WEBVTT - The US Trade War 0:00:02.520 --> 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 --> 0:00:27.160 us live on YouTube. 0:00:27.200 --> 0:00:31.680 This conversation is for every elected politician in Washington as 0:00:31.680 --> 0:00:35.400 they listen on ninety ninety one FM this morning. Douglas 0:00:35.520 --> 0:00:38.600 Erwin is an institution. Blanche Flower is not an institution. 0:00:39.159 --> 0:00:43.159 He's just a macroeconomist. Doug Irwin is an institution at 0:00:43.240 --> 0:00:46.880 Dartmouth at College. In his ute, the definitive book and 0:00:47.040 --> 0:00:50.160 still fresh, Fresh Fresh is against the tide. 0:00:50.200 --> 0:00:55.200 It was definitive at the time. More recently is clashing 0:00:55.360 --> 0:00:56.280 over commerce. 0:00:56.320 --> 0:00:58.200 For those of you on YouTube, it's over his right 0:00:58.240 --> 0:01:01.920 shoulder at right now and book lined office, Professor Irwin. 0:01:02.280 --> 0:01:05.240 We are honored that you would attend today. If you 0:01:05.280 --> 0:01:09.040 were to meet with a congressional leadership today, how should 0:01:09.080 --> 0:01:12.160 they respond to what the executive branch has wrought? 0:01:14.040 --> 0:01:16.480 I would say that under the US Constitution, Article one, 0:01:16.560 --> 0:01:19.520 section eight, you have power over tariffs, and the problem 0:01:19.600 --> 0:01:23.560 has been is successive congresses have delegated so many powers 0:01:23.600 --> 0:01:27.200 of tariff setting to the president on the assumption that 0:01:27.280 --> 0:01:30.040 the president will basically act in the national interest and 0:01:30.440 --> 0:01:34.080 tend to lower tariffs and trade agreements. That Congress has 0:01:34.120 --> 0:01:38.000 given up its authority. So it's time for Congress to 0:01:38.040 --> 0:01:40.399 stand up and assert itself a bit more on trade. 0:01:40.520 --> 0:01:43.720 Their constituents will be hurt by many of these measures, 0:01:43.760 --> 0:01:46.600 and yet the Republicans seem to be very quiet about it. 0:01:46.959 --> 0:01:50.480 How will they affect that reassertion. Do they need the 0:01:50.560 --> 0:01:54.240 judicial branch to support them or do they just sit 0:01:54.360 --> 0:01:56.640 down with the beverage of their choice. What do they 0:01:56.720 --> 0:01:58.520 drink at Dartmouth? It's like lebats. 0:01:58.800 --> 0:02:02.040 Yes, they like Doug Irwin. Do they have a labet? 0:02:02.160 --> 0:02:04.440 So the president say this is too much? 0:02:06.000 --> 0:02:07.600 I think you have to look back to the first 0:02:07.680 --> 0:02:11.200 Trump term when President Trump almost pulled out of NAFTA 0:02:11.639 --> 0:02:14.400 and he was convinced by his Secretary of Agriculture and 0:02:14.400 --> 0:02:17.240 a few congressional allies that that would not be a 0:02:17.320 --> 0:02:20.200 right move, that he should renegotiate it because they were 0:02:20.240 --> 0:02:22.639 pointing to the harm that would be done to his voters, 0:02:22.960 --> 0:02:26.320 farmers in the Midwest, manufacturing firms in the Upper Midwest 0:02:26.360 --> 0:02:29.480 that depend on exports, and so that sort of helped 0:02:29.480 --> 0:02:31.880 convince him in terms of a longer run solution of 0:02:31.960 --> 0:02:35.359 changing legislation to in power Congress more that sort of 0:02:35.400 --> 0:02:37.760 a long run solution to what is now a short 0:02:37.840 --> 0:02:39.560 term crisis. 0:02:40.240 --> 0:02:43.000 Doug, how do we think about tariffs in a global 0:02:43.440 --> 0:02:46.120 intertwined economy. It's not like the eighteen hundreds where we 0:02:46.160 --> 0:02:50.079 imported a relatively small number of goods. We exported a 0:02:50.160 --> 0:02:54.000 relatively small number goods and then global economy to tariffs. 