WEBVTT - The Tariff Trade-Off 0:00:02.720 --> 0:00:10.560 Bloomberg Audio Studios, Podcasts, radio news. 0:00:17.200 --> 0:00:20.880 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:21.239 --> 0:00:23.960 and this is Trumpnomics, the podcast that looks at everything 0:00:24.160 --> 0:00:29.400 in the economic world of Donald Trump. This week, tariffs 0:00:29.400 --> 0:00:32.280 are back, and they look like they're here to stay. 0:00:32.520 --> 0:00:35.480 We're recording this on Wednesday, the twenty ninth of July. 0:00:35.960 --> 0:00:39.080 Late last week, the White House imposed tariffs of around 0:00:39.120 --> 0:00:43.080 ten percent on imports from more than eighty countries, replacing 0:00:43.120 --> 0:00:46.320 emergency tariffs put in place after the Supreme Court ruled 0:00:46.360 --> 0:00:50.199 a lot of the previous ones he'd put in place unconstitutional. 0:00:50.560 --> 0:00:53.120 There've also been in the last week new tariffs on 0:00:53.159 --> 0:00:56.520 Canada and Brazil, and we have coming down the track, 0:00:56.800 --> 0:01:00.400 so called Section three oh one investigations now hanging over 0:01:00.480 --> 0:01:04.440 multiple countries, all of which could result in more import 0:01:04.480 --> 0:01:07.679 taxes in the next few months. Well, heaven knows. We've 0:01:07.680 --> 0:01:10.800 talked about tariffs before on this show. In fact, our 0:01:10.840 --> 0:01:14.760 most listened to episode ever was on that topic. But 0:01:14.840 --> 0:01:16.920 in a week when the President has reminded us just 0:01:17.000 --> 0:01:19.959 how much he likes them, I wanted to step back 0:01:20.000 --> 0:01:23.679 and think about the unintended consequences of those tariffs. For 0:01:23.720 --> 0:01:27.920 the economy and the federal budget. In a nutshell, many 0:01:27.920 --> 0:01:31.560 of the positive consequences from tariffs that the President promised 0:01:31.560 --> 0:01:34.560 on the campaign trail have not really happened, or not 0:01:34.640 --> 0:01:37.200 in the way he suggested. But you'd have to also 0:01:37.240 --> 0:01:39.919 say that the biggest negatives that were talked about before 0:01:39.959 --> 0:01:43.959 they were imposed have not really happened either. So raises 0:01:44.000 --> 0:01:48.360 the question is President Trump's signature economic policy turning out 0:01:48.400 --> 0:01:50.720 to be just a fancy way of extracting a few 0:01:50.720 --> 0:01:55.040 more tax revenues from US consumers, And if so, is 0:01:55.040 --> 0:01:58.040 anyone really going to want to let that money go? Well, 0:01:58.080 --> 0:02:01.280 we've brought back the pair of voices actually who featured 0:02:01.280 --> 0:02:05.440 funnily enough in that super popular Trumpenomics episode, Sean donnand 0:02:05.560 --> 0:02:08.080 senior writer with Bloomberg who reports on the US and 0:02:08.120 --> 0:02:11.639 global economy for US. Sure, thanks so much for joining us. 0:02:12.120 --> 0:02:13.440 It's always great to be here. 0:02:14.200 --> 0:02:17.320 And trump andomics regular Also in Washington, Ana Wong, chief 0:02:17.400 --> 0:02:20.960 US economist at Bloomberg Economics, who's previously worked at the 0:02:21.000 --> 0:02:23.680 Federal Reserve and served in the Trump White House in 0:02:23.680 --> 0:02:26.760 twenty nineteen and twenty twenty on to comment at the 0:02:26.800 --> 0:02:30.120 Council of Economic advisors. Anna always great to get you on. 0:02:30.960 --> 0:02:39.160 Happy to be here, Sean. There was a lot of 0:02:39.200 --> 0:02:42.320 talk ahead of these tariffs, and indeed President Trump used 0:02:42.320 --> 0:02:44.200 to talk a lot about it in his first term, 0:02:44.680 --> 0:02:48.560 that they were going to bring manufacturing back to the US. 0:02:48.680 --> 0:02:53.200 We were going to see reshoring and a revitalization of 0:02:53.320 --> 0:02:55.799 US manufacturing. We were going to see the trade deficit 0:02:56.000 --> 0:03:00.239 four and some extra revenue for the federal government which 0:03:00.280 --> 0:03:02.880 was going to be paid for by all those foreign exporters. 