Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
Speaker 2: and this is Trumpnomics, the podcast that looks at everything
Speaker 2: in the economic world of Donald Trump. This week, tariffs
Speaker 2: are back, and they look like they're here to stay.
Speaker 2: We're recording this on Wednesday, the twenty ninth of July.
Speaker 2: Late last week, the White House imposed tariffs of around
Speaker 2: ten percent on imports from more than eighty countries, replacing
Speaker 2: emergency tariffs put in place after the Supreme Court ruled
Speaker 2: a lot of the previous ones he'd put in place unconstitutional.
Speaker 2: There've also been in the last week new tariffs on
Speaker 2: Canada and Brazil, and we have coming down the track,
Speaker 2: so called Section three oh one investigations now hanging over
Speaker 2: multiple countries, all of which could result in more import
Speaker 2: taxes in the next few months. Well, heaven knows. We've
Speaker 2: talked about tariffs before on this show. In fact, our
Speaker 2: most listened to episode ever was on that topic. But
Speaker 2: in a week when the President has reminded us just
Speaker 2: how much he likes them, I wanted to step back
Speaker 2: and think about the unintended consequences of those tariffs. For
Speaker 2: the economy and the federal budget. In a nutshell, many
Speaker 2: of the positive consequences from tariffs that the President promised
Speaker 2: on the campaign trail have not really happened, or not
Speaker 2: in the way he suggested. But you'd have to also
Speaker 2: say that the biggest negatives that were talked about before
Speaker 2: they were imposed have not really happened either. So raises
Speaker 2: the question is President Trump's signature economic policy turning out
Speaker 2: to be just a fancy way of extracting a few
Speaker 2: more tax revenues from US consumers, And if so, is
Speaker 2: anyone really going to want to let that money go? Well,
Speaker 2: we've brought back the pair of voices actually who featured
Speaker 2: funnily enough in that super popular Trumpenomics episode, Sean donnand
Speaker 2: senior writer with Bloomberg who reports on the US and
Speaker 2: global economy for US. Sure, thanks so much for joining us.
Speaker 3: It's always great to be here.
Speaker 2: And trump andomics regular Also in Washington, Ana Wong, chief
Speaker 2: US economist at Bloomberg Economics, who's previously worked at the
Speaker 2: Federal Reserve and served in the Trump White House in
Speaker 2: twenty nineteen and twenty twenty on to comment at the
Speaker 2: Council of Economic advisors. Anna always great to get you on.
Speaker 2: Happy to be here, Sean. There was a lot of
Speaker 2: talk ahead of these tariffs, and indeed President Trump used
Speaker 2: to talk a lot about it in his first term,
Speaker 2: that they were going to bring manufacturing back to the US.
Speaker 2: We were going to see reshoring and a revitalization of
Speaker 2: US manufacturing. We were going to see the trade deficit
Speaker 2: four and some extra revenue for the federal government which
Speaker 2: was going to be paid for by all those foreign exporters.
Speaker 2: You had a great story this week focusing on tin cans,
Speaker 2: no less, and I thought that really painted a picture
Speaker 2: of how that manufacturing piece had sometimes panned out on
Speaker 2: the ground. So tell us a little bit about that.
Speaker 3: The reason I looked at tin cans was because it's
Speaker 3: a way of looking at Trump's original tariffs, which were
Speaker 3: the steel tariffs that he imposed back in March of
Speaker 3: twenty eighteen and twenty five percent tariff on all imports
Speaker 3: of steeling. On the day after the announcement went out,
Speaker 3: as markets were having conneptions, Wilbur Ross went on television
Speaker 3: and who was then the Commerce secretary, right, and he
Speaker 3: held up a can of Campbell's soup and said, essentially
Speaker 3: the tariffs will not affect the cost of this one bit.
Speaker 3: He had calculated how much steel was in there. He
Speaker 3: also said that the payoff for these tariffs would be
Speaker 3: tens of thousands of jobs and hundreds of millions of
Speaker 3: dollars of investment. So I thought, let's take this tin
Speaker 3: can and look at it as a case study of
Speaker 3: how things have actually worked out. Well. The answer is,
Speaker 3: the price of that tin can has gone up substantially
Speaker 3: since March of twenty eighteen, when these tariffs were put
Speaker 3: in place. The cost of canned fruits and vegetables that
Speaker 3: consumers pay are up almost fifty percent since that day,
Speaker 3: and the cost of the empty can itself coming off
Speaker 3: the production line is up eighty percent since March of
Speaker 3: twenty eighteen. So there's a significant impact on the cost side.