0:02:54.120 --> 0:02:54.840 How do they work? 0:02:56.520 --> 0:02:58.600 Yeah, you're right, it's actually very different than it was 0:02:58.600 --> 0:03:01.120 a century ago. A lot of trade a century ago 0:03:01.200 --> 0:03:03.640 was sort of in final goods or in very basic 0:03:03.960 --> 0:03:07.519 raw materials, and now what we have is integrated supply 0:03:07.680 --> 0:03:11.680 chains and international production networks. So the web of commerce 0:03:11.760 --> 0:03:14.639 and the greedy witch firms in all sectors are sort 0:03:14.680 --> 0:03:17.720 of bound to the global economy in some way. Is 0:03:17.760 --> 0:03:20.400 so much more extensive today than it was even fifty 0:03:20.480 --> 0:03:23.040 years ago, let alone one hundred years ago. The terriffs 0:03:23.080 --> 0:03:26.679 have much more ripple effects throughout the economy, and these 0:03:26.680 --> 0:03:31.800 proposed tariffs will rip apart North American supply chains and 0:03:32.240 --> 0:03:34.800 be quite extensive in terms of the reach that they 0:03:34.800 --> 0:03:35.320 will have. 0:03:35.520 --> 0:03:38.720 Deugr when you mentioned Frank Tausig the giant at Harvard 0:03:38.800 --> 0:03:39.240 years ago. 0:03:39.360 --> 0:03:42.440 This is folks one hundred years ago writing on terrffs. 0:03:42.440 --> 0:03:45.000 To me, there's a whole mythology going on right now, 0:03:45.240 --> 0:03:48.880 whether it's a president's affair with mister McKinley from another 0:03:48.960 --> 0:03:49.760 time and place. 0:03:50.080 --> 0:03:52.040 We trot back Lisa mentioned. 0:03:51.720 --> 0:03:54.680 Smoot Holly this morning, or we go back to August 0:03:54.720 --> 0:03:57.400 of nineteen seventy one when the world turned upside down 0:03:57.760 --> 0:04:03.760 with Richard Nixon and gold myth Doug Irwin is most wrong. 0:04:05.520 --> 0:04:07.960 Well, I'd say the myth that the US economy grew 0:04:08.200 --> 0:04:10.680 in the late nineteenth century. We became an industrial power 0:04:10.800 --> 0:04:14.200 because of the tariff. There's a classic case of correlation 0:04:14.320 --> 0:04:16.960 not being causation. So there are a lot of reasons 0:04:16.960 --> 0:04:19.599 why the US became an industrial power after the Civil War. 0:04:19.680 --> 0:04:23.080 Up until World War One, we had massive immigration. Not 0:04:23.160 --> 0:04:26.000 many people in the Comme administration and mentioned that we 0:04:26.000 --> 0:04:30.040 were the recipient of major capital inflows from Britain and 0:04:30.120 --> 0:04:34.200 other countries. We were adopting technology then the technological leader 0:04:34.240 --> 0:04:37.679 of Britain. We are pretty much open to the world 0:04:37.880 --> 0:04:41.760 except in trade, so we did have high tariffs, but 0:04:42.480 --> 0:04:44.680 they did promote manufacturing a bit. But if you look 0:04:44.720 --> 0:04:47.719 where the productivity growth was, it was in the service sector. 0:04:48.200 --> 0:04:53.040 It was railroads and then later electrification and telecommunications. It 0:04:53.160 --> 0:04:57.760 wasn't just manufacturing and becoming rich because of the tariff walls. 0:04:58.440 --> 0:05:01.320 If you're just joining us this morning, Bloomberg Surveillance, and 0:05:01.360 --> 0:05:04.640 thank you for joining Bloomberg. We continue with Douglas Erwin 0:05:04.800 --> 0:05:07.919 of Dartmouth at College. Many good guests coming up, including 0:05:07.960 --> 0:05:12.200 Damien Sasa are in Foreign Exchange down negative five ninety 0:05:12.279 --> 0:05:15.080 one to Erwin of Dartmouth. 