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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. I'm not worried about

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Speaker 1: the markets over the long term. If we put good

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Speaker 1: tax policy in place, deregulation and energy security, the markets

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Speaker 1: will do pread.

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Speaker 2: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,

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Speaker 2: and this is Trumpnomics, the podcast that looks at the

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Speaker 2: economic world of Donald Trump, how he's already shaped the

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Speaker 2: global economy and what on earth is going to happen next.

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Speaker 2: And there you just heard Treasury Secretary Scott Besant on

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Speaker 2: NBC's Meet the Press last week doing what Treasury sectaries

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Speaker 2: are supposed to do, making little of scary moves in

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Speaker 2: financial markets, insisting that everything's going according to plan. But

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Speaker 2: it has to be said, I can't remember many of

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Speaker 2: his predecessors having to do it quite so often or

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Speaker 2: so aggressively in just their first few weeks in office.

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Speaker 2: It feels an eternity ago that the smart money in

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Speaker 2: devors at the end of January were so cockerhoop about

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Speaker 2: the US, so bearish about everywhere else. US consumer confidence

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Speaker 2: surveys were going up, so were the US market. But

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Speaker 2: as we pointed out on this podcast a few weeks

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Speaker 2: ago that has all gone dramatically into reverse, and now

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Speaker 2: talk of Trump's session is everywhere, But it has only

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Speaker 2: been a few weeks. And those problems that President Donald

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Speaker 2: Trump talked about on the campaign trail or they're not

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Speaker 2: going to go away overnight or without some tough decisions. Traditionally,

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Speaker 2: political advisers to any newly elected government would tell you

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Speaker 2: best to get those tough decisions, all that bad news

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Speaker 2: in as early as you can, as long as possible

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Speaker 2: away from the next election. So this week we did

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Speaker 2: want to take a wider view on the White House's

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Speaker 2: economic policies, to look at the trumponomics long game. Is

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Speaker 2: it possible that all of these bumps on the road

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Speaker 2: are in fact taking us to a better long term

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Speaker 2: destination after all? Well, to focus on this I think

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Speaker 2: pretty important question. I have Tom Orlick, chief economist for

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Speaker 2: Bloomberg Economics, sitting in London currently but normally in Washington,

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Speaker 2: and he's particularly well placed to talk about this because

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Speaker 2: he spent eleven years in China learning to take the

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Speaker 2: long view. So Tom, thank you very much for joining us.

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Speaker 3: Great to be here, Stephanie. I have to say before

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Speaker 3: we start, I'm a bit surprised to see you here.

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Speaker 3: When I came on Stephanomics, you were the host. Now

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Speaker 3: I have been invited on Trump Panomics. I naturally assumed,

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Speaker 3: given the name change, that the great Man himself would

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Speaker 3: be here for a discussion. But still great to see.

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Speaker 2: Yeah, I'm sorry. I'm sorry about that disappointment. But as

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Speaker 2: we're going to talk about, he's been pretty busy. I

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Speaker 2: said in the intro. I mean, if it was anybody else,

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Speaker 2: you sort of feel like we wouldn't be very surprised

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Speaker 2: that a lot of sort of negative things and difficult

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Speaker 2: decisions were happening early in the administration rather than late

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Speaker 2: when people have a chance of remembering them more clearly

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Speaker 2: when they go to the ballot boxes. Are you surprised,

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Speaker 2: as our chief economist, how negativity has taken hold so quickly?

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Speaker 2: I mean I saw the BNP baiber chief economist a

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Speaker 2: note of hers that's just come in my box saying

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Speaker 2: it's been must be a record for how quickly it's

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Speaker 2: taken for the Davos Consensus to be overturned.

