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Speaker 3: them on to consumers. So all of these things meant

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Speaker 3: tariffs on China went up twenty five percent, but the

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Speaker 3: US consumer didn't really feel the shock, and I think

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Speaker 3: that maybe how the Trump administration are thinking about it

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Speaker 3: this time around. This time around, though, I think there's

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Speaker 3: going to be some pretty significant differences. So the first

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Speaker 3: difference is, well, the economic textbooks tell us when you

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Speaker 3: apply tariffs, the dollar should appreciate, but guess what, this

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Speaker 3: time round, it is depreciating. So that isn't gonna offset

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Speaker 3: tariffs shock on inflation. It's going to amplify the tariff

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Speaker 3: shock on inflation. Secondly, this time round is not just China,

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Speaker 3: it's everybody. Everybody's being hit with the shock at the

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Speaker 3: same time. And that means that that transhipment strategy, sending

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Speaker 3: goods via Mexico or Vietnam, that's not going to work.

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Speaker 3: You're still going to get hit with tariffs. And then thirdly, well,

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Speaker 3: if you're hitting everybody at the same time, can a

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Speaker 3: Walmart or a target really absorb all of that in

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Speaker 3: narrower margins or is it just going to have to

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Speaker 3: start passing it on to the consumer. So the experience

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Speaker 3: in the Trump term. Trump's first term was tariff shock,

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Speaker 3: no impact on consumer prices in the United States. This

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Speaker 3: time round, well, it's difficult to say. There's a lot

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Speaker 3: of variables at work, but I think this is going

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Speaker 3: to be a stagflationary shock, pretty significant hit to US growth,

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Speaker 3: pretty significant boost to US inflation. And that's why we're

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Speaker 3: seeing this fierce stock market sell off today and the

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Speaker 3: US coming out worse than pretty much anybody else.

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Speaker 1: So crazy, Yeah, especially when you look at US versus

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Speaker 1: every other stock market and how much everyone how much

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Speaker 1: more optimistic people are about the rest of the world.

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Speaker 1: You know, there's this vision right that on the other

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Speaker 1: side that there's pain now that we get to the

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Speaker 1: other side, that there's this reindustrialization, and Trump talked about

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Speaker 1: it yesterday. We're going to make great cars with us

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Speaker 1: this state of the art manufacturer, We're going to build

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Speaker 1: chips again, all this.

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Speaker 2: The sunlit uplands manufacturing.

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Speaker 1: What would have to happen for these tariffs to actually

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Speaker 1: translate into or because like I'm fine with taking some

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Speaker 1: short term pain to be like one of the most advanced,

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Speaker 1: technologically prosperous countries on the I see all those propaganda

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Speaker 1: videos out of China with the drones and the cars.

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Speaker 1: I'm like, yeah, I want that here. I'm susceptible to

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Speaker 1: that too. I want like all that stuff produced here.

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Speaker 1: What would have to happen to go from today to

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Speaker 1: that vision.

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Speaker 3: Well, it's a tough one, Joe. So I think Trump

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Speaker 3: will point to the pledges from Apple and TSMC and

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Speaker 3: Nvidia and Hyundai and others to make massive investments in

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Speaker 3: the United States and say, look, it's working. I made

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Speaker 3: the tariff threat. Everyone's bringing their jobs and their factories

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Speaker 3: back to the United States. I think it's probably a

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Speaker 3: bit more complicated than that. Wages in the US are

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Speaker 3: much higher than wages in China or Vietnam or Mexico.

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Speaker 3: Infrastructure in the United States, well, there's not been a

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Speaker 3: lot of investment in manufacturing infrastructure here over recent decades.

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Speaker 3: Supply chains stretch across borders. If you're going to impose

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Speaker 3: massive tariffs, actually makes it harder to manufacture in the

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Speaker 3: United States because factories are going to have to pay

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Speaker 3: that tariff to get crucial inputs and of course the

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Speaker 3: uncertainty which Trump has introduced into the system, and which

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Speaker 3: he sees is crucial to get deals done well. That

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Speaker 3: uncertainty makes it harder to plan, makes it harder to

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Speaker 3: make long term investment decisions, and that makes it harder

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Speaker 3: to reshore manufacturing as well. So it's striking to me

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Speaker 3: if you look at all of those companies which said

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Speaker 3: we're making massive investments in the United States, Apple five

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Speaker 3: hundred billion dollars, TSMC one hundred billion dollars. If you

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Speaker 3: look at what happened to the share price of those

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Speaker 3: companies on the day after the announcement, basically didn't move right,

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Speaker 3: basically didn't move. And I think what that tells us

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Speaker 3: is that markets investors are pretty skeptical. They see those announcements,

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Speaker 3: perhaps as good government relations by those companies currying favor

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Speaker 3: with the White House, rather than the big change in

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Speaker 3: corporate strategy that we'd have to see if manufacturing was

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Speaker 3: really going to come back to the US.

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Speaker 2: Yeah, and on the topic of investment, there's no physical

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Speaker 2: offset either. I mean, the administration is extending the tax cuts,

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Speaker 2: that's basically the existing status quo. So it's not like

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Speaker 2: the government is going to be funding a sudden roll

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Speaker 2: out of investment to try to boost these industries. You

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Speaker 2: mentioned stagflation earlier, Tom, what does the FED do in

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Speaker 2: response to stagflation?

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Speaker 3: So it's a tough one.