0:05:14.680 --> 0:05:18.000 Paul Sweeney, Professor, talk to us about these tariffs in 0:05:18.040 --> 0:05:22.560 the context of they seem to be enacted by President 0:05:22.600 --> 0:05:26.440 Trump in response to non economic issues per se, maybe 0:05:26.640 --> 0:05:30.320 whether it's the fentanyl coming into this country, whether it's 0:05:30.440 --> 0:05:34.760 immigration policy from our neighbors. Is that kind of the 0:05:34.800 --> 0:05:38.240 way tariffs should be used, typically are used. How do 0:05:38.240 --> 0:05:38.840 you think about that? 0:05:40.040 --> 0:05:42.120 Well, what's interesting about these is they haven't really been 0:05:42.240 --> 0:05:45.640 vetted by the Trump economic team. His US Trade representative 0:05:45.720 --> 0:05:48.320 is not in office yet. We've just had the confirmation 0:05:48.480 --> 0:05:53.000 of the Treasury Secretary Commerce Secretary to come. So usually 0:05:53.080 --> 0:05:55.400 when countries imposed tarrifs, and usually when the US has 0:05:55.400 --> 0:05:58.440 done this in the past, there's an interagency process where 0:05:58.480 --> 0:06:00.880 you deliberate and you figure out what is the best 0:06:00.880 --> 0:06:03.599 case and how can we make these work? And I 0:06:03.600 --> 0:06:05.880 think these are a little bit in advance of those 0:06:05.920 --> 0:06:09.520 advanced discussions within the administration. So I think you get 0:06:09.560 --> 0:06:11.960 this hodgepodge of reasons why we're doing this. It could 0:06:11.960 --> 0:06:14.320 be the fentanyl phrase of the migrants. But we also 0:06:14.400 --> 0:06:16.719 hear still about the trade dempsit. I mean, when President 0:06:16.720 --> 0:06:20.120 Trump makes these statements, comes back to the imbalanced trade 0:06:20.920 --> 0:06:24.479 and he's actually ordered a review on that. But it's 0:06:24.600 --> 0:06:26.720 very hard for other countries negotiating, and there are ten 0:06:26.760 --> 0:06:29.120 different things that are being flung at you at in 0:06:29.240 --> 0:06:30.359 terms of what you're doing wrong. 0:06:30.920 --> 0:06:33.640 Dougarwin honored to have you here for breaking news. This 0:06:33.720 --> 0:06:37.920 is some Doug Ford. He is a Premier of Ontario. 0:06:38.160 --> 0:06:42.520 He's basically I mean Ontario stretch is from just north 0:06:42.520 --> 0:06:45.360 of Hanover, New Hampshire, all the way over to Carlton 0:06:45.400 --> 0:06:49.039 College in Minnesota. But the Ontario government says they will 0:06:49.080 --> 0:06:54.240 cancel all US contracts. And what's important is this is 0:06:54.360 --> 0:06:58.040 quote we're going one step further we'll be ripping up 0:06:58.080 --> 0:07:02.200 the province's contract with Starlink, and of course it has 0:07:02.240 --> 0:07:04.799 to do with the Elon Musk and all that. Dug Ford. 0:07:05.480 --> 0:07:10.600 Service sector hasn't been talked about much. Do you expect 0:07:10.680 --> 0:07:14.120 service sector to be harmed as much as the goods sector? 0:07:15.680 --> 0:07:18.760 Not as much because they're not directly hit by tariffs. 0:07:18.760 --> 0:07:21.800 But there's a complementarity between trade and services and trade 0:07:21.800 --> 0:07:24.160 and goods, and the two often go hand in hand. 0:07:24.680 --> 0:07:26.920 So if you disrupt trade and goods, there's going to 0:07:26.960 --> 0:07:29.640 be some spillower effects, negative ones for the service sector 0:07:29.680 --> 0:07:30.080 as well. 0:07:31.480 --> 0:07:34.760 Professor. Some of the concerns here as it relates to 0:07:34.840 --> 0:07:38.640 tariffs just in general is that they are inflationary in 0:07:38.720 --> 0:07:41.600 the US economy. How do you think about that? 0:07:42.920 --> 0:07:45.320 But I don't think they don't cause inflation in the 0:07:45.360 --> 0:07:48.040 sense of a sustained increase in the CPI. They are 0:07:48.120 --> 0:07:50.640 sort of level effects, so they will increase the level 0:07:50.640 --> 0:07:56.520 of consumer prices and industrial prices, so that will lead 0:07:56.560 --> 0:07:59.080 to a bump and measured inflation. It's not clear that 0:07:59.120 --> 0:08:01.520 FED has to respond to that, but what that means 0:08:01.560 --> 0:08:04.960 is the declining real income and purchasing power of those 0:08:05.000 --> 0:08:07.280 businesses and households. I mean, just to give you a 0:08:07.320 --> 0:08:10.160 personal example which I shared on social media yesterday, I 0:08:10.160 --> 0:08:13.560 had an email from Irving Oil, which provides US with propaine, 0:08:13.920 --> 0:08:16.080 saying that any tax that's levied on them as they 0:08:16.080 --> 0:08:18.840 ship propane from Canada to the US will be directly 0:08:18.880 --> 0:08:21.640 added to the bill that we're facing here in New Hampshire. 