0:03:03.320 --> 0:03:07.560 You had a great story this week focusing on tin cans, 0:03:07.680 --> 0:03:10.960 no less, and I thought that really painted a picture 0:03:11.040 --> 0:03:17.040 of how that manufacturing piece had sometimes panned out on 0:03:17.120 --> 0:03:18.880 the ground. So tell us a little bit about that. 0:03:19.480 --> 0:03:23.520 The reason I looked at tin cans was because it's 0:03:23.560 --> 0:03:27.079 a way of looking at Trump's original tariffs, which were 0:03:27.080 --> 0:03:30.040 the steel tariffs that he imposed back in March of 0:03:30.080 --> 0:03:33.400 twenty eighteen and twenty five percent tariff on all imports 0:03:33.440 --> 0:03:38.360 of steeling. On the day after the announcement went out, 0:03:38.680 --> 0:03:43.400 as markets were having conneptions, Wilbur Ross went on television 0:03:43.640 --> 0:03:48.840 and who was then the Commerce secretary, right, and he 0:03:48.840 --> 0:03:53.640 held up a can of Campbell's soup and said, essentially 0:03:54.200 --> 0:03:58.160 the tariffs will not affect the cost of this one bit. 0:03:59.040 --> 0:04:01.600 He had calculated how much steel was in there. He 0:04:01.720 --> 0:04:05.560 also said that the payoff for these tariffs would be 0:04:05.680 --> 0:04:09.480 tens of thousands of jobs and hundreds of millions of 0:04:09.520 --> 0:04:14.360 dollars of investment. So I thought, let's take this tin 0:04:14.440 --> 0:04:16.080 can and look at it as a case study of 0:04:16.080 --> 0:04:19.160 how things have actually worked out. Well. The answer is, 0:04:19.600 --> 0:04:23.239 the price of that tin can has gone up substantially 0:04:23.720 --> 0:04:26.800 since March of twenty eighteen, when these tariffs were put 0:04:26.839 --> 0:04:30.479 in place. The cost of canned fruits and vegetables that 0:04:30.520 --> 0:04:34.080 consumers pay are up almost fifty percent since that day, 0:04:34.360 --> 0:04:38.120 and the cost of the empty can itself coming off 0:04:38.440 --> 0:04:42.200 the production line is up eighty percent since March of 0:04:42.279 --> 0:04:46.000 twenty eighteen. So there's a significant impact on the cost side. 0:04:47.320 --> 0:04:50.839 One of the reasons for that is that, in fact, 0:04:51.000 --> 0:04:53.440 one of these promises of the tariffs, which was that 0:04:53.480 --> 0:04:58.280 there would be more investment in domestic production domestic capacity, 0:04:58.880 --> 0:05:01.479 hasn't played out at all. On that day that Will 0:05:01.520 --> 0:05:04.480 Barross went on TV, there were a dozen steel mills 0:05:04.480 --> 0:05:07.719 in the US that turned out tin plate can makers 0:05:07.839 --> 0:05:11.720 imported about fifty percent of the steel that they used 0:05:11.760 --> 0:05:16.000 to make cans, and that was supposed to go down well. 0:05:16.040 --> 0:05:19.320 In fact, there are now only three steel mills in 0:05:19.360 --> 0:05:23.440 the United States that make tin plate, and can makers 0:05:23.520 --> 0:05:26.920 import eighty percent of the steel that they need to 0:05:27.000 --> 0:05:30.880 make those tin cans. At the same time, we haven't 0:05:30.920 --> 0:05:34.560 seen the jobs story work out in the same way. 0:05:34.920 --> 0:05:38.479 There are now roughly thirteen hundred more people working in 0:05:38.520 --> 0:05:42.400 American steel mills than there were in March of twenty eighteen, 0:05:42.720 --> 0:05:45.359 so it hasn't been a huge jobs boom even for 0:05:45.440 --> 0:05:48.919 the broader steel industry, although we have seen investment in 0:05:48.960 --> 0:05:51.119 other parts. And part of the story here is also 0:05:51.720 --> 0:05:56.600 about how tariffs don't happen in isolation. They happen in 0:05:56.640 --> 0:05:59.240 an economy that has lots of different things going on. 0:06:00.080 --> 0:06:03.680 The reality for the US steel industry is that making 0:06:03.720 --> 0:06:08.440 tinplate is difficult, it's capital intensive, and it's a tiny 0:06:08.520 --> 0:06:11.839 part of the US steel market. And therefore, the real 0:06:11.960 --> 0:06:14.440 question that you hear, and that I heard from economists 0:06:14.440 --> 0:06:18.280 and people in the industries, why are we putting tariffs 0:06:18.960 --> 0:06:22.800 on imports of something