Speaker 1: Bloomberg Audio Studios, podcasts, radio news. When you look at
Speaker 1: that tariff chart and say, oh, well, wait a minute,
Speaker 1: you know, how do the tariffs today compare to what
Speaker 1: we're announced and so forth, you have to also look
Speaker 1: at the flip side and recognize that we're at the
Speaker 1: point where, you know, the very largest corporations and our
Speaker 1: trading partners have said, yes, this is working, this is
Speaker 1: going to happen. But now, of course it does have
Speaker 1: to actually happen.
Speaker 2: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
Speaker 2: and this is Trump Economics, the podcast that looks at
Speaker 2: the economic world of Donald Trump, how he's already shaken
Speaker 2: the global economy and what on earth is going to
Speaker 2: happen next. In the Fog of War, the anniversary of
Speaker 2: Donald Trump's Liberation Day announcement of tariffs on goods entering
Speaker 2: the US barely registered, we thought we'd correct that this week,
Speaker 2: analyzing how the president's tariff policies in his second term
Speaker 2: have affected the economy, and just as important, whether they've
Speaker 2: succeeded in the goals the administration set for them, which
Speaker 2: were to raise federal revenues, cut the US trade deficit
Speaker 2: and start to revive US based manufacturing. As we record
Speaker 2: this on Monday, April thirteenth, it is clear that the
Speaker 2: deep blow to growth that many feared on that day
Speaker 2: in the Rose Garden just over a year ago has
Speaker 2: not materialized. Global trade has held up, and US imports
Speaker 2: have shifted rather than tanked. Tariffs have also raised hundreds
Speaker 2: of billions of dollars in new federal revenues, albeit not
Speaker 2: quite enough to really lower the federal deficit overall. But
Speaker 2: the mainstream take of economists would be tariffs have not
Speaker 2: done much to revive domestic manufacturing, and that if the
Speaker 2: economy showed unexpected resilience last year, well that was despite
Speaker 2: the tariffs, not because of them. That's the standard take,
Speaker 2: But there are respected voices who disagree, and Orncass is
Speaker 2: one of them. Arn's been on the show before. He's
Speaker 2: a prolific economist, writer, and commentator, chief economist at the
Speaker 2: American Compass, and author of the Understanding America newsletter, and
Speaker 2: pleased to have him back to debate this issue with
Speaker 2: our chief US economist, Anna Wong, well known to regular listeners,
Speaker 2: who served both at the Federal Reserve and mister Trump's
Speaker 2: Council of Economic Advisors in his first term. Anna, great
Speaker 2: to have you, happy to be here, and Auran, thanks
Speaker 2: very much for coming back.
Speaker 1: Oh, thank you for having me and great to be
Speaker 1: here with Anna.
Speaker 3: Aran.
Speaker 2: You wrote recently that the case for Donald Trump's tariffs
Speaker 2: had strengthened, said celeberation day. How do you see that.
Speaker 1: Well, I think it goes exactly to the point that
Speaker 1: you were making in the introduction, that all of the
Speaker 1: terrible catastrophes that were promised by so many economists simply
Speaker 1: didn't materialize. I think the best way to think about tariffs,
Speaker 1: and of course tariffs are one facet of this broader
Speaker 1: effort at reindustrialization, is that, in a sense, it's an investment.
Speaker 1: It is a policy that assumes some amount of upfront
Speaker 1: cost and disruption and is intended to deliver long term
Speaker 1: benefits that are much greater. To the extent that the
Speaker 1: costs are simply not nearly as high as people who
Speaker 1: were warning they would be, that obviously makes it a
Speaker 1: much more attractive investment case. And so do we get
Speaker 1: the long term benefits? To some extent, you have to
Speaker 1: wait and see. To some extent, I think you can
Speaker 1: see positive signals, but to the extent that the case
Speaker 1: against doing this was you'll disrupt the global economy, you'll
Speaker 1: destroy growth, you'll create runaway inflation, et cetera, et cetera.
Speaker 1: Those things just aren't true, and so certainly compared to
Speaker 1: what you were thinking a year ago, I think you
Speaker 1: have to be a lot more optimistic now.