Speaker 3: One of the reasons for that is that, in fact,
Speaker 3: one of these promises of the tariffs, which was that
Speaker 3: there would be more investment in domestic production domestic capacity,
Speaker 3: hasn't played out at all. On that day that Will
Speaker 3: Barross went on TV, there were a dozen steel mills
Speaker 3: in the US that turned out tin plate can makers
Speaker 3: imported about fifty percent of the steel that they used
Speaker 3: to make cans, and that was supposed to go down well.
Speaker 3: In fact, there are now only three steel mills in
Speaker 3: the United States that make tin plate, and can makers
Speaker 3: import eighty percent of the steel that they need to
Speaker 3: make those tin cans. At the same time, we haven't
Speaker 3: seen the jobs story work out in the same way.
Speaker 3: There are now roughly thirteen hundred more people working in
Speaker 3: American steel mills than there were in March of twenty eighteen,
Speaker 3: so it hasn't been a huge jobs boom even for
Speaker 3: the broader steel industry, although we have seen investment in
Speaker 3: other parts. And part of the story here is also
Speaker 3: about how tariffs don't happen in isolation. They happen in
Speaker 3: an economy that has lots of different things going on.
Speaker 3: The reality for the US steel industry is that making
Speaker 3: tinplate is difficult, it's capital intensive, and it's a tiny
Speaker 3: part of the US steel market. And therefore, the real
Speaker 3: question that you hear, and that I heard from economists
Speaker 3: and people in the industries, why are we putting tariffs
Speaker 3: on imports of something that the domestic industry does not
Speaker 3: want to make and does not want to invest in
Speaker 3: an allocate capital too, And so that to me, is
Speaker 3: a case study for a lot of these tariffs. You
Speaker 3: can go down through the supply chain, and I talked to.
Speaker 3: One of the people I talked to was a tomato
Speaker 3: farmer in Indiana who's planting fewer tomatoes this summer as
Speaker 3: a result of the higher cost of cans and as
Speaker 3: a result also of international competition, because these tariffs don't
Speaker 3: apply to cans that are already filled with fruits and
Speaker 3: vegetables that are being imported, and so the domestic competitiveness
Speaker 3: has been hit by this as well. And so that's
Speaker 3: the unintended content with this, and then there's this kind
Speaker 3: of unfulfilled promises thing. And I think that that as
Speaker 3: really when we think of the kind of political economy
Speaker 3: of these tariffs. As the big issue that Trump faces
Speaker 3: if you go back to twenty sixteen, you go back
Speaker 3: to when he was first running for president and he
Speaker 3: was first talking about cracking down on trade and first
Speaker 3: talking about tariffs in all of those campaigns, is that
Speaker 3: he is promising more factory jobs in the United States,
Speaker 3: and today there are seventy five thousand fewer people working
Speaker 3: in American factories than there were when Trump returned to
Speaker 3: office in January of twenty twenty five.
Speaker 2: And it's interesting, Sean. I think it makes sense to
Speaker 2: be focusing on some of the sectors that were affected
Speaker 2: by the first Trump tariffs, because obviously you could make
Speaker 2: the argument, and has been made on this program before,
Speaker 2: that it's quite soon if you want to have the
Speaker 2: kind of shift that Donald Trump is talking about. But
Speaker 2: I guess what's interesting from the way you've talked to,
Speaker 2: particularly with a question of whether or not you could
Speaker 2: have more US producers of tinplate to replace those imported
Speaker 2: tin plate for the ten cans seen from the people
Speaker 2: you talk to that this wasn't just a matter of
Speaker 2: time and the tariffs being in long enough. They already
Speaker 2: had quite a lot of protection. They were looking to
Speaker 2: have even more, and it just didn't seem like it
Speaker 2: was going to work.
Speaker 3: I think in the Trump presidency it is such a
Speaker 3: short news cycle that we deal with on every day.
