WEBVTT - Former IMF Chief Economist Maurice Obstfeld Talks Tariffs 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Even if you didn't

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<v Speaker 1>read the eight hundred and thirty pages, it had a

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<v Speaker 1>lovely purple lavender cover and you could walk around campus

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<v Speaker 1>toating your Obsfeld and rogueoff and you get cool points

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<v Speaker 1>just for that. Joining us now. One of the foundation

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<v Speaker 1>academics we have on our International Macroeconomics Maurice Sobsfeld. He's

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<v Speaker 1>with the Peterson Institute with Posen and Blanchard. He is

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<v Speaker 1>at Berkeley forever and always, professor. Thank you so much

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<v Speaker 1>for joining us. What I see in percolating right now,

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<v Speaker 1>Maurice Sobsfeld, is real tensions about supply lines falling apart,

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<v Speaker 1>supply lines fragile because of tariffs, the interstitial, the interstitual

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<v Speaker 1>wiring of our trade system. Is it broken.

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<v Speaker 2>It's not broken yet, but it's understrained. It's understrained because

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<v Speaker 2>of tariffs. It's understrained because of geopolitical tensions. It's understrained

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<v Speaker 2>because of the trade war. And we can see this

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<v Speaker 2>in the threats flying back between President Trump and China

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<v Speaker 2>right now over everything from shipping to rar earth to

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<v Speaker 2>cooking oil.

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<v Speaker 1>There just seems to be two Americas, one affected by

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<v Speaker 1>goods and trade worry and angst in another a financial boom,

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<v Speaker 1>like Morgan Stanley, Can we exist like this?

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<v Speaker 2>Well, you know, the US economy has become increasingly financialized

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<v Speaker 2>over the decades, and you know, at some level, the

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<v Speaker 2>US is the world's banker at this point. And interestingly,

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<v Speaker 2>finance hasn't seen the kind of backlash that we've seen

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<v Speaker 2>against trade. You know, trade is blamed for deficits with

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<v Speaker 2>other countries, it's blamed for the declient of manufacturing. You know,

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<v Speaker 2>we don't see people wanting.

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<v Speaker 3>To curb financial transactions.

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<v Speaker 2>Quite the contrary, we're seeing deregulation stable coins and the like.

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<v Speaker 2>So there really really is a divorce between those two sectors.

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<v Speaker 2>And you know the question I have is can that

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<v Speaker 2>go on forever?

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<v Speaker 3>Yeah?

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<v Speaker 2>Or will the trade tensions eventually feed into the financial sphere.

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<v Speaker 4>I think they will, And Professor, that's kind of where

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<v Speaker 4>we are right now. The folks that are supporting tariffs,

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<v Speaker 4>they say, we are not seeing the economy slow down.

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<v Speaker 4>We recently had a very strong third quarter GDP print.

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<v Speaker 4>We are not seeing a material increase in inflation data,

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<v Speaker 4>although we are now lacking data because of the shutdown.

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<v Speaker 4>So again, the supporters of terriffts are saying, we're just

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<v Speaker 4>not seeing those economic headwinds coming from tariffs. So my

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<v Speaker 4>question to you is is it just a matter of

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<v Speaker 4>time or are corporations adapting?

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<v Speaker 3>Oh? I think it's a matter of time.

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<v Speaker 2>There is some adaptation, of course, as corporations look for

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<v Speaker 2>cheaper suppliers.

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<v Speaker 3>But you know, just sort of a look at what

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<v Speaker 3>we've seen. We have not seen any.

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<v Speaker 2>Material fall in the dollar prices that foreign countries charge

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<v Speaker 2>for US. We've seen some limited increase in consumer prices

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<v Speaker 2>of imported goods and close substitutes for those imported goods, but.

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<v Speaker 3>Not enough to offset the tariff.

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<v Speaker 2>But we've also seen substantial revenue coming into the treasury

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<v Speaker 2>from tariffs, which is being paid by our importers.

