Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Even if you didn't
Speaker 1: read the eight hundred and thirty pages, it had a
Speaker 1: lovely purple lavender cover and you could walk around campus
Speaker 1: toating your Obsfeld and rogueoff and you get cool points
Speaker 1: just for that. Joining us now. One of the foundation
Speaker 1: academics we have on our International Macroeconomics Maurice Sobsfeld. He's
Speaker 1: with the Peterson Institute with Posen and Blanchard. He is
Speaker 1: at Berkeley forever and always, professor. Thank you so much
Speaker 1: for joining us. What I see in percolating right now,
Speaker 1: Maurice Sobsfeld, is real tensions about supply lines falling apart,
Speaker 1: supply lines fragile because of tariffs, the interstitial, the interstitual
Speaker 1: wiring of our trade system. Is it broken.
Speaker 2: It's not broken yet, but it's understrained. It's understrained because
Speaker 2: of tariffs. It's understrained because of geopolitical tensions. It's understrained
Speaker 2: because of the trade war. And we can see this
Speaker 2: in the threats flying back between President Trump and China
Speaker 2: right now over everything from shipping to rar earth to
Speaker 2: cooking oil.
Speaker 1: There just seems to be two Americas, one affected by
Speaker 1: goods and trade worry and angst in another a financial boom,
Speaker 1: like Morgan Stanley, Can we exist like this?
Speaker 2: Well, you know, the US economy has become increasingly financialized
Speaker 2: over the decades, and you know, at some level, the
Speaker 2: US is the world's banker at this point. And interestingly,
Speaker 2: finance hasn't seen the kind of backlash that we've seen
Speaker 2: against trade. You know, trade is blamed for deficits with
Speaker 2: other countries, it's blamed for the declient of manufacturing. You know,
Speaker 2: we don't see people wanting.
Speaker 3: To curb financial transactions.
Speaker 2: Quite the contrary, we're seeing deregulation stable coins and the like.
Speaker 2: So there really really is a divorce between those two sectors.
Speaker 2: And you know the question I have is can that
Speaker 2: go on forever?
Speaker 3: Yeah?
Speaker 2: Or will the trade tensions eventually feed into the financial sphere.
Speaker 4: I think they will, And Professor, that's kind of where
Speaker 4: we are right now. The folks that are supporting tariffs,
Speaker 4: they say, we are not seeing the economy slow down.
Speaker 4: We recently had a very strong third quarter GDP print.
Speaker 4: We are not seeing a material increase in inflation data,
Speaker 4: although we are now lacking data because of the shutdown.
Speaker 4: So again, the supporters of terriffts are saying, we're just
Speaker 4: not seeing those economic headwinds coming from tariffs. So my
Speaker 4: question to you is is it just a matter of
Speaker 4: time or are corporations adapting?
Speaker 3: Oh? I think it's a matter of time.
Speaker 2: There is some adaptation, of course, as corporations look for
Speaker 2: cheaper suppliers.
Speaker 3: But you know, just sort of a look at what
Speaker 3: we've seen. We have not seen any.
Speaker 2: Material fall in the dollar prices that foreign countries charge
Speaker 2: for US. We've seen some limited increase in consumer prices
Speaker 2: of imported goods and close substitutes for those imported goods, but.
Speaker 3: Not enough to offset the tariff.
Speaker 2: But we've also seen substantial revenue coming into the treasury
Speaker 2: from tariffs, which is being paid by our importers.
Speaker 3: So how do you square that circle.
Speaker 2: You square it with with a hit to profitability and
Speaker 2: with the observation that firms have been swallowing these tariffs
Speaker 2: to some extent while they wait for tariff policy to
Speaker 2: stabilize and figure out what it's going to be going forward.
Speaker 2: Now that we kind of know where we are with
Speaker 2: tariffs to some extent, I think firms are going to
Speaker 2: be adjusting by passing those cost increases.
Speaker 1: On Professor Obsfeld synthesize here say the work of Douglass
Speaker 1: are when at Dartmouth with down the hall from you
Speaker 1: at Berkeley, Barry Kengreen, and this whole trade up set
Speaker 1: and the risk to the dollar. This goes back to Obsfeld, Rogueoff,
Speaker 1: and frankly back to Mundell. I'm assuming you don't have
Speaker 1: a fear of the gloom crew on the dollar. Is
Speaker 1: that correct?
Speaker 3: The gloom crew?
Speaker 2: You know, I'm worried long term about the status of
Speaker 2: the dollar. I think they're very strong forces keeping the
Speaker 2: dollar in the prime position it's in in global markets
Speaker 2: as the world's currency. But foreign countries are increasingly worried
Speaker 2: about the kind of worse of punitive actions that this
Speaker 2: administration has been taken to enforce its will globally, not
Speaker 2: just in the trade sphere, but looking at issues like
Speaker 2: internal politics. You know, we see this across the board,
Speaker 2: for positive and negative. The Treasury right now is bailing
Speaker 2: out Argentina for largely political reasons. So I think I
Speaker 2: think the bottom line is that that foreign countries no
Speaker 2: longer trust the US as a responsible steward of the
Speaker 2: global economy, are going to seek to decouple and insure
Speaker 2: themselves against policy volatility emanating from right here.
Speaker 1: Maurice, I gotta go to breaking news. Paul, Can I
Speaker 1: ask a rude question of Professor Absfeld? Yeah, professor and
Speaker 1: Eiching Green question for you, Maurice Absfeld on gold at
Speaker 1: four dollars announce? What would berries?
Speaker 2: I'm not going to speak for Barry, my good and
Speaker 2: longtime friend, but I think he would say that. I
Speaker 2: guess I am speaking for him. Let me speak for myself.
Speaker 2: Barry and I agree about a lot of things, not everything.
Speaker 2: You know, gold is a bell weather of fear, and
Speaker 2: the escalation in its price is far beyond what you
Speaker 2: would expect to see coming from inflationary fears.
Speaker 3: Although I think that's part of the picture.
Speaker 2: I think it betokens a shift into something that is
Speaker 2: perceived as safer than the dollar and not subject to
Speaker 2: extra territorial action by the US. I mean, you know,
Speaker 2: we've seen the escalation in price. We've also seen increasing
Speaker 2: purchases of gold by emerging market central banks. A lot
Speaker 2: of that is China, but not all of it is China, Okay,
Speaker 2: So that I think tells us something about the fear
Speaker 2: out there. And you know, the escalation and bitcoin prices
Speaker 2: is a similar phenomenon.
Speaker 1: Professor, you got to leave it there too short a visit.
Speaker 1: Thank you so much. Thank you to you and the
Speaker 1: Peterson Institute, Adam Posen, Professor Blanchard and others for just
Speaker 1: great support of what we do. Marie Sobsfeld Forever from
Speaker 1: the University of California at Berkeley,