Speaker 3: There's a lot of noise on every day. But we
Speaker 3: are now a decade into this experiment, and at least
Speaker 3: eight years into tariff's actually being in place, we can
Speaker 3: actually look at what has happened in some of these cases.
Speaker 3: This is no longer a promise about what's coming in
Speaker 3: the future.
Speaker 2: There is a record now, So Anna, one of the
Speaker 2: reasons I wanted to have you on is I know
Speaker 2: you have a slightly different view of this, just on
Speaker 2: this piece of whether or not US domestic manufacturing has
Speaker 2: been affected in the way that Donald Trump talked about
Speaker 2: manufacturing jobs coming back to the US as support for
Speaker 2: domestic production, a reduction in the trade deficit. What's happened
Speaker 2: with those What kind of evidence are you looking at?
Speaker 4: Yeah, you know, Stephanie, As I was listening to Sean
Speaker 4: as he was talking about how Trump promises loads of
Speaker 4: manufacturing jobs, it bade me recall the time when I
Speaker 4: was conded to the Council of Economic Advisors and I
Speaker 4: was writing talking points for these senior leaders. And it
Speaker 4: is indeed true that politicians are very much indexed to
Speaker 4: the number of jobs. When they go out to give speeches,
Speaker 4: they want to talk about how many jobs is created.
Speaker 4: But as an economist who's evaluating the overall impact of
Speaker 4: a certain policy, we care about all these other variables,
Speaker 4: including profits, investment, and because jobs comes way later. Only
Speaker 4: after profits and vestment productivity happen. Would you have jobs?
Speaker 4: So when we evaluate the success or failure of a policy.
Speaker 4: You want to look at everything to play the devil's advocate.
Speaker 4: What I'm seeing in the manufacturing sector is put aside
Speaker 4: for a second, what is causing this? But the facts
Speaker 4: are that I think manufacturing has improved over the last years,
Speaker 4: and the improvement, while it did not result in a
Speaker 4: surge in jobs, it has basically concentrated a significant increase
Speaker 4: in output as well as productivity. So when you have
Speaker 4: output increased but no hiring increase, that means higher labor productivity.
Speaker 4: So from an economist point of view, not a politician's
Speaker 4: point of view, increased productivity is a good thing. And
Speaker 4: so for whatever reason the manufacturing sector has improved in
Speaker 4: the last year. Now it's just due to tariffs, as
Speaker 4: Sean's tin care example showed, and also just looking at
Speaker 4: what sectors are most exposed to tariffs, we see that
Speaker 4: it is in these China exposed sectors like apparels, textiles,
Speaker 4: consumer electronics and stuff like that. No, the increased in
Speaker 4: manufacturing output are not in these sectors. The increased in
Speaker 4: manufacturing productivity and output are concentrated in durable manufacturing sectors
Speaker 4: such as computers electronics, not the consumer type, but hardware,
Speaker 4: high value added stuff, aerospace mining. Also, would I say
Speaker 4: that this resurgence in manufacturing is due to tariff No,
Speaker 4: I do not see direct evidence of that. However, there
Speaker 4: is an improvement in the manufacturing sector for whatever it
Speaker 4: is happening.
Speaker 2: And I seem to recall Anna some interesting conversations that
Speaker 2: we have had where you were speculating that the tariffs,
Speaker 2: you know, for many companies would have just been presented
Speaker 2: that have felt like a cost increase of one form
Speaker 2: or another, and maybe something they had to decide whether
Speaker 2: or not to pass on to consumers, and had been
Speaker 2: a spur to get more out of workers and to
Speaker 2: have maybe had that kind of indirect impact on productivity
Speaker 2: that you've just described.
