Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's take it off with the news of the day,
Speaker 2: which of course is the auto tariffs that have been
Speaker 2: announced in the last twenty four hours or so, all
Speaker 2: in anticipation of Liberation Day, as a Trump administration calls it,
Speaker 2: going into next week. Walk us through from your experience
Speaker 2: with the Trump administration, what the end goal here is
Speaker 2: of these tariffs.
Speaker 1: Well, I think he has a couple of end goals.
Speaker 1: One of course, is to relocate manufacturing back to the
Speaker 1: United States. And our biggest shade problem is actually auto.
Speaker 1: There's hundreds of billions of dollars of problems. So one
Speaker 1: of his objectives is move manufacturing back. The second objective
Speaker 1: is to gain more revenues, because to the degree that
Speaker 1: the tariffs are paid, there will be more revenues coming in.
Speaker 1: And then the third is to hopefully have the potential
Speaker 1: inflationary effects of those items offset won by cent changes
Speaker 1: and currency. If you notice, the currencies have already been
Speaker 1: weakening against the dollars, so that will absorb part of
Speaker 1: it from the American consumment. I believe that the foreign
Speaker 1: manufacturers will also absorb part. My guesses that in many
Speaker 1: cases their governments will absorb some and some will be
Speaker 1: passed on to the US. And in the US, since
Speaker 1: most companies are only operating at seventy to eighty percent
Speaker 1: of capacity, it can absorbed some hit because the incremental
Speaker 1: production is relatively low cost as you move up from
Speaker 1: seventy or eighty four to hundred.
Speaker 2: Does that apply, Secretary Ross when it comes to reciprocal
Speaker 2: tariffs as well, does the math work in the same way.
Speaker 1: Well, it all depends how he puts them in. My
Speaker 1: hope is that what he'll pick out is a limited number,
Speaker 1: maybe three, four, five, of the very important ones and
Speaker 1: put the same terror for every country on those. If
Speaker 1: he goes a different route, for example, if he went
Speaker 1: the route of saying the average blended rate from this
Speaker 1: particular country is x, and will apply that blended rate
Speaker 1: to everything they do, then you'd have an anomaly in
Speaker 1: that it would mean more of a terraff on the
Speaker 1: lowest tariff goods and less of a tariff than matching
Speaker 1: on the highest price. So it's very complicated to implement,
Speaker 1: and what I think it wouldn't work very well would
Speaker 1: be to say this country has a soonso percent terraff
Speaker 1: and this other country has a five percent higher terror
Speaker 1: and put in different tariffs on the same product. That
Speaker 1: would be very very hard. It would probably lead to
Speaker 1: transshipment and thereby create a loophole that to teach the
Speaker 1: the tiff to begin.
Speaker 2: With, right, Secretary Arouns, Donald Trump has talked about and
Speaker 2: his colleagues I say, should have talked about very often
Speaker 2: when it comes to reciprocal tariffs, including things that one
Speaker 2: would not traditionally include, for example, things like regulation coming
Speaker 2: out of the European Union, taxes like the VAT, among
Speaker 2: other examples. Non tarri iff barriers, I believe is the
Speaker 2: phrasing he used. If the goal is to remove the
Speaker 2: barriers and to remove the regulation and make it easier
Speaker 2: for American companies to operate abroad. When those barriers are reached,
Speaker 2: do you think Donald Trump will respond in the same
Speaker 2: way aka remove tariffs or remove barriers from the United
Speaker 2: States that he's placing right now.
Speaker 1: Well, non tariff trade barriers are in many cases even
Speaker 1: worse impediments to our trade than the tariff barriers. For example,
Speaker 1: the EU bars bans GMO enhanced foods. That's worse than
Speaker 1: any tariff because it means we simply cannot ship it
Speaker 1: into them. Similarly, the VAT. If a Mercedes is bought
Speaker 1: in Germany, there's a VAT on it, and in most
Speaker 1: countries it's around twenty five percent, But those same countries
Speaker 1: rebate the VAT on export. So without tariffs on our side,
Speaker 1: the Mercedes would literally cost less in the US than
Speaker 1: it does in Germany. Whereas, in contrast, since we don't
Speaker 1: have a VAT or anything else that we can rebate
Speaker 1: on export, a car ship from the US pays the VAT,
Speaker 1: So an American car ship to a VAT country costs
Speaker 1: more in that country than it does at home. So
Speaker 1: VAT is a component of the disparity.