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Speaker 1: Tracy keep saying that, how do we get it's going

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Speaker 1: to be tough to keep going?

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Speaker 3: A lot of tough ones in our future. You know,

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Speaker 3: this is the biggest tariff hike that we've seen in

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Speaker 3: the United States going back over the course of one

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Speaker 3: hundred years, and it takes tariff to their highest level

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Speaker 3: in one hundred years. So this is an absolutely enormous

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Speaker 3: shock to the system. So I feel like somewhat justified.

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Speaker 3: Are you are? So it's a tough one. And so

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Speaker 3: if you're the FED, you see growth coming down, you

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Speaker 3: see unemployment going up, you want to cut interest rates.

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Speaker 3: But you see inflation rising because import prices are going up,

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Speaker 3: and so you want to raise interest rates. So what's

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Speaker 3: the impulse? What's the kind of the major impulse? Which

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Speaker 3: one do you follow? Well, some of the messaging which

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Speaker 3: we've been hearing from Chair Powell is that the tariff

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Speaker 3: impact on inflation, well it could be transitory. If I

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Speaker 3: was Chair Powell personally, I wouldn't be using the terb

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Speaker 3: transitory anymore. I think you kind of use that one

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Speaker 3: up in the post COVID shock. But there we are.

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Speaker 3: There's the idea that the tariff impact on inflation is

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Speaker 3: going to be transitory, and so what you have to

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Speaker 3: respond to is the impact on growth, and so that

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Speaker 3: would suggest the impulse for the FED is going to

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Speaker 3: be more rate cuts. That said, there's a bunch of

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Speaker 3: uncertainty out there. We don't know how big the growth

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Speaker 3: shock's going to be, we don't know how big the

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Speaker 3: inflation shock's going to be, don't know if inflation expectations

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Speaker 3: are going to move. If we see inflation expectations staying high,

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Speaker 3: well that will be a sign that the tariffshock and

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Speaker 3: inflation isn't going to be transitory. And the FED is

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Speaker 3: going to be tracking all of these things and weighing

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Speaker 3: them in the balance.

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Speaker 2: So we've established that it's tough. At a minimum, what

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Speaker 2: are you looking out for in terms of economic indicators

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Speaker 2: or I don't know, even corporate anecdotes to see which

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Speaker 2: way things are going to go?

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Speaker 3: So I think there's a few things we're going to

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Speaker 3: be looking for in the days ahead. So the first

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Speaker 3: one is going to be the retaliate or kaw tao

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Speaker 3: choice for other countries. Right, do we see China and

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Speaker 3: Europe and Japan saying, Okay, we don't want these tariffs.

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Speaker 3: Tell us what you want and we'll give it to

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Speaker 3: you and you can take the tariffs away. Or do

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Speaker 3: we see them saying you give us tariffs, We're going

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Speaker 3: to give you tariffs right back. And if it's that

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Speaker 3: retaliation path, that's going to amplify the impact. Second thing

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Speaker 3: I think we'll be looking for is whether the Trump

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Speaker 3: administration just pivots because of the markets. Right, we've got

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Speaker 3: the Nasdaq down more than four percent today. If that

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Speaker 3: slide continues into the end of the week into next week,

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Speaker 3: if we see a very significant and sustained market fall,

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Speaker 3: it's possible, then we'll see that Trump put come into play.

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Speaker 3: And then in terms of indicators we're going to be

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Speaker 3: looking at well, of course, we're going to be tracking

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Speaker 3: the important export numbers. Another important one to look at

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Speaker 3: is going to be the import price data. That's going

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Speaker 3: to tell us how much of this cost is being

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Speaker 3: absorbed by foreign factories and how much of it is

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Speaker 3: being passed through to US retailers. And potentially the US consumer.

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Speaker 3: By the way, is also the US voter. And mid terms,

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Speaker 3: well twenty twenty six not that far away, Tracy.

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Speaker 1: Can I just say two things that yesterday. One is

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Speaker 1: they knew this was gonna slam the market.

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Speaker 2: Oh yeah, and they did it.

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Speaker 1: Anyway, this is a really big deal to me because

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Speaker 1: this is not usual on his American politics. Some might

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Speaker 1: even look at that say I'm impressed, right, because you're like, well,

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Speaker 1: for once we have a president who is not so

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Speaker 1: obsessed with the market. I don't know, I'm just saying.

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Speaker 2: In his speech he also talked about how much stock

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Speaker 2: price is in his first term, which is you can't

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Speaker 2: have it both ways.

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Speaker 1: I thought that too, and then I just think it's man,

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Speaker 1: we had this multiple years of really high inflation, and

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Speaker 1: the first thing that the new president does is push

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Speaker 1: up the price of anything. It's really funny.

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Speaker 2: Tom. I have one more question for you. This is

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Speaker 2: a very important one. It's a bit of a loaded question,

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Speaker 2: but here goes. How much fun did you have at

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Speaker 2: our Washington, DC event?

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Speaker 3: Just an absolutely enormous of fun, Tracy. And my message

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Speaker 3: to od Loots listeners is, if Joe and Tracy come

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Speaker 3: to your time, snap up a ticket immediately. We didn't

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Speaker 3: plan that.

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Speaker 1: That was amazing. That was a perfect answer. Lots More

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Speaker 1: is produced by Carmen Rodriguez and dash Ol Bennett, with

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Speaker 1: help from Moses Ondam and kil Brooks.

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Speaker 2: head of Bloomberg Podcasts.

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