Speaker 4: Yeah, so when you look at the output manufacturing output,
Speaker 4: you see that the increase is driven by more hours
Speaker 4: out of existing workers. So part of that is that
Speaker 4: my team also looked at earning transcripts in the last
Speaker 4: couple of quarters and the way that firms are describing
Speaker 4: how they handle the increased input costs from tariffs. First
Speaker 4: of all, it's absolutely true that tariffs are raising the
Speaker 4: input costs of firms. The question is how are firms
Speaker 4: dealing with that, and so in Sean's tin can case,
Speaker 4: Campbell's soup decided to surgically raise the price of these
Speaker 4: soup tincns, right, but they are also cutting prices in
Speaker 4: some of the other stuff. Because what happened is when
Speaker 4: they've raised the price on these products where which is
Speaker 4: catered to lower income people who are very budget conscious,
Speaker 4: the sales fall and declined and they had to make
Speaker 4: up for that revenue with something else, but cutting prices
Speaker 4: and something else. And so that's generally one way of
Speaker 4: dealing with how do you handle higher input cause second
Speaker 4: is that they are not simply hiring less people and
Speaker 4: extracted more out of existing workers. And third, they are
Speaker 4: rejiggering the supply chain. And we see in the earning
Speaker 4: calls a lot of firms talk about how they have
Speaker 4: already put in place different you know, set up on
Speaker 4: supply chains. In fact, I would say many more than
Speaker 4: half of that that rejiggering has already happened. Those are
Speaker 4: all ways to how to increase operational efficiency to deal
Speaker 4: with input costs, and it makes a.
Speaker 3: Very good point about productivity, increased efficiency and the kind
Speaker 3: of as an unintended byproduct of tariffs or one of
Speaker 3: the really fascinating things I discovered when I visited Robert
Speaker 3: Gatz and the Can Corporation of America is that one
Speaker 3: of the ways they responded to the original steel traff
Speaker 3: was by making thinner cans. They now make more cans
Speaker 3: using roughly the same amount of steel as they did
Speaker 3: eight years ago, because they have figured out a way
Speaker 3: to make those cans thinner. Now you know, they insist
Speaker 3: they're not flimsier.
Speaker 2: But the result in us opening our cupboards in a
Speaker 2: few years time in discovering, oh, yes, those are the
Speaker 2: post twenty twenty five cans, but there's no evidence of
Speaker 2: that so far. I listened to you, Sean, and I
Speaker 2: do worry a bit that your family are now also
Speaker 2: very well informed about in cans. You have invested a
Speaker 2: very an impressive amount of time and actually what turns
Speaker 2: out to be a rather interesting industry.
Speaker 3: Yeah, I my children are regularly bored at the turntable.
Speaker 2: But we haven't mentioned the big other positive that the
Speaker 2: administration did talk about going into this, particularly the Treasury Sectuary,
Speaker 2: that it would bring great increase in revenues for the
Speaker 2: federal government, and there was even talk of a tariff
Speaker 2: dividend for voters courtesy of Donald Trump and what's happened there?
Speaker 4: Yeah, so here heroes done numbers. So last year, the
Speaker 4: tariff revenues was roughly around two hundred billion, depending on
Speaker 4: whether you look at calendar year fiscal year, but I
Speaker 4: would say around the two hundred billion mark. Before the
Speaker 4: liberation day it was around eighty billion. And now after
Speaker 4: the AIBA ruling, so far the administration had to refund
Speaker 4: eighty billion of those roughly two hundred billion collective.
Speaker 2: That's interesting. They have done they have done the refuc.
Speaker 4: Yeah, they definitely have done the refund. We have a
Speaker 4: lot of evidence around there that so eighty billion is
Speaker 4: the ones that's already refunded. The total possible amount that's
Speaker 4: needed to be refunded is around one hundred and sixty
Speaker 4: six billion because out of the collected, one hundred and
Speaker 4: sixty six billion was due to AEPA. I think what
Speaker 4: that shows is that the terraff last year indeed was
Speaker 4: quite an important source of fiscal revenues. When you look
Speaker 4: at the ten year budget period for CBO that is
Speaker 4: a post the terraff revenues based on AEPA and all
Speaker 4: the other terror policies was supposed to generate roughly three
Speaker 4: point three trillion in revenues over ten years, and that's
Speaker 4: roughly how much the One Big Beautiful Bill cost. So
Speaker 4: now that we have the ABA ruling, and even taking
Speaker 4: into account the interim policies to fill the gap, such
Speaker 4: as using the one twenty two and last week the
Speaker 4: three oh one and three three eight, I think what
Speaker 4: we are looking at is a reduced FRISCO revenue estimate
Speaker 4: of roughly more like around two trillion as opposed to
Speaker 4: three trillion over ten years, and the yearly this year
Speaker 4: as opposed to three hundred billion, it's looking more likely
Speaker 4: to be two hundred billion. So when we enter this year,
Speaker 4: CBO has estimated the fiscal deficit should be would be
Speaker 4: around five point eight percent of GDP. This year it's
Speaker 4: one point nine trillion physical deficit. Now it's looking more
Speaker 4: likely to be six percent of GDP. For all these reasons,
Speaker 4: there are other reasons, including higher treasury rates. You know
Speaker 4: CBO expected average ten year treasury yields to be four
Speaker 4: point one this year, Well it's averaged four point five percent,
Speaker 4: and I think part of that is I think Wall
Speaker 4: Street do look at these tariff revenues numbers, I mean
Speaker 4: fixed income traders, and if it's looking like there's more
Speaker 4: uncertainty around the collection of these revenues, I think people
Speaker 4: will get more bearish in the treasury rates market.