0:08:21.960 --> 0:08:24.720 So even before the terrorists took effect, are already being 0:08:24.760 --> 0:08:26.880 warned prices are going to go off. 0:08:27.840 --> 0:08:31.200 Lightheiser, and it's on my table at home. No trade 0:08:31.280 --> 0:08:37.240 is free. Robert Leiitthheiser focused on China. Lightheiser pushed aside 0:08:37.320 --> 0:08:41.080 in the second Trump administration, Douger went on a ten 0:08:41.200 --> 0:08:46.640 percent tariff on China. How would you suggest Beijing will respond? 0:08:48.280 --> 0:08:50.480 Actually, I'm a little bit less worried about China, and 0:08:50.480 --> 0:08:52.680 I'm a little bit surprised we're going after our allies 0:08:52.720 --> 0:08:55.240 and ripping up North American supply chains by going after 0:08:55.600 --> 0:08:59.440 Canada and Mexico. I mean, the big rival to the 0:08:59.600 --> 0:09:02.160 US and big problem in terms of trade has been China, 0:09:02.760 --> 0:09:06.160 and yet President Trump has deemphasized that. So I'm not 0:09:06.200 --> 0:09:09.120 going to agree with Robert Leittheizer on many things, but 0:09:09.200 --> 0:09:11.600 to the extent that he's focused mainly on China. I 0:09:11.600 --> 0:09:13.600 think that's where the administration has to look too. 0:09:14.760 --> 0:09:18.760 So, Professor, how do you think the governments of Canada 0:09:19.040 --> 0:09:24.160 and Mexico should respond? Will respond? I mean, how deep 0:09:24.240 --> 0:09:25.719 is this going to go? Do you think how long 0:09:25.760 --> 0:09:26.679 will does go? 0:09:26.800 --> 0:09:30.000 Do you think, well, it's very interesting. There's a report 0:09:30.080 --> 0:09:32.920 that the Prime Minister of Canada, Justin Trudeau, will be 0:09:32.920 --> 0:09:35.280 speaking with the President today, So I'd say there's a 0:09:35.320 --> 0:09:37.640 small chance things could get averted, even though I wouldn't 0:09:37.640 --> 0:09:40.400 be too autimistic about that. But I think they're responding 0:09:41.200 --> 0:09:44.079 in the way that actually they did at least Canada 0:09:44.080 --> 0:09:46.240 did with the smooth hawlight here for nineteen thirty. That 0:09:46.400 --> 0:09:50.400 is not to take it sitting down to retaliate, And 0:09:50.480 --> 0:09:52.719 they're very strategic in terms of the goods that they 0:09:53.200 --> 0:09:56.160 put pressure points on that are important in the US 0:09:56.679 --> 0:09:58.720 when in putting those tariffs on. So they try to 0:09:59.040 --> 0:10:02.080 post tariffs on things maximize the political harm in the US, 0:10:02.400 --> 0:10:04.959 but the least economic harm from Canada because they'll be 0:10:04.960 --> 0:10:07.319 subs to products that they can import. 0:10:07.840 --> 0:10:11.800 Doug the World stopped for against the Tide and intellectual 0:10:11.920 --> 0:10:13.840 history of free trade thirty. 0:10:13.520 --> 0:10:14.840 Some years ago. 0:10:15.320 --> 0:10:19.560 The final chapter thirty some years ago, Page two seventeen, 0:10:20.280 --> 0:10:23.120 The Past and Future of Free Trade? 0:10:23.760 --> 0:10:24.840 Okay, WTO. 0:10:24.960 --> 0:10:27.680 I was in Jimmy Chang's office in Hong Kong the 0:10:27.760 --> 0:10:32.760 day WTO collapsed. Doug Irwin, what is the future of 0:10:32.840 --> 0:10:39.880 free trade? After GAT, after Uruguay, after WTO, and now Trump? 0:10:40.120 --> 0:10:41.240 What is the future? 