Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: President elect Donald Trump promised an aggressive slate of policies
Speaker 2: during his campaign for a second term that he said
Speaker 2: would strengthen the US economy. To me, the most beautiful
Speaker 2: word in the dictionary is terrified. No tax on tips,
Speaker 2: I will end inflation, prices will start to come down.
Speaker 2: Now that Trump has won the election, the question has shifted.
Speaker 2: Will these promises play out the way he sold them
Speaker 2: to the American people? And how could these policies evolve
Speaker 2: as he tries to put them into practice.
Speaker 1: As the old saying goes, politicians campaign in poetry, but
Speaker 1: govern in prose.
Speaker 2: Tom Orlack is the chief economist for Bloomberg Economics, and
Speaker 2: as the country prepares for Trump to take office, Tom
Speaker 2: and his team have been looking closely at some of
Speaker 2: his key economic talking points. Wanted to understand how Trump's
Speaker 2: policy proposals could transform the country now that his second
Speaker 2: term isn't a hypothetical but a reality that's just two
Speaker 2: months away. Today on the show, we do the math
Speaker 2: on the true cost of Trump's economic agenda, what it
Speaker 2: could mean for inflation, and how soon US consumers and
Speaker 2: companies can expect to feel the impact. This is the
Speaker 2: big take from Bloomberg News. I'm Sarah Holder. Well, Tom,
Speaker 2: thank you so much for being here.
Speaker 1: Great to be here, Sarah.
Speaker 2: Tom. Inflation and prices and economic concerns were really front
Speaker 2: and center in this US presidential election. How should the
Speaker 2: American people and the world be thinking about what a
Speaker 2: Trump presidency will actually mean for the future of the
Speaker 2: US economy.
Speaker 1: So let's be clear, Sarah, Past US administrations have not
Speaker 1: covered themselves in glory when it comes to economic policy
Speaker 1: and making the economy work for the American middle class.
Speaker 1: Let's think about inflation under the Biden administration. Now, they
Speaker 1: were dealt a tough hand with the pandemic lockdowns and reopening.
Speaker 1: Still inflation running close to ten percent. That's really high
Speaker 1: and had a really significant negative impact on the pocketbooks
Speaker 1: of US households. So the Trump team was I think
Speaker 1: completely right in identifying failures of past economic policy as
Speaker 1: a big concern for voters and a big opportunity for them.
Speaker 1: The big question is, well, do they have the right
Speaker 1: policies to solve those problems?
Speaker 2: How does your team do the math to calculate the
Speaker 2: economic impact of a presidency.
Speaker 1: Well, it's pretty tough, Sarah, and it's especially tough with
Speaker 1: the Trump administration for a couple of reasons. First, in general,
Speaker 1: incoming administrations talk about small tweaks to policy. We'll do
Speaker 1: a bit more over here, a bit less over there.
Speaker 1: But Trump's talking about seismic shifts in policy, the highest tariffs,
Speaker 1: for example, that we've seen since the start of the
Speaker 1: twentieth century. The second complexity, of course, is trying to
Speaker 1: disentangle what's the kind of campaign trail, red meat commitment
Speaker 1: versus what could plausibly be delivered in office.
Speaker 2: Well, let's talk about those promises versus that.
Speaker 1: Reality, Sarah. I have to say I'm a tiny bit
Speaker 1: disappointed by the illiterative failure in your framing of the question.
Speaker 1: I mean, we could have gone with rhetoric versus reality,
Speaker 1: promises versus plausibility. Trump is going to be inheriting an
Speaker 1: economy where inflation has already come way down and is
Speaker 1: basically trending back to targets. Now, if we think about
Speaker 1: Trump's actual policy proposals, we think about tariffs, which are
Speaker 1: going to make imports more expensive. If we think about
Speaker 1: tax cuts, which are going to reduce growth and so
Speaker 1: make labor markets stronger and so allow workers to bid
Speaker 1: up wages. Well, they're not hyperinflationary. We're not talking about
Speaker 1: price changes going back to ten percent like they did
Speaker 1: after COVID reopening. But they're certainly more inflationary than they
Speaker 1: are disinflationary.
Speaker 2: Bloomberg Economics focused on five key economic pillars that could
Speaker 2: look different under Trump. Taxes, tariffs, immigration regulation, and the
Speaker 2: federal reserve. Let's dive in on taxes for a second.
Speaker 2: Trump's tax cuts from his first term are expiring in
Speaker 2: twenty twenty five. Will he renew them? Do we expect
Speaker 2: him to add additional tax cuts? So?