Speaker 3: Can I just make two quick points on the income
Speaker 3: the kind of fiscal effect side of things. One is
Speaker 3: the refunds they're not done with. In fact, in June
Speaker 3: there was a net outflow of from the Treasury when
Speaker 3: it came to customs duties. The number listed on the
Speaker 3: monthly Treasury report was minus twenty five point five billion dollars,
Speaker 3: and we're likely to see several more months like that
Speaker 3: this year because, as Anna says, they've refunded about eighty
Speaker 3: billion dollars, there's another eighty billion dollars that they need
Speaker 3: to refund because the courts are really holding their feet
Speaker 3: to the fire on this. There's that short term fiscal piece.
Speaker 3: Is a lot of that two hundred billion dollars that
Speaker 3: they raised last year that they're sending back to people
Speaker 3: this year. The second point is that the kind of
Speaker 3: durability of tariffs, and I think that's something we need
Speaker 3: to think more. The Yell budget lab estimates it's one
Speaker 3: point nine trillion dollars over the next ten years based
Speaker 3: on the current state of tariffs that you would get
Speaker 3: in revenues. But they make the point also that that
Speaker 3: does not account for slower growth that you get as
Speaker 3: a result of tariffs. The other point is that there
Speaker 3: are more legal challenges coming The tariffs that were announced
Speaker 3: last week were very quickly challenged by another group of
Speaker 3: small businesses. There's a guy called Alan Wolf who's one
Speaker 3: of the kind of eminos degrees of the trade bar
Speaker 3: here in Washington, actually helped write the nineteen seventy four
Speaker 3: trade law, who says that the use of that law,
Speaker 3: in the section three oh one of that law that
Speaker 3: the Trump administration rolled out last week is completely against
Speaker 3: the spirit of the law and likely open to legal challenge.
Speaker 3: There are going to be more legal challenges coming up,
Speaker 3: so the question is, okay, are these going to withstand
Speaker 3: further court challenges? And I've heard this from Scott Besson
Speaker 3: himself making the point that well, if the tariffs really work,
Speaker 3: we should see diminishing revenues from them over time, because
Speaker 3: if you are real, if you are reshoring manufacturing, then
Speaker 3: you're going to get less tariff revenue and you're going
Speaker 3: to get more business tax revenues, and is the kind
Speaker 3: of is the hope. So the idea of tariffs as
Speaker 3: this kind of fiscal wonder tool going into the future,
Speaker 3: I think there's a lot of caveats on.
Speaker 2: You know, we focused a lot on whether or not
Speaker 2: the good stuff that was promised has happened, and we
Speaker 2: had a debay to bend the manufacturing. It seems very
Speaker 2: unclear that the tariffs have really engineered a revival by
Speaker 2: themselves of domestic manufacturing. Maybe that's an unreasonable expectation. There
Speaker 2: was a big surprise in that other countries didn't retaliate
Speaker 2: to the tariffs the US imposed tariffs, and that has
Speaker 2: fundamentally changed, certainly the impact on the global economy. And
Speaker 2: we haven't seen tariffs meaningfully increase US inflation, even though
Speaker 2: a lot of consumers sort of link them tariffs to
Speaker 2: the high costs in their minds. So I guess it's
Speaker 2: fair to say, Anna, although we haven't seen all the
Speaker 2: positive consequences, some of the things that the critics focused
Speaker 2: most on before President Trump's Liberation Day have not really
Speaker 2: panned out either. One thing that I guess was predictable
Speaker 2: but is very evident is these are super unpopular, these tariffs,
Speaker 2: and people do associate the tariffs with higher costs, even
Speaker 2: if the numbers don't quite back it up.
