WEBVTT - Vice Chairman at Goldman Sachs Robert Kaplan Talks Trade War's Impact

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. We always like to

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<v Speaker 1>start the day and start the week with someone with

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<v Speaker 1>broad perspective. Right now joining us is Robert Kaplan. We're

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<v Speaker 1>thrilled that he could join us today. Forever associated with

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<v Speaker 1>his Goldman Sachs, but his public service noted to the

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<v Speaker 1>nation is the president of the Fetterzer Bank of Dallas,

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<v Speaker 1>and just a really broad view of where we are.

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<v Speaker 1>Thrilled Roberts you would begin our Monday with us, where

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<v Speaker 1>are we right now? In a broad sense? Can our

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<v Speaker 1>institutions survive this onslaught of uncertainty?

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<v Speaker 2>They can survive. But we've got a number of weeks

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<v Speaker 2>more to go to get through this fog. And in particular,

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<v Speaker 2>you know, there's three big changes going on. There's the

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<v Speaker 2>government spending cuts, there's the changes in immigration policy, which

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<v Speaker 2>are having even a bigger effect than are being discussed.

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<v Speaker 2>And on tariffs, the thing that we're just not sure

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<v Speaker 2>about is the Trump administration intending to negotiate tariffs down

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<v Speaker 2>to zero, ten percent, twenty percent. I noticed over the

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<v Speaker 2>weekend they said that they want to settle out at

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<v Speaker 2>twenty to fifty percent, and those are dramatically different outcomes.

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<v Speaker 3>Your charm.

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<v Speaker 1>Robert Kaplan among the people, think that everybody within the

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<v Speaker 1>Caplan school comes from six zip codes somewhere in the

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<v Speaker 1>vicinity of Boston or New York or Washington. You are

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<v Speaker 1>a brethren of Kansas, out of the University of Kansas.

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<v Speaker 1>This makes you different. You understand the span of America.

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<v Speaker 1>I'm looking at a statistic where Kansas has two point

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<v Speaker 1>three billion worth of product in aerospace to the rest

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<v Speaker 1>of the world. How would threat is Kansas from this

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<v Speaker 1>upset in Washington.

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<v Speaker 2>Well, it is threatened, and it's got a lot of farmers,

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<v Speaker 2>big agricultural economy, and our farmers rely very heavily on

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<v Speaker 2>foreign markets China for an example, And so there's a

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<v Speaker 2>lot of concern in Kansas. And also there are a

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<v Speaker 2>lot of small businesses and bigger businesses I'm seeing are

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<v Speaker 2>having They don't love the uncertainty, but they have a

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<v Speaker 2>lot of levers to manage. Small businesses are telling me

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<v Speaker 2>that they're at risk if this goes on for a

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<v Speaker 2>number of more months. There are many of them are

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<v Speaker 2>thinking that they won't stay in business.

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<v Speaker 1>Paul, over the weekend, buried in the headlines, I know

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<v Speaker 1>you weren't paying attention at least it wasn't paying attention.

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<v Speaker 1>China canceled twelve thousand metric tons of United States pork

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<v Speaker 1>ship bits.

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<v Speaker 3>That's a lot of bacon.

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<v Speaker 4>That's a lot of bacon there, and I think we're

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<v Speaker 4>going to see more of that, Robert. When you have

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<v Speaker 4>discussions with your clients, Robert, with your bankers at Goldman Sachs,

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<v Speaker 4>is discussion about a recession is coming or whether it's coming,

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<v Speaker 4>and whether we can get through this. What's the real

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<v Speaker 4>economic fallout that you're hearing from your clients and bankers.

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<v Speaker 2>I think people see that in certain sectors there's already slowing,

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<v Speaker 2>so travel leisure, there's less tourism that we know, shipping

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<v Speaker 2>we know is weak, and you were talking about earlier,

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<v Speaker 2>and in other parts the sentiment is very negative, but

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<v Speaker 2>we don't see a severe decline. I think most people

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<v Speaker 2>I talk to are expecting further slowing. It's not a

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<v Speaker 2>fada complete, but I think they're worried that there's been

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<v Speaker 2>pre ordering, it's artificially bolster GDP recently, and that there's

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<v Speaker 2>a little bit of a cliff coming and more substantial

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<v Speaker 2>decline in growth. But they don't know, but they're preparing

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<v Speaker 2>for a more severe slowing.

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<v Speaker 4>In that regard, Robert, what do you think that the

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<v Speaker 4>Federal Reserve can do should do?

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<v Speaker 3>I think they should be making.