Speaker 1: Trump has made a number of promises on taxes on
Speaker 1: the campaign trail. He's talked about extending the tax cuts
Speaker 1: which he introduced in his first term. He's talked about
Speaker 1: exempting tips from tex taxes. He's talked about exempting Social
Speaker 1: Security from taxes. He's talked about a big cut in
Speaker 1: the corporate tax rate.
Speaker 2: Tom's team found that Trump's proposed tax cuts would cost
Speaker 2: the US trillions of dollars in revenue. It would drive
Speaker 2: the US debt up to roughly one hundred and fifty
Speaker 2: percent of GDP by twenty thirty four.
Speaker 1: Now with the Senate, and we don't know yet but
Speaker 1: quite likely with the House as well. There's quite a
Speaker 1: lot he could do on taxes. At the same time,
Speaker 1: markets do not like unfunded tax giveaways, So we don't
Speaker 1: think Trump is going to face much constraint from Congress.
Speaker 1: But we do think that Trump is going to face
Speaker 1: quite a lot of constraints from the markets. If he
Speaker 1: attempts trillions of dollars of unfunded tax cuts, then the
Speaker 1: markets are going to say no, and they're going to
Speaker 1: bid up treasury yields, and that's going to be a
Speaker 1: constraint on his freedom of maneuver. So our bet is
Speaker 1: that we get some tax cuts, we get an extension
Speaker 1: of those tax cuts from his first term, we don't
Speaker 1: get the more ambitious proposals that he's put on the table,
Speaker 1: and what that's going to mean is slightly stronger growth,
Speaker 1: slightly higher inflation, and a more rapid increase in the
Speaker 1: US debt.
Speaker 2: So one of Trump's other bold positions has been on tariffs.
Speaker 2: He's proposed levying major tariffs on China and possibly on Europe.
Speaker 2: What do we know about the economic impact such a
Speaker 2: large tariff increase could have on the US economy. What
Speaker 2: is your team found.
Speaker 1: So on the campaign trail, Trump talked about sixty percent
Speaker 1: tariffs on China and twenty percent tariffs on the rest
Speaker 1: of the world, and that would be an absolutely enormous
Speaker 1: shock to the global trade system and the US economy.
Speaker 1: It would take US tariffs back to a level last
Speaker 1: scene after the Smoot Hawley Act in the early nineteen thirties,
Speaker 1: which most economists believe significantly deepened the Great Depression. Now that,
Speaker 1: of course raises the question, well, would he really do it?
Speaker 1: My instinct is probably not for a couple of reasons. First,
Speaker 1: Trump is a transactional guy, right, and so I think
Speaker 1: he views these numbers as a threat, which starts a negotiation.
Speaker 1: And his expectation is that other countries would come back
Speaker 1: with concessions. There'd be a negotiation, and then enables him
Speaker 1: to extract some concessions from Beijing, some concessions from Brussels,
Speaker 1: some concessions from trade partners in the rest of the world.
Speaker 1: We'd have some higher tariffs. He needs those to offset
Speaker 1: the tax revenue losses he would get when he cuts taxes.
Speaker 1: But we wouldn't go to that sixty percent twenty percent number. Secondly,
Speaker 1: the evidence of his first term is that he does
Speaker 1: this in a kind of smart way right, or at
Speaker 1: least a way which is intended to minimize the cost
Speaker 1: on US consumers US businesses. So tariffs in his first
Speaker 1: term exempted smartphones and tablets, for example, and the kind
Speaker 1: of things which would have really hit Apple and other
Speaker 1: US economic champions.
Speaker 2: What would Trump tariffs mean for the US's GDP?
Speaker 1: For US GDP for US growth, it would be a negative.
Speaker 1: The US would be exporting less. That means less output,
Speaker 1: less jobs, less income. It would also mean a very
Speaker 1: significant negative impact on some market champions, companies like Apple,
Speaker 1: for example, which have supply chains which stretch across the
Speaker 1: United States and China. What would happen to those supply
Speaker 1: chains if sixty percent tariffs were introduced on all US
Speaker 1: China trade. Well, I'm not an Apple expert, but I
Speaker 1: can tell you nothing good. And for inflation, it would
Speaker 1: mean pressure for prices to write because if you put
Speaker 1: a tariff on imports, well, that means consumers have to
Speaker 1: pay more for everything from Nike trainers to Apple smartphones.