Speaker 4: Yeah, definitely, but everything is unpopular. Cutting back fiscal deficits
Speaker 4: also unpopular. Doge was unpopular. The question is, I mean,
Speaker 4: once the government start spending or people start spending, it's
Speaker 4: hard to cut back. It's always feels terrible to downgrade.
Speaker 4: So the question is which one is relatively easier or
Speaker 4: less painful. And it's clear that the Trump administration has
Speaker 4: decided that forcing, you know, tariffs, using tariff policy is
Speaker 4: the relatively less painful route too, you know, solve a
Speaker 4: couple problems at the same time.
Speaker 2: And certainly raise a few hundred billion dollars. I mean, Sean,
Speaker 2: I take your point about the uncertainty, but as things stand,
Speaker 2: you have an increase in taxes that certainly many Democrats
Speaker 2: didn't think was possible, an increase in Texas that was
Speaker 2: very much focused on consumers. It seems like so even
Speaker 2: if they're very against them, seems quite unlikely they get
Speaker 2: the rush to remove them.
Speaker 3: Let's wait and see. But right now, in these midterm elections,
Speaker 3: Democrats are pointing to tariffs as a vulnerability for the president.
Speaker 3: They think they can make political hay with it. But
Speaker 3: I think it fits with a broader a broader sentiment,
Speaker 3: and that is that the economic policies that President Trump
Speaker 3: has rolled out in the past eighteen months have not
Speaker 3: delivered what he promised. And I think that is whether
Speaker 3: it's terrace, when it's immigration policy, whether it's the broader
Speaker 3: issue of bringing down prices. The feeling is that President
Speaker 3: Trump has injected and this comes up in poll after
Speaker 3: poll after poll in which he rates very low on
Speaker 3: the economy, his management of the economy. But the feeling
Speaker 3: is that President Trump has injected new love of chaos
Speaker 3: into the US economy and that voters are feeling the
Speaker 3: effects of that in multiple ways, or at least associating
Speaker 3: what they're feeling with that. And that is the kind
Speaker 3: of big political question. And the longer term political question
Speaker 3: around tariffs is how politically unpopular they will prove to
Speaker 3: be years from now. I mean that the history of
Speaker 3: the United States before World War Two, and the history
Speaker 3: of economic policy debates in the US was often around tariffs,
Speaker 3: and it was this fight between consumers and producers over
Speaker 3: tariffs and protectionism, and you had this go in political
Speaker 3: cycles where they were popular and a government would be
Speaker 3: elected and introduced tariffs, and then they were unpopular as
Speaker 3: soon as consumers started to pay for them, and that
Speaker 3: government would be voted out. And you know, maybe we
Speaker 3: will see that cycle return.
Speaker 2: Well, there are lots of things that are unique about
Speaker 2: Donald Trump. I think the idea that the voter's perception
Speaker 2: that he has not delivered on his promises is not
Speaker 2: unique to him as a politician. I'm afraid it's something
Speaker 2: that we're seeing quite a lot of. But I'm sure
Speaker 2: you're right, Sean, that the Democrats have feel they have
Speaker 2: a strong stick to beat the administration within the form
Speaker 2: of tariff. So I just hope that you and all
Speaker 2: these other reporters we have in DC will also be
Speaker 2: asking those Democrats what they would do instead. Thank you
Speaker 2: very much, Sean Donn and Anna Wong. A discussion to
Speaker 2: be continued, no doubt, but thanks for joining.
Speaker 1: This week, Thanks for having us, Thank you, thanks.
Speaker 2: For listening to trump Andomics from Bloomberg. It was hosted
Speaker 2: by me Stephanie Flanders. I was joined by Anna Wong
Speaker 2: and Sean Donald Trump Andnomics is produced by Moses and
Speaker 2: Am and Samasadi with help from Amy Keen and this
Speaker 2: Rachel Nvis Christie. Sound design was by Blake Maples and
Speaker 2: Kelly Garry