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Speaker 3: Yeah, I am surprised. I think before the inauguration there

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Speaker 3: was two views about how the Trump administration was going

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Speaker 3: to go. One view was that there'd be a lot

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Speaker 3: of talk about tariffs and a lot of talk about deportations,

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Speaker 3: but actually the real energy and the real action would

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Speaker 3: be around tax cuts and regulation cuts, and so it

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Speaker 3: was going to be noisy and it was going to

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Speaker 3: be raucous, but in terms of the substance, it was

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Speaker 3: going to feel pretty much like a traditional Republican administration.

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Speaker 3: I think that was more or less the consensus in

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Speaker 3: the markets, the consent amongst the Davos crowd. The other possibility,

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Speaker 3: of course, and I didn't think people really took this

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Speaker 3: very seriously, was that he'd actually try and do what

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Speaker 3: he talked about on the campaign trail, sweeping tariffs, sweeping

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Speaker 3: cuts in government spending, the most deportations since President Dwight Eisenhower,

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Speaker 3: and eight weeks in, it seems like we're getting that

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Speaker 3: second possibility. That's why the mood has swung so quickly

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Speaker 3: from that optimism to pessimism.

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Speaker 2: The manner of the sort of the execution, at least

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Speaker 2: on the economic policy, I think has maybe distracted people

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Speaker 2: from the kind of longer term view that we're going

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Speaker 2: to take on this podcast, because we obviously have had

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Speaker 2: changes of minds, last minute delays, or suspensions and exclusions

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Speaker 2: for the tariffs. Certainly, I think that's distracted a bit

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Speaker 2: from the extraordinarily successful kind of institutional first few weeks

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Speaker 2: of this administration. I can't think of one. I mean,

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Speaker 2: not so much on the economic policy. I can't think

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Speaker 2: of the first few weeks of administration which has fanned

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Speaker 2: out across the departments and agencies of government so effectively

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Speaker 2: to impose its will in such a short period. I mean,

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Speaker 2: we've obviously heard a lot about dose, but the efficiency

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Speaker 2: with which this administration has approached the executive orders and

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Speaker 2: the placing of people across vast swathes of government to

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Speaker 2: pursue the administration's cultural and ideological objectives and learn anything else.

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Speaker 2: I think if you were just a sort of change consultant,

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Speaker 2: you'd have to be sort of tipping your hat at

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Speaker 2: how effective that's been, regardless of where we end up

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Speaker 2: or what gets broken along the way. Anyway, all of

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Speaker 2: that probably deserves a podcast episode in its own right.

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Speaker 2: But on the core economics on which he was elected

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Speaker 2: I think people might take your point, but they would say, look,

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Speaker 2: you know, the main thing. Certainly a lot of voters

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Speaker 2: have been saying the main thing we were focused on

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Speaker 2: was inflation, and if anything on inflation, you seem to

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Speaker 2: be pushing things the other way. So just lay out

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Speaker 2: for us the case for thinking this administration's being a

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Speaker 2: bit more strategic than it looks.

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Speaker 3: So I think the first thing to say, Stephanie is

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Speaker 3: that the Trump administration and Trump himself, has made a

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Speaker 3: compelling case for what the problems are. Sometimes in analysis

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Speaker 3: and commentary you see a comparison between Trump and Reagan,

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Speaker 3: and the implicit point is, well, Reagan was a great

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Speaker 3: Republican president. He was courtly, he was gentlemanly, he was optimistic.

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Speaker 3: Trump wants to be a great Republican president. Why is

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Speaker 3: he so bleak? Why is he so crude? And I

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Speaker 3: think the answer to that question really lies in the

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Speaker 3: very different economies which they inherited. Reagan inherited a US

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Speaker 3: economy which was on the rise, a US economy where

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Speaker 3: debt was just twenty five percent of GDP, A US

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Speaker 3: economy which still had a trade surplus. Fast forward to

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Speaker 3: twenty twenty five, and Trump's inherited a US economy which

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Speaker 3: is shrinking as a share of the global total, A

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Speaker 3: US economy where debt is one hundred percent of GDP

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Speaker 3: and rising fast and a US economy which in twenty

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Speaker 3: twenty four had a trade deficit approaching nine hundred billion dollars.