that the domestic industry does not 0:06:22.880 --> 0:06:26.400 want to make and does not want to invest in 0:06:26.600 --> 0:06:30.160 an allocate capital too, And so that to me, is 0:06:30.560 --> 0:06:32.480 a case study for a lot of these tariffs. You 0:06:32.520 --> 0:06:34.800 can go down through the supply chain, and I talked to. 0:06:34.839 --> 0:06:36.720 One of the people I talked to was a tomato 0:06:36.800 --> 0:06:41.479 farmer in Indiana who's planting fewer tomatoes this summer as 0:06:41.520 --> 0:06:45.040 a result of the higher cost of cans and as 0:06:45.040 --> 0:06:48.479 a result also of international competition, because these tariffs don't 0:06:48.480 --> 0:06:51.200 apply to cans that are already filled with fruits and 0:06:51.279 --> 0:06:56.039 vegetables that are being imported, and so the domestic competitiveness 0:06:55.880 --> 0:06:59.240 has been hit by this as well. And so that's 0:06:59.240 --> 0:07:01.000 the unintended content with this, and then there's this kind 0:07:01.000 --> 0:07:04.000 of unfulfilled promises thing. And I think that that as 0:07:04.120 --> 0:07:07.520 really when we think of the kind of political economy 0:07:07.560 --> 0:07:13.040 of these tariffs. As the big issue that Trump faces 0:07:13.280 --> 0:07:15.720 if you go back to twenty sixteen, you go back 0:07:15.760 --> 0:07:17.960 to when he was first running for president and he 0:07:18.080 --> 0:07:20.240 was first talking about cracking down on trade and first 0:07:20.280 --> 0:07:23.920 talking about tariffs in all of those campaigns, is that 0:07:24.000 --> 0:07:27.679 he is promising more factory jobs in the United States, 0:07:28.400 --> 0:07:31.960 and today there are seventy five thousand fewer people working 0:07:31.960 --> 0:07:34.760 in American factories than there were when Trump returned to 0:07:34.880 --> 0:07:36.720 office in January of twenty twenty five. 0:07:36.680 --> 0:07:38.960 And it's interesting, Sean. I think it makes sense to 0:07:39.000 --> 0:07:41.880 be focusing on some of the sectors that were affected 0:07:41.920 --> 0:07:45.640 by the first Trump tariffs, because obviously you could make 0:07:45.680 --> 0:07:48.720 the argument, and has been made on this program before, 0:07:48.800 --> 0:07:51.120 that it's quite soon if you want to have the 0:07:51.280 --> 0:07:54.680 kind of shift that Donald Trump is talking about. But 0:07:54.760 --> 0:07:57.200 I guess what's interesting from the way you've talked to, 0:07:57.400 --> 0:07:59.600 particularly with a question of whether or not you could 0:07:59.600 --> 0:08:05.280 have more US producers of tinplate to replace those imported 0:08:05.360 --> 0:08:08.440 tin plate for the ten cans seen from the people 0:08:08.520 --> 0:08:10.920 you talk to that this wasn't just a matter of 0:08:10.960 --> 0:08:13.480 time and the tariffs being in long enough. They already 0:08:13.480 --> 0:08:15.360 had quite a lot of protection. They were looking to 0:08:15.400 --> 0:08:18.480 have even more, and it just didn't seem like it 0:08:18.520 --> 0:08:19.120 was going to work. 0:08:20.280 --> 0:08:23.640 I think in the Trump presidency it is such a 0:08:23.680 --> 0:08:26.360 short news cycle that we deal with on every day. 0:08:26.440 --> 0:08:28.800 There's a lot of noise on every day. But we 0:08:28.880 --> 0:08:32.520 are now a decade into this experiment, and at least 0:08:32.520 --> 0:08:37.000 eight years into tariff's actually being in place, we can 0:08:37.080 --> 0:08:40.840 actually look at what has happened in some of these cases. 0:08:41.040 --> 0:08:42.960 This is no longer a promise about what's coming in 0:08:42.960 --> 0:08:43.360 the future. 