0:10:42.960 --> 0:10:44.640 Well, it's going to be a bit of a mess, 0:10:44.679 --> 0:10:47.959 and it could be basically redrawn lines of trade based 0:10:47.960 --> 0:10:53.120 on geopolitics. But you know, most countries, speaking outside of 0:10:53.160 --> 0:10:56.800 the US now, most countries have a tremendous stake in 0:10:56.840 --> 0:11:00.559 the trading system and open trade. They're much smaller economies. 0:11:01.160 --> 0:11:03.680 They've opened up over the past thirty forty fifty years 0:11:03.760 --> 0:11:07.240 or so. They received economic benefits buy and large from that, 0:11:07.720 --> 0:11:10.360 and to undo that is harmful for them. So I 0:11:10.360 --> 0:11:12.959 think even if the US, because of our politics for 0:11:13.040 --> 0:11:15.520 what have you, move in a different direction, the rest 0:11:15.559 --> 0:11:17.440 of the world will still be open for business to 0:11:17.480 --> 0:11:18.520 the intent they can. 0:11:18.640 --> 0:11:21.199 I mean, Doug, I know hitters like Jamie Diamond and listening, 0:11:21.280 --> 0:11:24.839 Brian moynan and others in banking. Maybe Christine Lergard, Good morning, 0:11:24.840 --> 0:11:28.360 Madame Lecguard and your team in Frankfort, Doug Irwin on 0:11:28.440 --> 0:11:31.120 the X axis, forget about J curve dynamics. 0:11:31.120 --> 0:11:31.760 I don't buy it. 0:11:32.280 --> 0:11:36.280 On the X axis, Professor Irwin, we shift from an 0:11:36.320 --> 0:11:42.280 inflationary dynamic of tariffs over to the growth or less 0:11:42.320 --> 0:11:45.559 growth dynamic on your time continuum. 0:11:45.640 --> 0:11:46.800 What's the when of that? 0:11:47.200 --> 0:11:50.840 When do we shift from a study of inflation higher 0:11:51.480 --> 0:11:52.920 to growth slower? 0:11:54.559 --> 0:11:56.960 Well, there have been a lot of independent forecasts of 0:11:57.160 --> 0:12:00.480 these Trump tariffs, from the Tax Foundation, from the INSU 0:12:00.559 --> 0:12:04.320 for International Economics, and from other entities, and none of 0:12:04.320 --> 0:12:06.840 them have any positive effects. It's always negative. And the 0:12:06.920 --> 0:12:09.480 question is, given the scenario, what how negative you go? 0:12:09.880 --> 0:12:12.480 You shave point two point three point four percent off 0:12:12.480 --> 0:12:15.600 of GDP. Those are sort of where the numbers are 0:12:15.640 --> 0:12:18.280 coming in, and those will come in fairly quickly. If 0:12:18.320 --> 0:12:20.840 we actually see the tariffs go into effect on Tuesday, 0:12:21.559 --> 0:12:24.440 we'll probably see, certainly by the second or third quarter, 0:12:26.640 --> 0:12:29.680 somewhat slower growth. Now, once again, that doesn't mean it's 0:12:29.679 --> 0:12:32.560 pushing us into recession, but it just means that after 0:12:32.600 --> 0:12:35.280 a year or two, our real GDP will be lower 0:12:35.280 --> 0:12:36.360 than it otherwise would have been. 0:12:36.920 --> 0:12:39.320 I got one final question, Doug, you're sort of up 0:12:39.360 --> 0:12:40.880 in you know, the edge of Canada. 0:12:41.040 --> 0:12:42.280 Yeah, Hanover's really mine. 0:12:42.640 --> 0:12:45.080 I mean it's not a Connecticut river and it's really 0:12:45.520 --> 0:12:47.600 it's like it's sort of like New York North. 0:12:47.760 --> 0:12:48.080 I don't know. 0:12:48.120 --> 0:12:49.360 Those are hardy people up there. 0:12:49.200 --> 0:12:51.079 They're hardy. Yeah, it's a strift bubble. 0:12:51.200 --> 0:12:53.920 Yes. What are you telling somebody over a cup of 0:12:53.960 --> 0:12:58.720 coffee this morning? Doug Irwin in Victoriaville, Quebec. You're at 0:12:58.720 --> 0:13:02.520 a diner in Victoria. What are you telling them to do? 0:13:02.880 --> 0:13:04.679 What should Canada do? 0:13:06.200 --> 0:13:08.839 You know? Canada was very savvy during the first Trump term. 0:13:08.880 --> 0:13:10.800 They made a lot of We talked about Congress. We 0:13:10.840 --> 0:13:14.800 opened our discussion with Congress. They realized that maybe the 0:13:14.800 --> 0:13:17.000 administration is not going to be very sympathetic, but in 0:13:17.080 --> 0:13:21.199 members of