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Speaker 3: So Reagan was optimistic and that resonated with voters. Trump

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Speaker 3: is bleak and pessimistic, and that resonated with voters. And

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Speaker 3: when you look at the shift in the US economy,

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Speaker 3: I think you can see the reason for that transition.

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Speaker 3: So I think top marks on identifying the problems, on

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Speaker 3: delivering the solutions, well, I think the Trump administration can

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Speaker 3: point to some early and significant wins. They can point

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Speaker 3: to TSMC, the giant Taiwanese semiconductor company, which has said

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Speaker 3: it will invest one hundred billion dollars in the United States.

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Speaker 3: They can point to Germany, which has said it's going

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Speaker 3: to spend five hundred billion dollars on infrastructure and probably

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Speaker 3: hundreds of billions more on defense. A long term objective

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Speaker 3: of the US has been to have its allies pay

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Speaker 3: more for the cost of their defense. They haven't achieved it,

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Speaker 3: but Trump seems to be delivering. So they can point

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Speaker 3: to some early and I think significant wins. But certainly

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Speaker 3: you're right, the early days of the administration have been

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Speaker 3: characterized by confusion, by missteps, by abrupt about faces. Think

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Speaker 3: about the twenty five percent tariffs on Canada and Mexico

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Speaker 3: which were abruptly removed. That's one of the reasons why

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Speaker 3: the mood has swung from optimism to pessimism, and that,

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Speaker 3: as you point out, is also one of the reasons

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Speaker 3: why concern about inflation is rising again, with the University

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Speaker 3: of Michigan survey showing households are really quite concerned that

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Speaker 3: tariffs are going to be driving inflation higher.

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Speaker 2: Again, the manner of the imposition of the tariffs has

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Speaker 2: not been efficient. But what can we say about the

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Speaker 2: architecture of what he's been seeking out to do. I mean,

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Speaker 2: does it have a genuine chance of addressing that sort

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Speaker 2: of long term trade gap that the US has had

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Speaker 2: for so long, because that's one of the things that

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Speaker 2: he's identified as a problem. But I guess the question

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Speaker 2: would be whether tariffs is the solution.

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Speaker 3: So if we go to the economic textbooks, tariffs are

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Speaker 3: absolutely not the solution. The economics textbooks tell us that

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Speaker 3: trade balances are not determined by whether you've got tariffs

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Speaker 3: or you haven't got tariffs. Trade balances are determined by

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Speaker 3: the relationship between saving an investment, and tariffs don't affect

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Speaker 3: that relationship. So when you impose tariffs, what happens is

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Speaker 3: currencies move to maintain a trade balance, which is consistent

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Speaker 3: with that fundamental relationship between saving an investment. If you

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Speaker 3: look at the economic textbooks, Trump is absolutely following the

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Speaker 3: wrong approach. I think if we did have Donald Trump

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Speaker 3: on this podcast, what he would probably say is, well,

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Speaker 3: textbooks be damned, look at the results I'm delivering. TSMC

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Speaker 3: are investing one hundred billion dollars in the United States.

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Speaker 3: Apple have agreed to invest hundreds of billions of dollars

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Speaker 3: in the United States. Other companies faced with the threat

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Speaker 3: of tariffs also thinking about moving their supply chains back

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Speaker 3: to the US. For decades, the United States has lectured

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Speaker 3: China about the importance of relying less on exports and

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Speaker 3: boosting its own consumption, and China's officials have listened politely

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Speaker 3: and sip their tea and basically ignored them. What's happened

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Speaker 3: since Trump came into power. Well, Premier Lee Chang at

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Speaker 3: the National People's Congress in Beijing a few weeks ago,

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Speaker 3: said the ego ren Wu. The first task is to

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Speaker 3: Dali Chi Jung chal Fe vigorously increase consumption, and he's

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Speaker 3: put some money behind that. The Chinese are targeting a

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Speaker 3: discal deficit in twenty twenty five of eight percent of GDP,

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Speaker 3: a lot more than six percent which was their target

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Speaker 3: in twenty twenty four, and Li Chang's telling us that

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Speaker 3: money is going towards consumption spending. So the textbooks tell

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Speaker 3: us it won't work. Trump thinks it will. Some of

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Speaker 3: the early evidence is lining up behind his case.