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<v Speaker 2>Clear, as I think Jpal did a couple of weeks ago,

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<v Speaker 2>that they're still very focused on fighting inflation. You don't

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<v Speaker 2>want inflation expectations to get de anchored unanchored here, and

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<v Speaker 2>that's what he was trying to do. And in otherwise,

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<v Speaker 2>don't make predictions. Don't talk about June or not June

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<v Speaker 2>because they don't know. We don't even know what the

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<v Speaker 2>tariff policies are. Ultimately, keep your options open and don't

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<v Speaker 2>try to be a prognosticator, be a risk manager.

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<v Speaker 1>Formerly with the Dallas Fed and now at Goloben Sex,

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<v Speaker 1>Robert keppan with us to start as strong this morning

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<v Speaker 1>and this extended conversation. I mean, I guess we could

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<v Speaker 1>try it out, Robert Kepp when the Fisher equation the

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<v Speaker 1>Fisher hypothesis rather of central bank theory. But it does

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<v Speaker 1>come down to lagging or x post or after the fact.

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<v Speaker 1>I mean, that's the only fallback the central bank has.

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<v Speaker 1>They have to wait and see the labor market crack

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<v Speaker 1>before they act.

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<v Speaker 2>Right, well, they need to see more evidence in the

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<v Speaker 2>hard data of slowing. And also they don't know and

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<v Speaker 2>we don't know this cost shock we're about to get.

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<v Speaker 3>How inflation area is it going to be? The irony

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<v Speaker 3>is up.

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<v Speaker 2>Until January twentieth, goods were disinflating globally. There's a lot

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<v Speaker 2>of global overcapacity for manufacturing, and the service sector was

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<v Speaker 2>where the inflation issue is. Now it's changing, and so

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<v Speaker 2>the Fed's going to have to see more evidence.

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<v Speaker 3>In fairness to them, it's hard to.

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<v Speaker 2>Make policy forecasts or judgments when you don't know yet

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<v Speaker 2>what the policies are, and they don't.

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<v Speaker 1>I mean, Paul, should we do a chart on Bloomberg Radio?

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<v Speaker 3>Now that works?

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<v Speaker 1>I think a chart works with Robert Kappain and you

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<v Speaker 1>know where I'm going with this, Robert Kapin, I'm going

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<v Speaker 1>to the ten.

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<v Speaker 3>Year real yield.

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<v Speaker 1>We are in between e within the dispersion, folks, and

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<v Speaker 1>the answer is at one nine.

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<v Speaker 3>Percent, Paul.

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<v Speaker 1>It really begins to show this economic slow down down

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<v Speaker 1>at one point eight zero. So we are distant from

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<v Speaker 1>that identifying.

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<v Speaker 4>Of a slowing Yeah, we're certainly seeing a GDP forecast

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<v Speaker 4>on Wall Street coming down. Robert, when you talk to

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<v Speaker 4>your corporate clients at Goldman Sachs, what are they doing

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<v Speaker 4>about some of their longer term plans, whether it's long

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<v Speaker 4>term capbecks, whether.

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<v Speaker 3>It's M and A.

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<v Speaker 4>Are they hitting the pause button or are they trying to

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<v Speaker 4>move forward?

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<v Speaker 2>They're mainly hitting the pause buttons. They're not canceling plans,

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<v Speaker 2>but they're pausing them. And the other thing they're doing

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<v Speaker 2>is and again this these tariffs have come very abrupt.

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<v Speaker 2>So many CEOs have told me, listen, I had six

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<v Speaker 2>to twelve months. I couldn't sell, I wouldn't solve this,

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<v Speaker 2>but I could make moves. But this is happening now,

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<v Speaker 2>and so they're re looking at their plans for supply

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<v Speaker 2>chains and logistics. And on the investing side, we are

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<v Speaker 2>seeing people who started the year wanting to overallocate to

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<v Speaker 2>the dollar are now saying, yeah, maybe we're overallocated to

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<v Speaker 2>the dollar. They're gone, they've done a one eighty, and

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<v Speaker 2>they're starting to look at broader alternatives away from the dollar.

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<v Speaker 2>That doesn't mean that that's what they're going to be

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<v Speaker 2>doing six months from now, but there again, they're concerned

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<v Speaker 2>and it's more than tariffs that they don't understand the

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<v Speaker 2>US economy and US institutional framework as well as they

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<v Speaker 2>thought they did, and that's giving them some pause.

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<v Speaker 1>Should we go to the Dallas FED with Robert keptall?

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<v Speaker 1>I think we can do that, Robert Kappan. As you know,

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<v Speaker 1>each FED has a its own characteristics, its own past.