Congress are because they are much closer to 0:13:21.360 --> 0:13:24.200 how their constituents will be affected by this, and so 0:13:24.240 --> 0:13:28.719 they worked state legislatures, They worked on Capitol Hill and 0:13:28.960 --> 0:13:33.000 tried to create an environment where it constrains the administration 0:13:33.040 --> 0:13:34.880 in terms of how much they can push things and 0:13:35.000 --> 0:13:37.760 what they can do. So there may not be much 0:13:37.760 --> 0:13:40.120 support for Canada in the White House, but there are 0:13:40.160 --> 0:13:43.160 other pressure points in the business community and the state 0:13:43.240 --> 0:13:47.000 and legislatures and elsewhere that they can try to contain 0:13:47.480 --> 0:13:50.360 the damage that will be done to them from these tariffs. 0:13:50.840 --> 0:13:53.800 Douglas Irwin honored. You go to tend, go back to class, 0:13:53.800 --> 0:13:55.680 get the chalk in your hand and teach. 0:13:55.800 --> 0:13:57.760 Okay, I won't tell Blancheflower what you said. 0:13:58.040 --> 0:13:59.320 Okay, don't tell them. 0:13:59.360 --> 0:14:02.040 We're going to probably done in Florida right now, distant 0:14:02.080 --> 0:14:02.800 from the tariffs. 0:14:03.400 --> 0:14:04.760 Dougarwin, thank you so much. 0:14:04.800 --> 0:14:07.959 Into David Blanchefhard, thank you so much for his support 0:14:08.040 --> 0:14:10.880 of all of Dartmouth economic. 0:14:16.760 --> 0:14:20.360 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:14:20.400 --> 0:14:23.560 weekday afternoons from seven to ten am Eastern. Listen on 0:14:23.640 --> 0:14:27.320 Applecarplay and Android Otto with the Bloomberg Business app, or 0:14:27.480 --> 0:14:28.920 watch us live on YouTube. 0:14:29.000 --> 0:14:31.920 Joining us. How Lori Calvissini here with the small stocks 0:14:31.920 --> 0:14:35.120 down two percent is as well? I mean, Laurie to 0:14:35.160 --> 0:14:38.480 cut to the chase. Can strollers move the term the 0:14:38.960 --> 0:14:43.040 needle on export import dynamics? Don't? 0:14:43.080 --> 0:14:44.960 I don't know about strollers, Tom, I don't think I 0:14:45.000 --> 0:14:48.800 ever paid one thousand dollars one of mine. 0:14:48.920 --> 0:14:52.160 There's one here, I kid you not, folks. The Junama 0:14:52.200 --> 0:14:53.160 Pilot collection. 0:14:53.400 --> 0:14:59.200 Baby Pram is two thousand nice good dollars and there's 0:14:59.240 --> 0:15:02.600 a small cab out they're making that puppy right now. 0:15:02.720 --> 0:15:05.880 Is this an opportunity, Lori Kelvicina, I mean, you're with 0:15:05.960 --> 0:15:07.480 the Royal Bank of Canada. 0:15:07.640 --> 0:15:10.840 Is this an opportunity to acquire stocks? 0:15:12.560 --> 0:15:12.800 Look? 0:15:13.120 --> 0:15:15.400 Look, it's always the good day to buy stocks, right Look, 0:15:15.560 --> 0:15:18.800 I think the reality is that we're seeing a little 0:15:18.840 --> 0:15:21.160 bit of a sell off today. It could have been worse. 0:15:21.720 --> 0:15:24.400 I do think that we've had some valuation problems in 0:15:24.440 --> 0:15:26.200 the market. I do think we've had some froth in 0:15:26.240 --> 0:15:28.360 the market. If you look at the CFTC data on 0:15:28.480 --> 0:15:31.800 US equity future positioning. I do still think it's going 0:15:31.840 --> 0:15:33.760 to be a good year in the equity market if 0:15:33.840 --> 0:15:36.720 we kind of get through this issue. And I've told people, 0:15:37.000 --> 0:15:39.120 you know, a common talking point today has been, Look, 0:15:39.160 --> 0:15:40.800 if you think about my S and P five hundred 0:15:40.880 --> 0:15:43.400 forecast sixty six hundred at the end of the year, 0:15:43.720 --> 0:15:46.360 not because of tariff specifically, but I have baked into 0:15:46.400 --> 0:15:48.520 that number the idea of a five to ten percent 0:15:48.640 --> 0:15:51.400 draw down. We do have a bare case ready to 0:15:51.480 --> 0:15:55.400 go