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Speaker 2: You see, this is a difference between our economics podcasts

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Speaker 2: and anybody else's economics podcast Other people, including the Rory

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Speaker 2: Stewart and Alastair Campbell on their politics show last week,

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Speaker 2: can talk a little bit about the Chinese economy, but

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Speaker 2: only here would you get some of the key quotes

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Speaker 2: in Mandarin. So I think we can chalk up some

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Speaker 2: points on that one. I think when it comes to

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Speaker 2: the rest of the world, the rest of the world

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Speaker 2: might differ on this, but I think if you're looking

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Speaker 2: at the world through a Trumpian lens, I think you

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Speaker 2: would have to say there's been movement in his direction

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Speaker 2: quite dramatically, so in Europe, maybe not for the reasons

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Speaker 2: that you might want, but there's certainly been a structural change,

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Speaker 2: most dramatically in Germany. It's approached to defense spending, even

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Speaker 2: at the cost of overturning or ignoring for those purposes.

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Speaker 2: It's long standing limit on debt, and as you identify,

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Speaker 2: also a quite significant change of trajectory in China at

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Speaker 2: home in the US. And he also point to any wins.

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Speaker 2: I mean, some of the other things he's identified, the

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Speaker 2: cost of government borrowing, Oil prices, low oil has been

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Speaker 2: a theme of Donald Trump's pretty much all of his

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Speaker 2: political and business career, the high level of the dollar.

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Speaker 2: How's he doing on those things?

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Speaker 3: So I think it's a mixed picture, Stephanie. Think about

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Speaker 3: the stock market. Trump, in the past, when the market

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Speaker 3: has been going up, has viewed the stock market as

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Speaker 3: kind of a daily report card on his performance. Well,

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Speaker 3: since Trump came into power, the S and P five hundred,

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Speaker 3: the NASDAC, they haven't created, but they are markedly down.

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Speaker 3: And that's the market saying, you know what, all of

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Speaker 3: this uncertainty isn't going to be good for growth. All

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Speaker 3: of these tariffs aren't going to be good for company profits.

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Speaker 3: We're not optimistic. If we look at the dollar. Well,

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Speaker 3: Trump's views on the dollar are a little bit You'll

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Speaker 3: be hugely surprised to hear me say this, Stephanie. Trump's

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Speaker 3: views on the dollar are a little bit internally inconsistent.

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Speaker 3: On the one hand, he would like a weaker dollar

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Speaker 3: to support export competitiveness and reduce that trade deficit. On

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Speaker 3: the other hand, he would like the dollar to retain

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Speaker 3: its status as a global reserve currency so that US

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Speaker 3: borrowing costs stay low. And those things point in different directions.

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Speaker 3: What happened since the election, Well, he's got the weaker dollar,

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Speaker 3: probably not for reasons that he would like. The dollar

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Speaker 3: is weak, not because the markets are acquiescing in his

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Speaker 3: desire to boost export competitiveness, but because they're more pessimistic

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Speaker 3: about the outlook for the US. And on oil prices, well,

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Speaker 3: Trump wants cheaper oil prices. I think we want all

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Speaker 3: want cheaper oil prices. Certainly the US households want cheaper

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Speaker 3: oil prices. He thinks that drill baby drill, slashing regulations

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Speaker 3: on oil producers in the United States is going to

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Speaker 3: be a driver of increased supply, and that's what's going

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Speaker 3: to bring prices down. Oil producers, Well, they're not so

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Speaker 3: certain they'd certainly take the cut in regulations, but whether

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Speaker 3: they're going to increase production that's a different question. So far,

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Speaker 3: though oil prices have come down from around eighty dollars

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Speaker 3: a barrel when he was elected to around seventy dollars

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Speaker 3: a barrel as we're recording today, So again a move

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Speaker 3: in the right direction, though not necessarily a reflection of

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Speaker 3: early success for Trump's policies.