Speaker 2: You mentioned in the piece that I was citing just now,
Speaker 2: one of the arguments is that the tariffs has had
Speaker 2: less impact because relative to what was announced in the
Speaker 2: Rose Garden over a year ago, many of them have
Speaker 2: not actually been implemented. I think forty three percent of
Speaker 2: I imports not subject to tariffs. A lot of key
Speaker 2: exemptions were introduced in the days after that announcement, So
Speaker 2: you know that's obviously one response to what you're saying
Speaker 2: is just that when there's been a lot of pushback,
Speaker 2: they have been withdrawn, especially in key aras like semiconductive
Speaker 2: chips and electronics.
Speaker 1: Well, I think if you look at the criticism and
Speaker 1: predictions of doom leading up to the Liberation to announcement, frankly,
Speaker 1: they were all anchored to an assumption of much less
Speaker 1: than what Trump actually announced on Liberation Day. I mean,
Speaker 1: you can go all the way back to what economists
Speaker 1: were saying during the campaign simply about Trump's proposal for
Speaker 1: a ten percent global tariff, and even that they were
Speaker 1: saying would be disastrous. I think adamposing from Petersen's to
Speaker 1: call it lunacy. And if you look at the chart
Speaker 1: of the tariff rates as they've evolved over the year,
Speaker 1: and you just imagine XA and showing that to economists
Speaker 1: and saying what do you think of this? I think
Speaker 1: we all know they would have made the exact same
Speaker 1: claims and predictions of disaster. And conversely, to the extent
Speaker 1: that economists are looking at the tariffs they've actually unfolded
Speaker 1: and admitting well, yes, sure this actual trajectory is reasonable
Speaker 1: and not disastrous, then that's certainly fine with me. I
Speaker 1: will I will take that and put it in my pocket.
Speaker 2: Right. Well, I guess the sort of other things equal,
Speaker 2: I guess is going to kind of come into play here,
Speaker 2: because a lot of those forecasts were about what the
Speaker 2: impact on the economy is other things equal, and it
Speaker 2: turns out there were a lot of other things going on.
Speaker 2: But Anna, what's your take overall on this point?
Speaker 3: Well, I think certainly on GDP growth and inflation, that
Speaker 3: it's not as disastrous as Aren said, as most economists think, though,
Speaker 3: I have to say it came almost exactly as we
Speaker 3: expected on inflation front, because we did expect that core
Speaker 3: PC would get to three percent at the end of
Speaker 3: the year on Liberation Day, and it did get to
Speaker 3: three percent at the end of the year, but not
Speaker 3: higher than that. However, that doesn't mean that there's no
Speaker 3: negatives from it. Our team does calculate that about zero
Speaker 3: point two two point three percentage point increase on the
Speaker 3: unemployment rate could be due to firms eating the tariff
Speaker 3: in their profit margin enhance slower hiring as a result.
Speaker 3: So I think there is some negative impact from the tariffs.
Speaker 2: Lauren's responding to the mainstream view and pointing out that
Speaker 2: it was wrong in the sort of magnitude of the impact.
Speaker 2: I guess it feels like a less positive argument to
Speaker 2: say it's damage less than expected as opposed to helping
Speaker 2: the economy. So I quite like to get into where
Speaker 2: you see the potential for that long term shift in
Speaker 2: the structure of the economy that the administration was looking
Speaker 2: for with this understanding that it would have just happened
Speaker 2: in a year or what would you point to in
Speaker 2: when you talk about we don't yet know whether that
Speaker 2: investment is going to pay off. You know, what are
Speaker 2: the encouraging pieces for you?
Speaker 1: Well, I think the way to think about it is
Speaker 1: to map out what would we expect success to look
Speaker 1: like and then hold ourselves accountable to that. And so,
Speaker 1: in my mind anyway, the theory of the case has
Speaker 1: always been imposing tariffs is going to shift relative prices.
Speaker 1: It's going to shift business cases for where you want
Speaker 1: to produce and deliver for the American market. And so
Speaker 1: the initial thing you're going to see is shifts in
Speaker 1: demand for domestic production. Because prices have shift, You're going
Speaker 1: to start to see more demand for industrial production in particular,
Speaker 1: you're going to start to see output rise. Hopefully you're
Speaker 1: going to start to see productivity gains in existing factories.