Speaker 2: Secretary Ross, let me bring it back to your first
Speaker 2: point about increasing manufacturing within the borders of the United States.
Speaker 2: Critics of that strategy would say the volatility surrounding the
Speaker 2: tariff announcements is enough to disincentivize any sort of credibility
Speaker 2: that a long term investment in the United States is
Speaker 2: a good idea. If the economics of tariff's work, do
Speaker 2: you think the execution of them is a concern, Well.
Speaker 1: The execution is a concern, and to my mind, the
Speaker 1: simpler and more broadly based. He makes them the better
Speaker 1: because the way you actually implement parents is each product
Speaker 1: needs to have a six or so digit code number
Speaker 1: associated with it, and it's that code number that's used
Speaker 1: for enforcement. So the more products, and there are tens
Speaker 1: of thousands of products that we import, the more products
Speaker 1: that you've changed things on or vary them by country,
Speaker 1: the more complicated the implementation become.
Speaker 2: Well, Sir Tree Ross, I'd like to stick with that
Speaker 2: line of thinking and talk about maybe a little bit
Speaker 2: of what's driving some of the domestic policy within the
Speaker 2: United States as well. On the campaign trail, Donald Trump
Speaker 2: has been quite vocal about the idea that tariff revenue
Speaker 2: can help pave the way for an extension of his
Speaker 2: twenty seventeen tax cuts, or even further tax cuts for
Speaker 2: the American public. Does the math add up there? Does
Speaker 2: more tariff revenue from outside of the United States help
Speaker 2: the Trump administration issue tax cuts for the people within?
Speaker 1: Well, surely it does. Whatever revenues come into the government
Speaker 1: can either be used to reduce the deficit or be
Speaker 1: passed on to the public. So money is fungible once
Speaker 1: once it comes in, and I think part of what
Speaker 1: has people confused is President Trump does have multiple objectives
Speaker 1: for the tariff, But in a sense those multiple objectives
Speaker 1: mean it's a win win in that to the degree
Speaker 1: that the goods still come in and tariff is paid,
Speaker 1: that will go into our treasury. To the degree that
Speaker 1: goods are no longer imported but made here, they'll be
Speaker 1: less command to the treasury from terrace, but more coming
Speaker 1: in from the tax revenues paid by the manufacturing facilities
Speaker 1: set up here. So either way there is an implication
Speaker 1: for federal revenue and therefore for potential tax.
Speaker 2: Cuts, Sir terry ross the way. Donald Trump is also
Speaker 2: potentially addressing the deficit and some of the costs around.
Speaker 2: The US government has also been, in addition to tariff revenue,
Speaker 2: talking about reducing the federal workforce. You've seen Doge as
Speaker 2: one example of pretty swift actions in reducing that workforce.
Speaker 2: Is there anything you would do differently in terms of
Speaker 2: perhaps the end goals that DOGE has.
Speaker 1: Well, they know they have to act very quickly, and
Speaker 1: the reason is this some of the measures probably will
Speaker 1: end up needing congressional approval, and by September of this year,
Speaker 1: all that the Congress will be focusing on will be
Speaker 1: the midterm elections, and that means they will be very
Speaker 1: unlikely after that period to do anything that's controversial. So
Speaker 1: part of the reason there's a great rough here is
Speaker 1: the political cycle relative to the congressional elections. But there's
Speaker 1: also another reason, as I've learned from my working on
Speaker 1: disdress companies, and you can say the US government is
Speaker 1: perhaps the largest distressed company in the world. The way
Speaker 1: that it's best to fix it is try to get
Speaker 1: as close as you can to one big bang, so
Speaker 1: that people know, Okay, they survived the last job cut.
Speaker 1: There's not going to be another one next week and
Speaker 1: the week after in the week after. Much better try
Speaker 1: to do it in one big bang, and that's why
Speaker 1: you're seeing him try to come very quickly with cuts. Now.
Speaker 1: Killing that fast undoubtedly mean there will be mistakes. Then
Speaker 1: some of those people will have to be rehired. But
Speaker 1: that's an unfortunate consequence, but it's inevitable when you're having
Speaker 1: to travel at the speed that they are.