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Speaker 2: Does it matter that these things are happening for the

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Speaker 2: wrong reason, especially if it's early in the term. Famously,

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Speaker 2: the good economic news that was in the economic statistics

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Speaker 2: last year was not being felt by American households, and

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Speaker 2: apparently was not felt in the results of the election either. Now,

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Speaker 2: if there's some underlying bad news which is altering markets,

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Speaker 2: pushing down the long term cost at borrowing cost mortgage rates,

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Speaker 2: is it possible that people will actually notice those things

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Speaker 2: and not the negativity in parts of the real economy

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Speaker 2: that's leading to them, and he will end up with

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Speaker 2: the kind of positive trajectory from here that many governments

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Speaker 2: would like to have. You get your bad news in

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Speaker 2: the first six months, nine months, and then everything seems

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Speaker 2: to be getting better as you approach the next selection.

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Speaker 2: I mean, in the previous Trump administration, and we've talked

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Speaker 2: about it in the past with your chief US economist

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Speaker 2: Dana Wong and others, you had a different ordering where

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Speaker 2: the sugar rush of the tax cuts was all really

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Speaker 2: quite early on in the administration, and some of the

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Speaker 2: negativity caused by the tariffs, as Anna has pointed out,

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Speaker 2: well that was delayed because of the legacy of the

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Speaker 2: tax cuts sugar rush, But actually some of the bad

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Speaker 2: news was coming in even before COVID. You know, in

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Speaker 2: the latter part of the administration, you were actually starting

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Speaker 2: to have the bad news, which is exactly what you

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Speaker 2: don't want. So this could be another way in which

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Speaker 2: the administration has learned from the limitations they hit in

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Speaker 2: the first administration. Do you think that's a stretch They've

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Speaker 2: got their timing better this time.

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Speaker 3: I think there's certainly something in the idea that getting

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Speaker 3: the bad news out of the way ahead of the

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Speaker 3: midterms is a good political thinking from the Trump administration.

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Speaker 3: I guess the nuance I would introduce is, I don't

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Speaker 3: think we've had anything like all the bad news yet.

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Speaker 3: Right If we think about the drop in the stock market,

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Speaker 3: the fall in the dollar, the dash into US treasuries,

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Speaker 3: it's all because of noise, uncertainty, sudden about faces. We

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Speaker 3: haven't actually had the big policy shock yet. April the

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Speaker 3: second is when we're getting the major tariff announcement potentially

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Speaker 3: a significant increase in tariffs on all of the major

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Speaker 3: US trade partners, including Europe, and on public spending. Well,

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Speaker 3: Elon Musk in his Department of Government Efficiency have certainly

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Speaker 3: put the fear of God into all of the federal

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Speaker 3: employees in Washington, d C. And they've certainly captured a

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Speaker 3: lot of headlines. But even based on their own estimate,

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Speaker 3: which many analysts are skeptical about, they've only saved a

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Speaker 3: little bit more than hundred billion dollars. And that's really

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Speaker 3: pretty insignificant relative to the size of the cuts in

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Speaker 3: government spending which Trump is going to need to deliver

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Speaker 3: if he wants to get the fiscal deficit from six

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Speaker 3: point four percent of GDP, which is where it was

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Speaker 3: last year ninety three percent of GDP, which is where

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Speaker 3: Scott Besson says it has to be so tactically politically,

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Speaker 3: getting the bad news out of the way first is

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Speaker 3: a good idea, but the caveat would introduces. If you

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Speaker 3: think that bad news we've had so far is all

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Speaker 3: the bad news, well I've got some bad news for you.