Speaker 1: But then what you really need is, okay, people to
Speaker 1: respond by saying we are actually going to build new
Speaker 1: capacity in the United States and going from concluding that
Speaker 1: things have in fact change to figuring out what that
Speaker 1: means to making plans to putting shovels in the ground.
Speaker 1: That's a year or two process right there, and so
Speaker 1: I think one year in the question has to be okay,
Speaker 1: did the manufacturing sector get healthier or weaker? And then
Speaker 1: as we head into years two and three, you have
Speaker 1: to actually see those large scale new investments taking place.
Speaker 1: And on that basic question, did the manufacturing sector get healthier?
Speaker 1: And again, this is a place where you had widespread
Speaker 1: predictions that this will actively harm manufacturing, this will weaken
Speaker 1: the sector. I think it's clear that the sector has strengthened.
Speaker 1: We've seen real productivity growth for the first time in
Speaker 1: a long time, reversing a long downward trend. We've seen
Speaker 1: output growth again for the first time in a long time,
Speaker 1: reversing a downward trend. And on the more subjective measures,
Speaker 1: the so called purchaser manager indices that survey people in
Speaker 1: the industry and ask about conditions, we've seen an uptick significantly,
Speaker 1: really bringing it all the way back to the very
Speaker 1: peak of coming out of COVID when things were at
Speaker 1: their strongest. So those are what I would be looking for,
Speaker 1: and I would say, frankly, I wish the investment numbers
Speaker 1: were a little higher right now. It's certainly not all roses,
Speaker 1: but it all points to a manufacturing sector that is
Speaker 1: responding to tariffs in the way we would want it
Speaker 1: to respond, not sort of weakening and getting counterproductive effects.
Speaker 2: Do you think, by and large, though, the response is
Speaker 2: slightly to be if only because of the need to
Speaker 2: compete in the world, there's going to be much more
Speaker 2: around automation than around creating jobs. I mean, we have
Speaker 2: seen still another eighty thousand manufacturing jobs go since the
Speaker 2: beginning of last year, and that's continuing a long trend.
Speaker 1: Well, I think you know those things are not mutually exclusive,
Speaker 1: automation and employment to the country. I think they're complementary.
Speaker 1: The decline in productivity in US manufacturing has made it
Speaker 1: less competitive, has made those jobs worse jobs. It is
Speaker 1: increasing automation, increasing productivity that is going to make the
Speaker 1: US sector more competitive and effective and is going to
Speaker 1: increase demand and output. And that's what's going to create
Speaker 1: the employment opportunities. And so you know, it's certainly not
Speaker 1: the case that you're going to employ as many people
Speaker 1: in the United States in manufacturing as you would if
Speaker 1: it were nineteen sixty. You were using nineteen sixty technology
Speaker 1: and trying to produce twenty twenty six output. But that's
Speaker 1: never been the history of manufacturing for a long period
Speaker 1: of time, we got strong manufacturing productivity gains with very
Speaker 1: strong employment in the sector. The question is whether you're
Speaker 1: getting demand for domestic manufacturing and you're getting healthy growth
Speaker 1: and output, And that's what I think the tariffs really
Speaker 1: focus on.
Speaker 2: You know, a lot of people would say the test
Speaker 2: of this is whether or not lower the trade deficits
Speaker 2: just on that understanding that it's a long term thing,
Speaker 2: and there's lots of factors. Well, has happened to the
Speaker 2: US trade deficit since Donald Trump came into office.
Speaker 3: So in twenty twenty four, the trade deficit as a
Speaker 3: share of GDP was hovering around the three percent figure
Speaker 3: of GDP, and in the first quarter it was even
Speaker 3: four point two percent of GDP as firms were front
Speaker 3: running the tariffs. So since then, the trade deficit has
Speaker 3: fallen to more like around two point five percent ish
Speaker 3: of GDP. But if you look at the details, what's
Speaker 3: even more striking is that all US imports in non
Speaker 3: strategic sector non semiconductor goods, non capital goods has fallen
Speaker 3: roughly ten percent below pre twenty twenty five trend. What
Speaker 3: is actually keeping the trade deficit as large as it
Speaker 3: is right now is actually US imports of capital goods
Speaker 3: like semi conductors, which is even stronger, much stronger than
Speaker 3: the years before. So with that AI story, the US
Speaker 3: trade deficit probably would have narrowed much more nana.