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<v Speaker 3>So how do you square that circle.

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<v Speaker 2>You square it with with a hit to profitability and

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<v Speaker 2>with the observation that firms have been swallowing these tariffs

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<v Speaker 2>to some extent while they wait for tariff policy to

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<v Speaker 2>stabilize and figure out what it's going to be going forward.

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<v Speaker 2>Now that we kind of know where we are with

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<v Speaker 2>tariffs to some extent, I think firms are going to

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<v Speaker 2>be adjusting by passing those cost increases.

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<v Speaker 1>On Professor Obsfeld synthesize here say the work of Douglass

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<v Speaker 1>are when at Dartmouth with down the hall from you

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<v Speaker 1>at Berkeley, Barry Kengreen, and this whole trade up set

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<v Speaker 1>and the risk to the dollar. This goes back to Obsfeld, Rogueoff,

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<v Speaker 1>and frankly back to Mundell. I'm assuming you don't have

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<v Speaker 1>a fear of the gloom crew on the dollar. Is

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<v Speaker 1>that correct?

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<v Speaker 3>The gloom crew?

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<v Speaker 2>You know, I'm worried long term about the status of

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<v Speaker 2>the dollar. I think they're very strong forces keeping the

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<v Speaker 2>dollar in the prime position it's in in global markets

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<v Speaker 2>as the world's currency. But foreign countries are increasingly worried

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<v Speaker 2>about the kind of worse of punitive actions that this

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<v Speaker 2>administration has been taken to enforce its will globally, not

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<v Speaker 2>just in the trade sphere, but looking at issues like

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<v Speaker 2>internal politics. You know, we see this across the board,

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<v Speaker 2>for positive and negative. The Treasury right now is bailing

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<v Speaker 2>out Argentina for largely political reasons. So I think I

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<v Speaker 2>think the bottom line is that that foreign countries no

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<v Speaker 2>longer trust the US as a responsible steward of the

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<v Speaker 2>global economy, are going to seek to decouple and insure

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<v Speaker 2>themselves against policy volatility emanating from right here.

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<v Speaker 1>Maurice, I gotta go to breaking news. Paul, Can I

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<v Speaker 1>ask a rude question of Professor Absfeld? Yeah, professor and

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<v Speaker 1>Eiching Green question for you, Maurice Absfeld on gold at

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<v Speaker 1>four dollars announce? What would berries?

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<v Speaker 2>I'm not going to speak for Barry, my good and

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<v Speaker 2>longtime friend, but I think he would say that. I

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<v Speaker 2>guess I am speaking for him. Let me speak for myself.

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<v Speaker 2>Barry and I agree about a lot of things, not everything.

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<v Speaker 2>You know, gold is a bell weather of fear, and

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<v Speaker 2>the escalation in its price is far beyond what you

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<v Speaker 2>would expect to see coming from inflationary fears.

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<v Speaker 3>Although I think that's part of the picture.

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<v Speaker 2>I think it betokens a shift into something that is

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<v Speaker 2>perceived as safer than the dollar and not subject to

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<v Speaker 2>extra territorial action by the US. I mean, you know,

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<v Speaker 2>we've seen the escalation in price. We've also seen increasing

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<v Speaker 2>purchases of gold by emerging market central banks. A lot

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<v Speaker 2>of that is China, but not all of it is China, Okay,

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<v Speaker 2>So that I think tells us something about the fear

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<v Speaker 2>out there. And you know, the escalation and bitcoin prices

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<v Speaker 2>is a similar phenomenon.

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<v Speaker 1>Professor, you got to leave it there too short a visit.

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<v Speaker 1>Thank you so much. Thank you to you and the

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<v Speaker 1>Peterson Institute, Adam Posen, Professor Blanchard and others for just

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<v Speaker 1>great support of what we do. Marie Sobsfeld Forever from

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<v Speaker 1>the University of California at Berkeley,