a fifty seven seventy five should certain conditions be met. 0:15:55.440 --> 0:15:57.840 Those conditions have not been met. But there are things 0:15:57.840 --> 0:15:59.800 we have to keep an eye on. Ten year yields, 0:15:59.800 --> 0:16:03.120 how they react to the environment we're in right now. 0:16:03.360 --> 0:16:05.880 What about these vibes We've been hearing about these vibes 0:16:05.920 --> 0:16:09.200 that we're supposed to be so fantastic and explode post election, 0:16:09.320 --> 0:16:11.960 and yet we've had two disappointing prints on the consumer 0:16:12.080 --> 0:16:16.080 sentiment and confidence surveys. And now we've got businesses talking 0:16:16.160 --> 0:16:19.120 a lot about uncertainty from the tariffs, denting some of 0:16:19.160 --> 0:16:21.760 the post election optimism. So there are things we've got 0:16:21.760 --> 0:16:24.680 to watch. We've got to be vigilant. I think we're 0:16:24.720 --> 0:16:26.920 still on a good path. Are the odds that we 0:16:26.960 --> 0:16:29.640 could get knocked off that path up? Yeah, they're up 0:16:29.680 --> 0:16:31.280 a little bit, Laurie. 0:16:31.280 --> 0:16:33.840 How important are earnings to the twenty twenty five performance 0:16:33.880 --> 0:16:35.840 in this market? Because it just doesn't feel like I'm 0:16:35.840 --> 0:16:38.560 going to get that much from the Federal Reserve in 0:16:38.640 --> 0:16:40.400 terms of rate cuts, So it feels like I need 0:16:40.440 --> 0:16:42.280 to rely upon earnings maybe a little bit more. 0:16:43.280 --> 0:16:45.560 I think that's fair, Paul, And you know, we sort 0:16:45.600 --> 0:16:48.360 of have said this for two reasons. Number One, if 0:16:48.360 --> 0:16:51.400 we do are modeling on the valuation side and plug 0:16:51.400 --> 0:16:54.520 in current assumptions, whether it's my guys at RBC or 0:16:54.600 --> 0:16:57.640 the consensus numbers on things like inflation, the Fed ten 0:16:57.720 --> 0:17:00.200 year yields, I can't come up with that real you 0:17:00.200 --> 0:17:01.720 have a number for the market at the end of 0:17:01.760 --> 0:17:05.480 the year. Valuations have moved a lot, and they've done 0:17:05.520 --> 0:17:07.880 it on the backs of inflation ramping down, and now 0:17:07.880 --> 0:17:09.679 it looks like inflation, you know, there may be some 0:17:09.800 --> 0:17:12.600 upside pressures there. So I think it's tough from that perspective. 0:17:12.840 --> 0:17:14.720 And if you just take a more kind of simplistic 0:17:14.760 --> 0:17:16.960 analysis and look at a forward pe on the S 0:17:17.000 --> 0:17:19.280 and P five hundred and you can all these different versions. 0:17:19.640 --> 0:17:21.399 All my charts are showing me that we've kind of 0:17:21.480 --> 0:17:23.400 hit a ceiling and we're moving down a little bit. 0:17:24.440 --> 0:17:26.800 So I think valuation expansion is tough to come by. 0:17:27.200 --> 0:17:30.680 Earnings matter, margin expectations have been coming down. I do 0:17:30.720 --> 0:17:34.640 think that there are potential negative impacts to earnings, both 0:17:34.680 --> 0:17:38.560 from demand margins of right at the dollar is something 0:17:38.560 --> 0:17:41.399 else to watch from this tariff situation, and things like 0:17:41.440 --> 0:17:43.080 the dollar are already starting to pinch. 0:17:43.720 --> 0:17:46.119 Is there a small cap meg seven? 0:17:48.480 --> 0:17:48.680 Oh? 0:17:49.160 --> 0:17:52.760 You know, I think there are names that small cap 0:17:52.880 --> 0:17:56.800 investors end up crowding into. They don't like the fact 0:17:56.880 --> 0:17:59.480 that they do it, which is one of the things 0:17:59.480 --> 0:18:02.240 I love about the small cap investment community. But you know, 0:18:02.280 --> 0:18:03.639 I do think we've had a little bit of a 0:18:03.680 --> 0:18:06.760 squeeze on quality. And what I mean by that is 0:18:06.840 --> 0:18:10.439 you've seen just the quality characteristics of the Russell two 0:18:10.520 --> 0:18:14.720 thousand degrade nearly half of its negative earners, a lot 0:18:14.720 --> 0:18:17.639 of things that are kind of low liquidity, tiny market 0:18:17.680 --> 0:18:20.760 calf that frankly, active managers just can't buy, and so 0:18:20.840 --> 0:18:23.840 they do tend to gravitate to kind of the bigger 0:18:23.960 --> 0:18:27.800 small calfs, more liquidity, higher quality stats. But it's more 0:18:27.840 --> 0:18:29.480 expansive than a mag seven. 