Speaker 2: One thing that you've highlighted throughout the year has been
Speaker 2: all this investment in data centers and the AI investments
Speaker 2: really kind of juicing the rest of GDP, and that
Speaker 2: is explicitly a sector that has been more or less
Speaker 2: excluded from tariffs. Just very soon after the Rose Garden announcement,
Speaker 2: all of those in Nvidia chips from Taiwan in and
Speaker 2: other aspects of that were made tariff free. If we
Speaker 2: hadn't had that data center boom ongoing in the US,
Speaker 2: would we be saying something different? Would it be clearer
Speaker 2: that damage or perhaps more noticeable the damage from the tariffs?
Speaker 2: And I guess the related thing is if that's the
Speaker 2: big success story, it's a success story that has been
Speaker 2: completely independent of tariffs and seem to have benefited from
Speaker 2: being without tariffs.
Speaker 3: I think most economists, including our team, would agree that
Speaker 3: the AI boom contributed to almost one percentage point of
Speaker 3: GDP in the first half of twenty twenty five during
Speaker 3: the quarter when there was the Liberation Day shock, So
Speaker 3: definitely AI served as a key cushioning factor to this shock.
Speaker 3: But I think to the question of are we seeing
Speaker 3: improvement in the manufacturing sector as a result of the
Speaker 3: tariff policies? So maybe a good way to look at
Speaker 3: it is to look at exactly where which pockets in
Speaker 3: the manufacturing sector is seeing some upturn, and for sure
Speaker 3: semi conductors, but we are also seeing improvement in aerospace
Speaker 3: and defense, very strong in fact, improvement in aerospace and
Speaker 3: defense and metals and mining. And I thought the metals
Speaker 3: and mining is the most interesting one because for decades,
Speaker 3: mining industry in the US has been decimated, and now
Speaker 3: we have fifty percent tariffs on steel and aluminum, And
Speaker 3: as an economist, I would say that to disentangle the
Speaker 3: effect of tariffs, metals is the place where it's relatively
Speaker 3: cleaner than all the other things. I think that the
Speaker 3: story that Oran is telling about increased capacity orders for
Speaker 3: factory capacity building coming online in twenty twenty six and beyond,
Speaker 3: I see, and I'm reading as anyone would these industry
Speaker 3: reports on steel and aluminum, and there are definitely factories
Speaker 3: coming online. For example, just the aluminum US does not
Speaker 3: have aluminum smelting capacity for decades, and there was an
Speaker 3: announcement last year that they are going to finally start
Speaker 3: to start smelting aluminum in the US. So I think
Speaker 3: the way I would qualify Oran's argument a bit by
Speaker 3: saying that there are pockets of strength in the manufacturing sector,
Speaker 3: driven perhaps by domestic protectionalism. We saw a similar effect
Speaker 3: on metals industry in twenty eighteen as well, So when
Speaker 3: the stealing aluminum terrors came on, then you see increased
Speaker 3: production and capacity in this sector. However, the story of
Speaker 3: twenty eighteen and twenty nineteen that tear wave is that
Speaker 3: when the Section three or one for China came on
Speaker 3: and that led to a more broad based trade uncertainty
Speaker 3: shock on everything else, then investment of everything else shark
Speaker 3: going down, which offset the gains from the metals industry.
Speaker 3: So I think an ongoing question for this year Ferocity
Speaker 3: evaluate is whether this year we're going to see the
Speaker 3: trade policy uncertainty shock go away.
Speaker 2: We keep saying that Peter, it will, but then there's
Speaker 2: a whole other round we'll see.
Speaker 3: I guess yes, yes, and theoretically, investment, whatever delayed investment
Speaker 3: happened because of these uncertainty should be rebouncing. And if
Speaker 3: Orange's thesis holds true, then the tapering of uncertainty, combined
Speaker 3: with these hiron incentives to produce should lead to a
Speaker 3: very strong, more broader based manufacturing gains outside of steel
Speaker 3: and aluminum and these metals industries.