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<v Speaker 1>The Robert McTeer, Robert Kaplan passed of the Dallas FED,

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<v Speaker 1>but it's on the border as well. Not speaking for

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<v Speaker 1>the Dallas FED, I want to make clear that mister

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<v Speaker 1>doctor Kaplan doesn't do that, folks, But Robert Kaplan, to

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<v Speaker 1>be clear here, how do you perceive our tension with

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<v Speaker 1>Mexico as you look at all the research of your

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<v Speaker 1>Dallas FED.

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<v Speaker 3>Yeah.

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<v Speaker 2>So, Texas, as you note, is the largest exporting state

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<v Speaker 2>in the country. The relationship between Texas and Mexico in

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<v Speaker 2>terms of logistics and supply chain arrangements as well as

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<v Speaker 2>people by the way from Mexico coming across the border

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<v Speaker 2>at a shop in Texas, that those relationships are essential.

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<v Speaker 2>And this is why for many companies domicile not just

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<v Speaker 2>in Texas but in the country, the being able to

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<v Speaker 2>send goods back and forth across the order with Mexico

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<v Speaker 2>as well as Canada has been essential.

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<v Speaker 3>To domiciling in.

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<v Speaker 2>Texas and in the United States and making sure we're

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<v Speaker 2>globally competitive. And people don't realize that if you want

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<v Speaker 2>to encourage reshoring to the US and you want to

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<v Speaker 2>take share from Asia, you would want to preserve those

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<v Speaker 2>logistics and the chain arrangements.

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<v Speaker 1>So, with all your experience, Robert Kaplan, how does the

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<v Speaker 1>how do the people around the president, including a Secretary Treasury,

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<v Speaker 1>allow him to save face and walk back from his

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<v Speaker 1>mckinleyite tariffs.

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<v Speaker 2>So I think the nub of the issue right now

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<v Speaker 2>is it's unclear how much cost savings we're getting out

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<v Speaker 2>of doge okay, and I.

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<v Speaker 3>Think that's part of this discussion.

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<v Speaker 2>And I think they're still a little bit wetted that

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<v Speaker 2>we're going to get the offset. We're going to get

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<v Speaker 2>revenue tariffs, and that'll help us in the de leveraging, it'll.

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<v Speaker 3>Help us justify bigger tax cut.

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<v Speaker 2>And I think all the studies I've looked at have

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<v Speaker 2>shown that every dollar of tariff revenue you get, you

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<v Speaker 2>give it back portion of it in terms of lower

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<v Speaker 2>growth and damaging groups. But that's the key to I

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<v Speaker 2>think why they're clinging to these tariff tariffs. At higher levels,

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<v Speaker 2>not at zero, and I think they may be better

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<v Speaker 2>served letting go a little bit on that concept.

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<v Speaker 1>In the zeitgeist this morning, Paul Sweeney is a bar shirt.

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<v Speaker 1>I'm going to give credit to the Tax Foundation showing

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<v Speaker 1>the tencen see revenue build from tariffs versus the ginormous

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<v Speaker 1>revenue that comes in from income taxas right, it's a

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<v Speaker 1>sobering charge.

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<v Speaker 4>It is Robert as former president of the Dallas Fed,

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<v Speaker 4>you have an appreciation for immigration, legal and illegal, being

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<v Speaker 4>an part of the country here. What do you believe

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<v Speaker 4>the impact of this reduction of illegal immigration coming across

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<v Speaker 4>the border will due to the US labor market because

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<v Speaker 4>I'm not sure really folks are clear on how that works.

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<v Speaker 2>So one of the things I would say, over the

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<v Speaker 2>last four years and during the Trump administration, we had

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<v Speaker 2>in excess of a million workers a year immigrants who

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<v Speaker 2>came in and joined the workforce. It appears now this

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<v Speaker 2>year that could be in the low hundreds of thousands.

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<v Speaker 2>We can't tell yet. So that's going to slow workforce growth.

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<v Speaker 2>That slows GDP, it tightens the workforce. But the bigger

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<v Speaker 2>thing going on that I would call out, there are

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<v Speaker 2>millions of undocumented immigrants in this country in the workforce

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<v Speaker 2>who are unsure of their status, and I'm hearing from

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<v Speaker 2>their employers that some number of them are not coming

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<v Speaker 2>into work and they're certainly not shopping and because they're concerned,

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<v Speaker 2>and so that is making the labor force a minute

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<v Speaker 2>at least in the service sector tighter, and it will

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<v Speaker 2>slow GDP growth and it's probably affecting consumer spending.

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<v Speaker 1>Robert Kaplan, generous of you to be with us this morning,

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<v Speaker 1>Vice Chairman goldmin six, thank you so much, and again

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<v Speaker 1>his public service at the Dallas Fed