Speaker 2: Coming up, how Trump's anti immigration agenda could slow economic
Speaker 2: growth and by the Fed's job of controlling inflation could
Speaker 2: get even harder under a second Trump administration. Let's talk
Speaker 2: about immigration for a moment. Trump has really threatened to
Speaker 2: crack down on immigration into the US and to increase deportations.
Speaker 2: What kind of impact would that have on the labor
Speaker 2: market and on the broader economy.
Speaker 1: Let's think about the growth piece of it, and then
Speaker 1: let's think about the inflation piece of it. So where
Speaker 1: does economic output come from. Well, it's workers and capital, right,
Speaker 1: workers and factories, workers and offices. So if you take
Speaker 1: workers out, if you deport millions of people, well your
Speaker 1: workfverce is smaller and so your output is smaller. So
Speaker 1: the effect of deportations on economic growth pretty categorically negative.
Speaker 2: Just how negative? Well, if Trump deported all unauthorized immigrants
Speaker 2: who entered the US since twenty twenty, Bloomberg Economics estimates
Speaker 2: that US GDP would shrink by more than three percent
Speaker 2: by twenty twenty eight.
Speaker 1: The impact on inflation, well, that's a bit more complicated
Speaker 1: if you think about specific sectors of the economy, specific states,
Speaker 1: for example, construction or retail where there's a lot of
Speaker 1: unauthorized migrant workers. Think about states like Texas where there's
Speaker 1: a lot of unauthorized immigrants. Well, if you kick a
Speaker 1: bunch of those workers out of the country, you've got
Speaker 1: less workers. So the workers who remain have got more
Speaker 1: bargaining power, they can demand more wagesh Is you've got
Speaker 1: inflationary pressure in some specific sectors in some specific states.
Speaker 1: Would it be inflationary for the economy as a whole. Well,
Speaker 1: that's a little bit where the complexity comes in. Because
Speaker 1: everybody is a producer. They contribute to supply and the
Speaker 1: consumer contributing to demand. So if you take a person
Speaker 1: out of the economy, you're losing some supply, but you're
Speaker 1: also losing some demand. And what our modeling suggests is
Speaker 1: that the loss of demand is a bit bigger. And
Speaker 1: so for the economy as a whole, when you deport
Speaker 1: a bunch of people, the impact is not more inflation,
Speaker 1: it's actually less inflation.
Speaker 2: Tom, We've been talking a lot about rhetoric versus reality.
Speaker 2: How does that play into Trump's immigration proposals. Is there
Speaker 2: a world where he sees the economic reality of implementing
Speaker 2: these and dials them back.
Speaker 1: I mean, we've not talked about this humanitarian cost of this, right,
Speaker 1: I mean the humanitarian cost is a big part of
Speaker 1: the picture, right tracking down unauthorized immigrants, herding them into
Speaker 1: detention centers. But leaving that aside, the logistics of a
Speaker 1: mass deportation policy are very complicated and very expensive. The
Speaker 1: economic impact, certainly for businesses that are working in construction,
Speaker 1: certainly for businesses that are working in retail or catering, well,
Speaker 1: they'd also be pretty significant. So I think, as with tariffs,
Speaker 1: we are going to see a campaign in poetry governing
Speaker 1: prose dynamic where certainly Trump's border policies are more severe
Speaker 1: than we've seen under the Biden administration, but delivery on
Speaker 1: some of his campaign pledges to have the biggest deportations
Speaker 1: in US history, well, we'll have to see if that's
Speaker 1: plausible or not.
Speaker 2: Well, Tom, let's talk about de regulation. The Biden administration
Speaker 2: made anti trust regulation a big part of its economic agenda.
Speaker 2: How does your team expect Trump to approach mergers and
Speaker 2: anti trust concerns? How might that impact the cost of
Speaker 2: consumer goods?
Speaker 1: Particularly with Lena Khan leading the charge, the Biden administration
Speaker 1: has taken a pretty aggressive stance on anti trust issues.
Speaker 1: Now for the Trump incoming Trump administration, would that stay
Speaker 1: the same. Well, I see a couple of conflicting impulses.
Speaker 1: On the one hand, the Republicans are pretty hostile to
Speaker 1: some of the big tech companies in California. They see
Speaker 1: them as bastions of kind of democratic politics. They see
Speaker 1: them as companies that are kind of tilting the public
Speaker 1: debate in a way which is unfavorable to them. On
Speaker 1: the other hand, the instinct of Trump, the instinct of
Speaker 1: the Republican Party is to be pro business, anti regulation.