Speaker 2: I like the fact that we're just getting onto the
Speaker 2: goals of the administration when it comes to the restarting
Speaker 2: domestic production in these strategic sectors, and whether this is
Speaker 2: the right way to do it, but whether there are
Speaker 2: other things that have been going on to support some
Speaker 2: of those sectors. Do you buy what Anna's saying about
Speaker 2: the sort of nuance in which bits of manufacturing and
Speaker 2: which parts of industry are doing better? And I guess
Speaker 2: the related thing when you think about the strength of
Speaker 2: the defense industry, for example, I mean, obviously there's other
Speaker 2: things going on there. There's the state of the world,
Speaker 2: but also a big increase in defense spending in the US.
Speaker 2: Are there ways of encouraging these strategic sectors if that
Speaker 2: is the goal, that will have fewer downsides than this
Speaker 2: very broad brush approach to tear.
Speaker 1: I agree entirely with Anna about sort of looking at
Speaker 1: it in this sector bisector way, and I would highlight
Speaker 1: two other things related to that. One is it speaks
Speaker 1: to the way that tariffs are one piece of a
Speaker 1: broader strategy, and for instance, on critical minerals and mining,
Speaker 1: you're seeing significant investments that are being pushed by an
Speaker 1: active industrial policy out of Washington, by very aggressive multilateral
Speaker 1: agreements that they're in the process of establishing. And so
Speaker 1: it's not tariffs alone. Obviously, in the semiconductor space, yes,
Speaker 1: the Trump administration exempted a lot of incoming chips, but
Speaker 1: that's in the context of the Chips Act and the
Speaker 1: very aggressive effort that is leading to a massive investment
Speaker 1: boom and expansion of productive capacity in advanced semiconductors. And
Speaker 1: so if you look at what the administration has said
Speaker 1: it wants to do now, they are proposing to explicitly
Speaker 1: establish a policy that says you get those execs from
Speaker 1: the tariffs as long as you are actively investing in
Speaker 1: bringing capacity online in the US. And so you know
Speaker 1: there is a sort of broad, blunt baseline underneath the
Speaker 1: tariff policy, but there are a lot of strategic choices
Speaker 1: being made on top of it. The second thing I
Speaker 1: think it's very important to keep in mind about these
Speaker 1: tariffs is that many of them very clearly were and
Speaker 1: have been used as negotiating tariffs, by which I mean
Speaker 1: the rates announced on Liberation Day were very clearly not
Speaker 1: intended to be permanent rates. They were intended to be
Speaker 1: a new backstop against which the administration wanted to negotiate
Speaker 1: these bilateral deals, and it's done so, and in those deals,
Speaker 1: it has gotten significant concessions on market access, on purchases,
Speaker 1: especially with East Asian countries, on large amounts of foreign
Speaker 1: direct investment that were committed and are just now starting
Speaker 1: to move through the planning phase into reality. And so again,
Speaker 1: when you look at that tariff chart and say, oh, well,
Speaker 1: wait a minute, you know, how do the tariffs today
Speaker 1: compare to what we're announced and so forth, you have
Speaker 1: to also look at the flip side and recognize that
Speaker 1: this was much closer to the long run status quo
Speaker 1: that had been envisioned, and it's now coming with these
Speaker 1: potential very significant investments not just on chips, on shipbuilding,
Speaker 1: on pharma, in a whole range of areas. And so
Speaker 1: I think that's what we should be looking at is okay,
Speaker 1: are those things working. We're at the point where, you know,
Speaker 1: the very largest corporations and our trading partners have said, yes,
Speaker 1: this is working, this is going to happen. Now, of
Speaker 1: course it does have to actually happen.
Speaker 2: Content my memory is when we've had those kind of
Speaker 2: promises in the past, they haven't always come through. I mean,
Speaker 2: when you look at these big numbers coming out of
Speaker 2: these press conferences, sometimes the deals end up not actually
Speaker 2: being signed because both sides have different views of, you know,
Speaker 2: what was actually agreed. But there has been quite a
Speaker 2: lot of skepticism about whether those headline numbers are going
Speaker 2: to materialize and what do you think we're going to
Speaker 2: see all of that FDI that coming out of those deals.
Speaker 3: I think Bloomberg did a big take on it, right.