0:08:43.880 --> 0:08:46.520 There is a record now, So Anna, one of the 0:08:46.520 --> 0:08:48.040 reasons I wanted to have you on is I know 0:08:48.120 --> 0:08:51.240 you have a slightly different view of this, just on 0:08:51.280 --> 0:08:56.800 this piece of whether or not US domestic manufacturing has 0:08:56.880 --> 0:09:01.560 been affected in the way that Donald Trump talked about 0:09:02.040 --> 0:09:06.040 manufacturing jobs coming back to the US as support for 0:09:06.120 --> 0:09:10.880 domestic production, a reduction in the trade deficit. What's happened 0:09:10.920 --> 0:09:12.840 with those What kind of evidence are you looking at? 0:09:13.120 --> 0:09:15.800 Yeah, you know, Stephanie, As I was listening to Sean 0:09:16.000 --> 0:09:19.640 as he was talking about how Trump promises loads of 0:09:19.679 --> 0:09:24.360 manufacturing jobs, it bade me recall the time when I 0:09:24.440 --> 0:09:27.760 was conded to the Council of Economic Advisors and I 0:09:27.800 --> 0:09:32.400 was writing talking points for these senior leaders. And it 0:09:32.480 --> 0:09:36.960 is indeed true that politicians are very much indexed to 0:09:37.160 --> 0:09:39.880 the number of jobs. When they go out to give speeches, 0:09:39.920 --> 0:09:42.640 they want to talk about how many jobs is created. 0:09:42.880 --> 0:09:47.640 But as an economist who's evaluating the overall impact of 0:09:47.640 --> 0:09:52.080 a certain policy, we care about all these other variables, 0:09:52.120 --> 0:09:58.880 including profits, investment, and because jobs comes way later. Only 0:09:58.920 --> 0:10:02.720 after profits and vestment productivity happen. Would you have jobs? 0:10:03.080 --> 0:10:06.360 So when we evaluate the success or failure of a policy. 0:10:06.360 --> 0:10:09.640 You want to look at everything to play the devil's advocate. 0:10:09.720 --> 0:10:14.880 What I'm seeing in the manufacturing sector is put aside 0:10:15.080 --> 0:10:18.160 for a second, what is causing this? But the facts 0:10:18.240 --> 0:10:23.520 are that I think manufacturing has improved over the last years, 0:10:24.040 --> 0:10:27.400 and the improvement, while it did not result in a 0:10:27.480 --> 0:10:32.120 surge in jobs, it has basically concentrated a significant increase 0:10:32.160 --> 0:10:35.840 in output as well as productivity. So when you have 0:10:35.920 --> 0:10:42.280 output increased but no hiring increase, that means higher labor productivity. 0:10:42.360 --> 0:10:46.599 So from an economist point of view, not a politician's 0:10:46.720 --> 0:10:51.280 point of view, increased productivity is a good thing. And 0:10:51.400 --> 0:10:55.720 so for whatever reason the manufacturing sector has improved in 0:10:55.760 --> 0:10:58.959 the last year. Now it's just due to tariffs, as 0:10:59.040 --> 0:11:03.880 Sean's tin care example showed, and also just looking at 0:11:04.000 --> 0:11:07.200 what sectors are most exposed to tariffs, we see that 0:11:07.320 --> 0:11:12.160 it is in these China exposed sectors like apparels, textiles, 0:11:12.800 --> 0:11:17.320 consumer electronics and stuff like that. No, the increased in 0:11:17.440 --> 0:11:22.120 manufacturing output are not in these sectors. The increased in 0:11:22.200 --> 0:11:28.000 manufacturing productivity and output are concentrated in durable manufacturing sectors 0:11:28.040 --> 0:11:33.400 such as computers electronics, not the consumer type, but hardware, 0:11:33.840 --> 0:11:38.920 high value added stuff, aerospace mining. Also, would I say 0:11:39.000 --> 0:11:44.120 that this resurgence in manufacturing is due to tariff No, 0:11:44.360 --> 0:11:48.480 I do not see direct evidence of that. However, there 0:11:48.640 --> 0:11:52.640 is an improvement in the manufacturing sector for whatever it 0:11:52.720 --> 0:11:53.280 is happening. 0:11:53.720 --> 0:11:57.559 And I seem to recall Anna some interesting conversations that 0:11:57.600 --> 0:12:01.319 we have had where you were speculating that the tariffs, 0:12:01.960 --> 0:12:04.400 you know, for many companies would have just been presented 0:12:04.480 --> 0:12:06.880 that have felt like a cost increase of one form 0:12:06.960 --> 0:12:09.960 or another, and maybe something they had to decide whether 0:12:10.040 --> 0:12:13.959 or not to pass on to consumers, and had been 0:12:13.960 --> 0:12:17.880 a spur to get more out of workers and to 0:12:18.280 --> 0:12:21.719 have maybe had that kind of indirect impact on productivity 0:12:21.720 --> 0:12:22.719 that you've just described. 