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Speaker 2: To return to where we started. He has identified some

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Speaker 2: pretty fundamental problems with the US economy, with the US

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Speaker 2: economic model, and he has started to address them one

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Speaker 2: way or another. If he's made significant progress on those

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Speaker 2: in two or three years time, or even or four

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Speaker 2: years time, you know, just as the Chinese do, judge

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Speaker 2: the results of their policies over many years, sometimes decades,

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Speaker 2: rather than a few weeks and months, all of this

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Speaker 2: will be forgotten.

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Speaker 3: Right, Yeah, I think that's true, Stephanie. Do you mind

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Speaker 3: if I come at you and Trumponomic's listeners with another

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Speaker 3: historical analogy.

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Speaker 2: We live for historical analogies.

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Speaker 3: Okay, great, So look Paul Vulka. He was the son

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Speaker 3: of a lowly county clerk or city official. He was

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Speaker 3: a cigar chomper, He devoted his life to public service.

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Speaker 3: So at first sight, there's not much to suggest a

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Speaker 3: analogy between him and Donald Trump. The son of a

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Speaker 3: millionaire teetotaler, and on the evidence so far, not someone

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Speaker 3: who has a huge amount of respect for people who

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Speaker 3: devote their lives to public service. But I think there

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Speaker 3: is an analogy which is worth thinking about. Vulka came

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Speaker 3: into office as Chair of the Federal Reserve and he

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Speaker 3: faced a huge problem. Inflation was way too high. And

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Speaker 3: he said, you know what, I'm going to get this

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Speaker 3: under control. And there's going to be a huge cost

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Speaker 3: to do doing so, but it's going to be a

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Speaker 3: price worth paying. And he jacked up interest rates to

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Speaker 3: twenty percent, an unemployment sared to eleven percent, more than

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Speaker 3: one in ten US workers were out of a job.

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Speaker 3: But it did the job, and inflation came back down,

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Speaker 3: and Volka had laid the groundwork for decades of increasing

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Speaker 3: US prosperity. And when people look back at that period now,

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Speaker 3: they don't remember the missteps and the pain and the

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Speaker 3: uncertainty of those initial moves to jack up interest rates.

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Speaker 3: What they remember is the vision and the determination and

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Speaker 3: ultimately the success. Right now, with Donald Trump, the focus

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Speaker 3: is very much on the missteps and the uncertainty and

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Speaker 3: the transition costs. But if, and this is a really

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Speaker 3: big if, at the end of his four years in power,

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Speaker 3: he can point to debt coming under control, deficits coming

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Speaker 3: under control, and a world which is more secure because

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Speaker 3: US allies have stopped free riding, and they're paying their

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Speaker 3: share for the cost of that security. That's what his

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Speaker 3: legacy is going to.

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Speaker 2: Be, a straight line from Paul Volka to Donald Trump. Well,

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Speaker 2: if there's a test for a good podcast, it's surely

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Speaker 2: to take people to a destination that they find unexpected

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Speaker 2: and could never have predicted. And that's surely we've done

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Speaker 2: it on this occasion. Tom Rlick, thank you so much

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Speaker 2: for joining us.

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Speaker 3: Great to be here, Donald, Sorry, Stephanie.

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Speaker 2: Thanks as ever for listening to Trumpnomics from Bloomberg. It

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Speaker 2: was hosted by me, Stephanie Flanders, and I was joined

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Speaker 2: by our chief economist, Tom Orlick. Trump Andomics is produced

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Speaker 2: by Samasadi and Moses and Am, with help from Chris

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Speaker 2: Martin Lou and Amy Keene and sound design by Blake Maples.

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Speaker 2: Brendan Francis Newnham is our executive producer. The Lam