Speaker 3: I think there are a lot of people who were
Speaker 3: citing this any numbers ranging from five trillion to ten
Speaker 3: trillion of investment coming online, and there was a Bloomberg
Speaker 3: team that examined those numbers, and I think they found
Speaker 3: that even excluding the ones that is likely not going
Speaker 3: to come through, the number is still massive, on the
Speaker 3: order of trillions.
Speaker 1: Well, and just to add to that, so I think
Speaker 1: that's exactly right. And I mean there's a question bulk
Speaker 1: of how rapidly capital flows could actually move in that way.
Speaker 1: There's a question of how quickly, you know, the US
Speaker 1: has the capacity to actually build stuff, right. I think
Speaker 1: it's important to think of this as a decade long
Speaker 1: process and where if you actually start to see these
Speaker 1: things moving forward, I think there's a way in which
Speaker 1: the logic will sort of build on itself. You know,
Speaker 1: this is something that we saw with the Chips Act certainly,
Speaker 1: where you know, once TSMC puts the first fab there
Speaker 1: and it actually works, that builds the logic now for
Speaker 1: a lot more. That starts to bring back the ecosystem
Speaker 1: for engineering, That brings back the supply chains, and now
Speaker 1: the next investment makes more sense. It's also the story
Speaker 1: of the Japanese auto industry in the US. You know,
Speaker 1: this is back from the early nineteen eighties when Reagan
Speaker 1: actually did something very similar. Under the threat of tariffs,
Speaker 1: Japan committed to pretty much moving its auto manufacturing into
Speaker 1: the US, and what started as a few assembly factories
Speaker 1: from Honda and Toyota then became entire supply chains. The
Speaker 1: quote has only lasted a few years, but long after
Speaker 1: the quotes were gone, it didn't matter. Once that was there,
Speaker 1: it made sense to bring more over to build that
Speaker 1: entire ecosystem. And now we just take that for granted
Speaker 1: as a healthy part of a successful story for US industry.
Speaker 1: But that started from exactly that same type of process.
Speaker 2: You have a nice line in your column or and
Speaker 2: I guess, amazingly I seem to have forgotten to mention
Speaker 2: that it was in the Financial Times. But you say,
Speaker 2: economists often observe the real world and ask, but does
Speaker 2: it work in theory? Globalization worked flawlessly in theory but
Speaker 2: failed in fact. On this first anniversary of Liberation Day,
Speaker 2: the alternative is showing greater promise. One of the reasons
Speaker 2: why the traditional sort of economic view of the world
Speaker 2: has not liked protectionism tariffs is the micro effects on
Speaker 2: people's incentives, the incentive to try and lobby for exemptions,
Speaker 2: which we've seen a lot, of the complexity that it introduces,
Speaker 2: and the red tape. We know people are struggling to calculate,
Speaker 2: for example, what their aluminum tariff is and what they
Speaker 2: have to pay, and introduced a lot of complexity for
Speaker 2: producers up and down the supply chain. And it's also
Speaker 2: I mean, we have some evidence, quite strong evidence just
Speaker 2: in the gap between what China says it's exporting and
Speaker 2: what US custom thinks it's importing, you know, one hundred
Speaker 2: and twelve billion dollars gap, which at least a big
Speaker 2: chunk of which could be evading those tariffs. So, you know,
Speaker 2: just from a sort of standard economics perspective, surely one
Speaker 2: has to also be thinking about those costs in thinking
Speaker 2: about whether or not it works in practice, even if
Speaker 2: it's not supposed to work in theory.
Speaker 1: Well, I guess I start just by looking at your
Speaker 1: typical free trade agreement, right, it's what five thousand pages long,
Speaker 1: negotiated by how many corporate lobbyists over how many years.
Speaker 3: You know.
Speaker 1: The idea that you sort of could have this genuinely
Speaker 1: quote free trade and it really is just one common
Speaker 1: market again is something that is maybe appealing in theory,
Speaker 1: but does not exist in fact. I think what you're
Speaker 1: seeing is much more a transition where, yes, as we
Speaker 1: move back to having higher tariffs, as we have an
Speaker 1: initial year where things were moving around a lot. Some
Speaker 1: I wish had not happened, some was necessary. Yes, of course,
Speaker 1: people are going to be frustrated, and that is one
Speaker 1: of the upfront costs in going through this sort of transition.