0:12:23.559 --> 0:12:27.600 Yeah, so when you look at the output manufacturing output, 0:12:27.760 --> 0:12:30.600 you see that the increase is driven by more hours 0:12:30.679 --> 0:12:33.600 out of existing workers. So part of that is that 0:12:33.960 --> 0:12:37.680 my team also looked at earning transcripts in the last 0:12:37.679 --> 0:12:41.119 couple of quarters and the way that firms are describing 0:12:41.160 --> 0:12:45.760 how they handle the increased input costs from tariffs. First 0:12:45.800 --> 0:12:50.000 of all, it's absolutely true that tariffs are raising the 0:12:50.080 --> 0:12:54.040 input costs of firms. The question is how are firms 0:12:54.200 --> 0:12:58.920 dealing with that, and so in Sean's tin can case, 0:12:59.280 --> 0:13:03.440 Campbell's soup decided to surgically raise the price of these 0:13:03.480 --> 0:13:08.600 soup tincns, right, but they are also cutting prices in 0:13:08.640 --> 0:13:11.559 some of the other stuff. Because what happened is when 0:13:11.559 --> 0:13:15.200 they've raised the price on these products where which is 0:13:15.280 --> 0:13:19.240 catered to lower income people who are very budget conscious, 0:13:19.320 --> 0:13:22.520 the sales fall and declined and they had to make 0:13:22.600 --> 0:13:26.360 up for that revenue with something else, but cutting prices 0:13:26.360 --> 0:13:29.320 and something else. And so that's generally one way of 0:13:29.360 --> 0:13:32.679 dealing with how do you handle higher input cause second 0:13:32.960 --> 0:13:36.040 is that they are not simply hiring less people and 0:13:36.160 --> 0:13:39.880 extracted more out of existing workers. And third, they are 0:13:40.400 --> 0:13:44.280 rejiggering the supply chain. And we see in the earning 0:13:44.400 --> 0:13:47.320 calls a lot of firms talk about how they have 0:13:47.440 --> 0:13:51.520 already put in place different you know, set up on 0:13:51.600 --> 0:13:55.520 supply chains. In fact, I would say many more than 0:13:55.559 --> 0:13:59.760 half of that that rejiggering has already happened. Those are 0:13:59.800 --> 0:14:03.160 all ways to how to increase operational efficiency to deal 0:14:03.200 --> 0:14:05.199 with input costs, and it makes a. 0:14:05.200 --> 0:14:08.360 Very good point about productivity, increased efficiency and the kind 0:14:08.400 --> 0:14:11.880 of as an unintended byproduct of tariffs or one of 0:14:11.920 --> 0:14:15.440 the really fascinating things I discovered when I visited Robert 0:14:15.480 --> 0:14:18.720 Gatz and the Can Corporation of America is that one 0:14:18.760 --> 0:14:21.160 of the ways they responded to the original steel traff 0:14:21.360 --> 0:14:26.239 was by making thinner cans. They now make more cans 0:14:26.720 --> 0:14:30.040 using roughly the same amount of steel as they did 0:14:30.200 --> 0:14:33.440 eight years ago, because they have figured out a way 0:14:33.480 --> 0:14:37.040 to make those cans thinner. Now you know, they insist 0:14:37.120 --> 0:14:38.120 they're not flimsier. 0:14:38.360 --> 0:14:41.000 But the result in us opening our cupboards in a 0:14:41.040 --> 0:14:43.360 few years time in discovering, oh, yes, those are the 0:14:43.440 --> 0:14:47.440 post twenty twenty five cans, but there's no evidence of 0:14:47.480 --> 0:14:49.600 that so far. I listened to you, Sean, and I 0:14:49.600 --> 0:14:51.560 do worry a bit that your family are now also 0:14:51.680 --> 0:14:55.920 very well informed about in cans. You have invested a 0:14:56.040 --> 0:14:59.280 very an impressive amount of time and actually what turns 0:14:59.320 --> 0:15:00.840 out to be a rather interesting industry. 0:15:02.000 --> 0:15:05.760 Yeah, I my children are regularly bored at the turntable. 0:15:17.320 --> 0:15:20.320 But we haven't mentioned the big other positive that the 0:15:20.360 --> 0:15:24.160 administration did talk about going into this, particularly the Treasury Sectuary, 0:15:24.520 --> 0:15:30.040 that it would bring great increase in revenues for the 0:15:30.080 --> 0:15:33.440 federal government, and there was even talk of a tariff 0:15:33.480 --> 0:15:38.400 dividend for voters courtesy of Donald Trump and what's happened there? 