Speaker 1: So how's that going to net out? Well, I think
Speaker 1: some of the big tech companies are going to see
Speaker 1: pressure fractice relations with the Trump administration. But I think
Speaker 1: that antitrust crusade that we've seen from le Ni Khan
Speaker 1: under the Biden administration, I suspect that that's not going
Speaker 1: to be a big feature of Trump policy.
Speaker 2: Well, it's up to the FED to deal with how
Speaker 2: these policies impact the economy and in particular, impact inflation.
Speaker 2: How does your team expect the FED to react to
Speaker 2: these Trump policies as it sets interest rates and tries
Speaker 2: to do its job, which is to keep inflation in check.
Speaker 1: That's a great question, Sarah. I'd say for the FED,
Speaker 1: we think that the Trump win introduces a sort of
Speaker 1: head spinning array of conflicting dynamics. Right now, we've got
Speaker 1: long term borrowing costs, the ten year treasury rate sharply
Speaker 1: higher than it was a few weeks ago. We've got
Speaker 1: the US dollar sharply stronger than it was a few
Speaker 1: weeks ago. What that means is financial conditions have tightened,
Speaker 1: and that adds downward pressure on growth, and so it
Speaker 1: adds pressure for the FED to cut more. On the
Speaker 1: other hand, as we've discussed tariff policy from Trump, tax
Speaker 1: policy from Trump, well that's probably going to be inflationary.
Speaker 1: So the FED looking into the future anticipating these more
Speaker 1: inflationary policies, Well, that means pressure to cut less. And
Speaker 1: then the last piece of the picture, Well, the FED
Speaker 1: is independent and they jealously guard their independence. Past Republican presidents,
Speaker 1: apart from Trump, Democrat presidents have been respectful of FED independence.
Speaker 1: Trump is not respectful of FED independence. He's unfiltered in
Speaker 1: sharing his views on what the FED should do, and
Speaker 1: that means there's an additional dynamic for the FED, which
Speaker 1: is the pressure to guard their independence and demonstrate that
Speaker 1: they are immune from political pressure, which at the margin
Speaker 1: probably means and instinct to cut less for the December meeting.
Speaker 1: Don't think any of this really matters that much. Twenty
Speaker 1: five basis point cut is baked in looking into twenty
Speaker 1: twenty five. Our pre election forecast was another one hundred
Speaker 1: basis points of cuts. But with all of these conflicting dynamics,
Speaker 1: with conditions changing quickly, that forecast is subject to some
Speaker 1: pretty significant uncertainty.
Speaker 2: And how soon can we expect to fuel the ripple
Speaker 2: effects of Trump's policies through the American economy? How much
Speaker 2: are we feeling now even before inauguration day? How much
Speaker 2: might we feel the first weeks and months?
Speaker 1: So markets move really fast. That Trump trade over the
Speaker 1: summer already started pricing in the possibility of a Trump win,
Speaker 1: with the market's betting that would mean more tariffs, less taxes,
Speaker 1: more debts, adding up to higher interest rates and a
Speaker 1: stronger dollar. When Trump won, that Trump trade got on
Speaker 1: the day, impetus rates moved higher, the dollar moved higher.
Speaker 1: That's already having a big impact on the US economy.
Speaker 1: Higher rates mean higher mortgages, challenge for the housing market.
Speaker 1: When are the policies going to start rolling out well?
Speaker 1: Drafting policies is a time consuming process. You need a
Speaker 1: leadership team in place, you need an analytic process to
Speaker 1: design the policy, you need a drafting process to write
Speaker 1: the policies, alleged process to approve the policies. That's not
Speaker 1: going to be something that we see probably until somewhere
Speaker 1: into twenty twenty five.
Speaker 2: Well, thanks so much, Tom for sharing this with us.
Speaker 1: Thanks for having me, Sarah.
Speaker 2: Thanks for listening to The Big Take from Bloomberg News.
Speaker 2: I'm Sarah Holder. This episode was produced by Julia Press
Speaker 2: with support from David Fox. It was edited by Aaron
Speaker 2: Edwards and Greg White. It was mixed by Alex Sugia
Speaker 2: and fact checked by Adrianna Ti. Naomi Shavin, who also
Speaker 2: edited this episode, is our senior producer. Elizabeth Ponso is
Speaker 2: our senior editor. Nicole Beemsterbor is our executive producer. Sage
Speaker 2: Bauman is Bloomberg's head of Podcasts. Please follow and review
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Speaker 2: new listeners find the show. We'll be back tomorrow.