Speaker 1: But if we actually land on a stable new model,
Speaker 1: that's not going to be any different than the process
Speaker 1: of liberalization, of the process of reducing tariffs, a process
Speaker 1: of signing all the free trade agreements, which of course
Speaker 1: I don't recall any of these corporations complaining about is
Speaker 1: somehow unworkable, and the last thing I would just say
Speaker 1: about it. It is important to keep in mind one
Speaker 1: of the reasons that genuine free trade is appealing in
Speaker 1: theory but does not exist in fact, is that, to
Speaker 1: the extent you really do just open your market up
Speaker 1: to the world, you are importing all of the world
Speaker 1: old's distortions. It may be a lot of fun to
Speaker 1: go make everything in China, but if you're someone who
Speaker 1: did want to make something in the United States, being
Speaker 1: told you'd better pay attention to what the Chinese Communist
Speaker 1: Party's subsidy policy is every week isn't any better. And so,
Speaker 1: to the extent we do care about having a healthy,
Speaker 1: robust domestic industrial economy, I would argue that the direction
Speaker 1: we are headed is actually a much more stable and
Speaker 1: plausible environment than the one that we had been pushing toward.
Speaker 3: Well.
Speaker 2: To Ora's point, I remember Christian Friedan when she was
Speaker 2: trade at that time Trade Minister for Canada, negotiating Canada's
Speaker 2: deal with the European Union. She did say quite publicly
Speaker 2: she'd gone into those negotiations thinking it was going to
Speaker 2: be sort of talking about the gains for both sides
Speaker 2: and everything else. She said, it's just a bare knuckle
Speaker 2: fight where everyone's still trying to protect everybody else to you,
Speaker 2: and that which is why it always ends up in
Speaker 2: thousands of pages. Annaud nearly run out of time. But
Speaker 2: I think, just on that same point that I raised
Speaker 2: with Oran, if one is trying to restart domestic production,
Speaker 2: I mean, you've said to me, you think the question
Speaker 2: is the counterfactually, were there better ways to do that?
Speaker 2: Or was this kind of mixed approach of both sticks
Speaker 2: and carrots. Maybe if you're really focused on that, maybe
Speaker 2: it has been effective.
Speaker 3: Yeah. I think that the way to bring supply chain
Speaker 3: resilience in the US, which is definitely a goal this
Speaker 3: country should in for its own national interest, is to
Speaker 3: use a combination of carrots and sticks. I thought that
Speaker 3: the way to incentifize metals mining had been pretty effective
Speaker 3: by putting in a price floor, for example, for producers
Speaker 3: to shield them from predatory pricing from other countries. I mean,
Speaker 3: a well known tactic by China is to flood the
Speaker 3: market was supply, to crash the price to make it
Speaker 3: unprofitable by producers to produce, and as a result, the
Speaker 3: metal mining industry in the US has been decimated but
Speaker 3: for decades. But I think tariff is but one of them.
Speaker 3: There are rice floor policies to help with this, and
Speaker 3: I think the point that you guys made in this
Speaker 3: podcast so far that that is the real question is
Speaker 3: how do you make sure that these foreign firms will
Speaker 3: be willing to invest over a period of ten years,
Speaker 3: which is a long time, and you need to have
Speaker 3: some kind of strategic advantage of producing in the US.
Speaker 3: What is that advantage? And I think one that US
Speaker 3: has that China does not have despite China's cheap labor
Speaker 3: is energy independence. And this Iran war really highlight this
Speaker 3: point because manufacturing is a very energy intensive process and
Speaker 3: the EIA says that thirty eight percent of manufacturing costs
Speaker 3: came from energy natural gas, and this country has a
Speaker 3: tremendous amount of natural gas which is oversupplied, and if
Speaker 3: US can maintain this advantage, it can offset the higher
Speaker 3: cost coming from labor or even coming from the cost
Speaker 3: producing steel metals. And I think that that is the
Speaker 3: question that I think the Trump administration and future administration
Speaker 3: need to safeguard, like how do you create this cost
Speaker 3: advantage in the US?
Speaker 2: Yeah, and that's a very good point. And you pointed
Speaker 2: out to me today the natural gas. We're very focused
Speaker 2: on gasoline prices, and it's very irritating to all of
Speaker 2: us that it uses the same word gas for both.