0:15:38.920 --> 0:15:42.040 Yeah, so here heroes done numbers. So last year, the 0:15:42.080 --> 0:15:47.040 tariff revenues was roughly around two hundred billion, depending on 0:15:47.080 --> 0:15:49.400 whether you look at calendar year fiscal year, but I 0:15:49.400 --> 0:15:53.000 would say around the two hundred billion mark. Before the 0:15:53.160 --> 0:15:58.360 liberation day it was around eighty billion. And now after 0:15:58.520 --> 0:16:03.239 the AIBA ruling, so far the administration had to refund 0:16:03.280 --> 0:16:07.320 eighty billion of those roughly two hundred billion collective. 0:16:07.600 --> 0:16:10.400 That's interesting. They have done they have done the refuc. 0:16:10.160 --> 0:16:13.200 Yeah, they definitely have done the refund. We have a 0:16:13.240 --> 0:16:16.640 lot of evidence around there that so eighty billion is 0:16:16.720 --> 0:16:22.320 the ones that's already refunded. The total possible amount that's 0:16:22.520 --> 0:16:25.560 needed to be refunded is around one hundred and sixty 0:16:25.600 --> 0:16:29.720 six billion because out of the collected, one hundred and 0:16:29.720 --> 0:16:33.320 sixty six billion was due to AEPA. I think what 0:16:33.600 --> 0:16:36.840 that shows is that the terraff last year indeed was 0:16:37.360 --> 0:16:41.920 quite an important source of fiscal revenues. When you look 0:16:41.960 --> 0:16:46.240 at the ten year budget period for CBO that is 0:16:46.280 --> 0:16:49.240 a post the terraff revenues based on AEPA and all 0:16:49.240 --> 0:16:53.040 the other terror policies was supposed to generate roughly three 0:16:53.080 --> 0:16:56.480 point three trillion in revenues over ten years, and that's 0:16:56.600 --> 0:17:00.800 roughly how much the One Big Beautiful Bill cost. So 0:17:00.960 --> 0:17:05.919 now that we have the ABA ruling, and even taking 0:17:05.960 --> 0:17:10.320 into account the interim policies to fill the gap, such 0:17:10.320 --> 0:17:14.000 as using the one twenty two and last week the 0:17:14.080 --> 0:17:17.560 three oh one and three three eight, I think what 0:17:17.600 --> 0:17:21.760 we are looking at is a reduced FRISCO revenue estimate 0:17:21.960 --> 0:17:25.719 of roughly more like around two trillion as opposed to 0:17:25.800 --> 0:17:30.760 three trillion over ten years, and the yearly this year 0:17:30.800 --> 0:17:34.119 as opposed to three hundred billion, it's looking more likely 0:17:34.359 --> 0:17:39.119 to be two hundred billion. So when we enter this year, 0:17:39.320 --> 0:17:43.000 CBO has estimated the fiscal deficit should be would be 0:17:43.040 --> 0:17:46.480 around five point eight percent of GDP. This year it's 0:17:46.520 --> 0:17:50.120 one point nine trillion physical deficit. Now it's looking more 0:17:50.359 --> 0:17:55.520 likely to be six percent of GDP. For all these reasons, 0:17:55.560 --> 0:17:59.720 there are other reasons, including higher treasury rates. You know 0:18:00.200 --> 0:18:05.880 CBO expected average ten year treasury yields to be four 0:18:05.880 --> 0:18:09.879 point one this year, Well it's averaged four point five percent, 0:18:10.280 --> 0:18:12.520 and I think part of that is I think Wall 0:18:12.520 --> 0:18:16.080 Street do look at these tariff revenues numbers, I mean 0:18:16.119 --> 0:18:19.920 fixed income traders, and if it's looking like there's more 0:18:20.040 --> 0:18:24.639 uncertainty around the collection of these revenues, I think people 0:18:24.640 --> 0:18:27.800 will get more bearish in the treasury rates market. 0:18:28.200 --> 0:18:31.640 Can I just make two quick points on the income 0:18:31.720 --> 0:18:34.639 the kind of fiscal effect side of things. One is 0:18:35.119 --> 0:18:39.080 the refunds they're not done with. In fact, in June 0:18:39.440 --> 0:18:44.280 there was a net outflow of from the Treasury when 0:18:44.280 --> 0:18:47.600 it came to customs duties. The number listed on the 0:18:47.640 --> 0:18:52.200 monthly Treasury report was minus twenty five point five billion dollars, 0:18:52.240 --> 0:18:54.800 and we're likely to see several more months like that 0:18:55.119 --> 0:18:58.560 this year because, as Anna says, they've refunded about eighty 0:18:58.600 --> 0:19:02.120 billion dollars, there's another eighty billion dollars that they need 0:19:02.119 --> 0:19:05.680 to refund because the courts are really holding their feet 0:19:05.680 --> 0:19:09.879 to the fire on this. There's that short term fiscal piece. 