0:18:29.760 --> 0:18:30.800 It's been wonderful too. 0:18:30.800 --> 0:18:33.119 Short of visit Lori Kelvicin to thank you so much 0:18:33.520 --> 0:18:37.159 with OURBC Capital Markets. She'll be publishing in the coming lawers. 0:18:37.560 --> 0:18:41.480 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:18:41.520 --> 0:18:44.520 starting at seven am Eastern on Apple Cocklay and Android 0:18:44.560 --> 0:18:47.600 Auto with the Bloomberg Business app. You can also listen 0:18:47.680 --> 0:18:50.920 live on Amazon Alexa from our flagship New York station, 0:18:51.480 --> 0:18:55.359 Just say Alexa, Play Bloomberg eleven thirty This is important. 0:18:55.400 --> 0:18:58.160 As we talked to Douglas Herwin of Dartmouth College here 0:18:58.200 --> 0:19:02.439 and he really mentioned, like, where's the legislative branch? We 0:19:02.520 --> 0:19:05.119 continue with that on a gentleman from Harvard and now 0:19:05.160 --> 0:19:09.280 at Yale got a Makunda joins us scary and I 0:19:09.280 --> 0:19:12.920 want to go back to your book indispensable when leaders 0:19:13.040 --> 0:19:18.919 really matter? Where is the indispensable leadership of Republicans and 0:19:19.040 --> 0:19:21.439 Democrats in Congress in the Senate? 0:19:22.040 --> 0:19:23.960 Given this upset we. 0:19:23.960 --> 0:19:28.280 Have, Democrats have no idea what they should do, and 0:19:28.480 --> 0:19:32.200 Republicans have been broken to Trump's will. At this point, 0:19:32.520 --> 0:19:34.240 we've so you seen just about everybody coming. 0:19:34.359 --> 0:19:37.880 Is there a historical president to the way quote Republicans 0:19:37.920 --> 0:19:40.080 have been broken unquote. 0:19:39.680 --> 0:19:43.000 In the United States? It's hard to think of one. 0:19:43.160 --> 0:19:48.720 Even Franklin Roosevelt faced more domestic yeah from his own 0:19:48.760 --> 0:19:50.919 party than Trump does. Right now, just to put this 0:19:50.960 --> 0:19:55.600 in context, Donald Trump has higher approval ratings from Republicans, 0:19:55.640 --> 0:19:58.960 just from Republicans. He's inessentially a nothing any from anyone 0:19:58.960 --> 0:20:02.560 else than Ronald Reagan or George W. 0:20:02.600 --> 0:20:02.879 Bush. 0:20:02.880 --> 0:20:06.040 Ever, did I think he might actually have higher numbers 0:20:06.040 --> 0:20:06.960 than EISENHOWERD did? 0:20:07.320 --> 0:20:07.439 Right? 0:20:07.480 --> 0:20:10.480 He is the most popular Republican president among Republicans in 0:20:10.520 --> 0:20:11.200 the history of bowling. 0:20:11.440 --> 0:20:14.240 So what do you think he does with that type 0:20:14.240 --> 0:20:18.520 of popularity here? I mean, it feels like tariffs are 0:20:18.600 --> 0:20:20.960 kind of I don't know, they don't seem like that 0:20:21.040 --> 0:20:23.280 big a deal to me. I mean, one could argue 0:20:23.320 --> 0:20:25.800 if you had that type of support, one could do 0:20:25.880 --> 0:20:28.840 some really big things. How do you think that he 0:20:29.000 --> 0:20:32.000 and his administration think about their popularity and support? 0:20:32.400 --> 0:20:35.320 So the question here, right is do they how much 0:20:35.359 --> 0:20:38.400 are they care? Right? So, Donald Trump is particularly sensitive 0:20:38.440 --> 0:20:41.480 to popularity issues. He always has been. And this might 0:20:41.560 --> 0:20:44.000 just be an exercise in getting people to bend the 0:20:44.080 --> 0:20:47.040