0:19:10.240 --> 0:19:12.480 Is a lot of that two hundred billion dollars that 0:19:12.480 --> 0:19:14.679 they raised last year that they're sending back to people 0:19:14.680 --> 0:19:17.040 this year. The second point is that the kind of 0:19:17.119 --> 0:19:19.760 durability of tariffs, and I think that's something we need 0:19:19.800 --> 0:19:22.600 to think more. The Yell budget lab estimates it's one 0:19:22.640 --> 0:19:25.920 point nine trillion dollars over the next ten years based 0:19:25.960 --> 0:19:28.000 on the current state of tariffs that you would get 0:19:28.040 --> 0:19:30.800 in revenues. But they make the point also that that 0:19:30.840 --> 0:19:34.920 does not account for slower growth that you get as 0:19:34.960 --> 0:19:38.399 a result of tariffs. The other point is that there 0:19:38.440 --> 0:19:42.000 are more legal challenges coming The tariffs that were announced 0:19:42.040 --> 0:19:44.439 last week were very quickly challenged by another group of 0:19:44.480 --> 0:19:47.520 small businesses. There's a guy called Alan Wolf who's one 0:19:47.520 --> 0:19:51.000 of the kind of eminos degrees of the trade bar 0:19:51.160 --> 0:19:54.600 here in Washington, actually helped write the nineteen seventy four 0:19:54.680 --> 0:19:58.119 trade law, who says that the use of that law, 0:19:58.320 --> 0:20:00.399 in the section three oh one of that law that 0:20:00.440 --> 0:20:04.840 the Trump administration rolled out last week is completely against 0:20:04.840 --> 0:20:08.679 the spirit of the law and likely open to legal challenge. 0:20:09.040 --> 0:20:11.600 There are going to be more legal challenges coming up, 0:20:11.640 --> 0:20:14.640 so the question is, okay, are these going to withstand 0:20:14.680 --> 0:20:17.679 further court challenges? And I've heard this from Scott Besson 0:20:17.840 --> 0:20:21.720 himself making the point that well, if the tariffs really work, 0:20:22.760 --> 0:20:26.800 we should see diminishing revenues from them over time, because 0:20:27.000 --> 0:20:31.400 if you are real, if you are reshoring manufacturing, then 0:20:31.440 --> 0:20:35.239 you're going to get less tariff revenue and you're going 0:20:35.280 --> 0:20:38.880 to get more business tax revenues, and is the kind 0:20:38.920 --> 0:20:42.800 of is the hope. So the idea of tariffs as 0:20:42.840 --> 0:20:47.000 this kind of fiscal wonder tool going into the future, 0:20:47.000 --> 0:20:48.760 I think there's a lot of caveats on. 0:20:49.600 --> 0:20:51.359 You know, we focused a lot on whether or not 0:20:51.440 --> 0:20:54.320 the good stuff that was promised has happened, and we 0:20:54.440 --> 0:20:56.760 had a debay to bend the manufacturing. It seems very 0:20:57.119 --> 0:21:01.920 unclear that the tariffs have really engineered a revival by 0:21:01.960 --> 0:21:07.080 themselves of domestic manufacturing. Maybe that's an unreasonable expectation. There 0:21:07.160 --> 0:21:10.280 was a big surprise in that other countries didn't retaliate 0:21:10.320 --> 0:21:13.440 to the tariffs the US imposed tariffs, and that has 0:21:13.600 --> 0:21:18.320 fundamentally changed, certainly the impact on the global economy. And 0:21:18.359 --> 0:21:23.200 we haven't seen tariffs meaningfully increase US inflation, even though 0:21:23.200 --> 0:21:26.359 a lot of consumers sort of link them tariffs to 0:21:26.560 --> 0:21:29.439 the high costs in their minds. So I guess it's 0:21:29.480 --> 0:21:31.320 fair to say, Anna, although we haven't seen all the 0:21:31.320 --> 0:21:35.760 positive consequences, some of the things that the critics focused 0:21:35.800 --> 0:21:40.880 most on before President Trump's Liberation Day have not really 0:21:40.920 --> 0:21:43.959 panned out either. One thing that I guess was predictable 0:21:44.240 --> 0:21:48.720 but is very evident is these are super unpopular, these tariffs, 0:21:49.200 --> 0:21:54.840 and people do associate the tariffs with higher costs, even 0:21:54.920 --> 0:21:56.720 if the numbers don't quite back it up. 0:21:57.160 --> 0:22:01.520 Yeah, definitely, but everything is unpopular. Cutting back fiscal deficits 0:22:01.560 --> 0:22:07.000 also unpopular. Doge was unpopular. The question is, I mean, 0:22:07.119 --> 0:22:10.680 once the government start spending or people start spending, it's 0:22:10.760 --> 0:22:15.720 hard to cut back. It's always feels terrible to downgrade. 0:22:15.960 --> 0:22:19.760 So the question is which one is relatively easier or 0:22:19.840 --> 0:22:23.600 less painful. And it's clear that the Trump administration has 0:22:23.640 --> 0:22:29.879 decided that forcing, you know, tariffs, using tariff policy is 0:22:29.920 --> 0:22:34.520 the relatively less painful route too, you know, solve a 0:22:34.560 --> 0:22:36.360 couple problems at the same time. 0:22:36.400 --> 0:22:40.280 And certainly raise a few hundred billion dollars. I mean, Sean, 0:22:40.720 --> 0:22:44.520 I take your point about the uncertainty, but as things stand, 0:22:44.680 --> 0:22:50.320 you have an increase in taxes that certainly many Democrats 0:22:50.359 --> 0:22:52.600 didn't think was possible, an increase in Texas that was 0:22:52.720 --> 0:22:56.440 very much focused on consumers. It seems like so even 0:22:56.440 --> 0:23:00.000 if they're very against them, seems quite unlikely they get 0:23:00.080 --> 0:23:01.320 the rush to remove them. 0:23:01.560 --> 0:23:04.600 Let's wait and see. But right now, in these midterm elections, 0:23:05.000 --> 0:23:10.800 Democrats are pointing to tariffs as a vulnerability for the president. 0:23:10.840 --> 0:23:15.040 They think they can make political hay with it. But 0:23:15.080 --> 0:23:19.360 I think it fits with a broader a broader sentiment, 0:23:20.560 --> 0:23:26.159 and that is that the economic policies that President Trump 0:23:26.160 --> 0:23:30.000 has rolled out in the past eighteen months have not 0:23:30.600 --> 0:23:35.639 delivered what he promised. And I think that is whether 0:23:35.680 --> 0:23:39.320 it's terrace, when it's immigration policy, whether it's the broader 0:23:39.359 --> 0:23:45.080 issue of bringing down prices. The feeling is that President 0:23:45.119 --> 0:23:49.920 Trump has injected and this comes up in poll after 0:23:49.960 --> 0:23:52.439 poll after poll in which he rates very low on 0:23:52.520 --> 0:23:55.399 the economy, his management of the economy. But the feeling 0:23:55.440 --> 0:24:00.840 is that President Trump has injected new love of chaos 0:24:01.880 --> 0:24:06.560 into the US economy and that voters are feeling the 0:24:06.600 --> 0:24:11.000 effects of that in multiple ways, or at least associating 0:24:11.119 --> 0:24:16.160 what they're feeling with that. And that is the kind 0:24:16.160 --> 0:24:19.760 of big political question. And the longer term political question 0:24:19.920 --> 0:24:26.040 around tariffs is how politically unpopular they will prove to 0:24:26.119 --> 0:24:29.600 be years from now. I mean that the history of 0:24:29.640 --> 0:24:34.879 the United States before World War Two, and the history 0:24:34.880 --> 0:24:39.600 of economic policy debates in the US was often around tariffs, 0:24:39.640 --> 0:24:42.920 and it was this fight between consumers and producers over 0:24:43.000 --> 0:24:46.840 tariffs and protectionism, and you had this go in political 0:24:46.840 --> 0:24:50.639 cycles where they were popular and a government would be 0:24:50.680 --> 0:24:53.919 elected and introduced tariffs, and then they were unpopular as 0:24:53.920 --> 0:24:55.800 soon as consumers started to pay for them, and that 0:24:55.880 --> 0:24:58.560 government would be voted out. And you know, maybe we 0:24:58.600 --> 0:24:59.760 will see that cycle return. 0:25:00.560 --> 0:25:02.480 Well, there are lots of things that are unique about 0:25:02.520 --> 0:25:05.480 Donald Trump. I think the idea that the voter's perception 0:25:05.600 --> 0:25:07.840 that he has not delivered on his promises is not 0:25:08.119 --> 0:25:11.040 unique to him as a politician. I'm afraid it's something 0:25:11.080 --> 0:25:13.280