Speaker 2: But the natural gas price in the US having fallen
Speaker 2: by over twenty percent since last year, and significantly just
Speaker 2: since the beginning of the Ranian War, I think is
Speaker 2: very striking, especially for those of us sitting in Europe
Speaker 2: who where that is definitely not the case. Lurin, I
Speaker 2: should leave the last word with you, And Anna was
Speaker 2: sort of putting that same frame on it. One positive
Speaker 2: factor that could help encourage this domestic revival that you
Speaker 2: are talking about, And you think we have laid some
Speaker 2: of the seeds for is going to be the cheap energy?
Speaker 2: Is energy self sufficiency? What do you worry could get
Speaker 2: in the way. I think the last time you were
Speaker 2: on we were talking about the significant controls on immigration
Speaker 2: and whether that would have affect the ability to get
Speaker 2: up and running with some of this manufacturing. But do
Speaker 2: you worry about getting in the way of this?
Speaker 1: I guess I would look at two things, and this
Speaker 1: is a little bit connected to the immigration point. Is
Speaker 1: just workforce. Where we see success. It is tied to
Speaker 1: major investments in developing the workforce, both for the sake
Speaker 1: of the workers, equipping people with the skills to take
Speaker 1: the good jobs, but also for the sake of the
Speaker 1: employers who need a skilled workforce. And that is just
Speaker 1: an area where the US has not done well for
Speaker 1: a long time. Our college for all model is completely
Speaker 1: mismatched to what we need and so our ability to
Speaker 1: actually build a system. We just did a paper with
Speaker 1: a whole bunch of case studies looking at what does
Speaker 1: it look like when it works from the high school
Speaker 1: to the technical college, to the employer to the union
Speaker 1: American Compass report called Learning by Doing. We have to
Speaker 1: get that right. The case stayers are out there. It
Speaker 1: is not a difficult thing in terms of policy making,
Speaker 1: but it is a major cultural shif certainly for the US.
Speaker 1: And then I think the other big question is just
Speaker 1: the stability of the policy regime itself. For people to
Speaker 1: make these long term investment plans, there does need to
Speaker 1: be a long term commitment by the United States to
Speaker 1: maintain some of these barriers, to maintain these supports. And
Speaker 1: on one hand, we've obviously seen a lot of uncertainty,
Speaker 1: a lot of swings, a lot of unpredictability over the
Speaker 1: last year. On the other hand, I do think we've
Speaker 1: started to see a quite clear overall direction, and I
Speaker 1: think there are a lot of ways in which this
Speaker 1: is all becoming quite entrenched. You know, we are seeing
Speaker 1: even with the Supreme Court striking down some of the tariffs,
Speaker 1: none of the trading partners came back and said, oh,
Speaker 1: that got struck down, we want to redo our deal. Right,
Speaker 1: Everyone sort of understands this is and to sic extent
Speaker 1: have even acknowledged that these imbalances do need to be addressed.
Speaker 1: So I think that has an effect. I think, certainly,
Speaker 1: you know a little bit to your point about special
Speaker 1: trust and so forth, there's something good actually about building
Speaker 1: up special interests that want domestic manufacturing and as investments
Speaker 1: do start to happen. As you do have more workers, communities,
Speaker 1: firms tied to this model, they are going to be
Speaker 1: a very strong constituency for continuing it. And then the
Speaker 1: final point is the revenue. Once you have the revenue,
Speaker 1: it gets built into the budget and if you want
Speaker 1: to change course, you have to come up with what
Speaker 1: you're going to cut spending on or what you're going
Speaker 1: to raise taxes on instead. And I do think we
Speaker 1: need to make some of this more formally permanent through legislation,
Speaker 1: and that should be a huge priority for the next
Speaker 1: few years. But I do think we are getting that
Speaker 1: kind of shift in underlying consensus on what this is
Speaker 1: going to look like, both in the US and around
Speaker 1: the world, and if we can maintain that, then I
Speaker 1: think we will be headed in the right direction.
Speaker 2: Well, shift in perspective for sure, and a conversation which
Speaker 2: for once is not about what on earth is going
Speaker 2: to happen in the straight of horror moves and how
Speaker 2: that can have the global economy. So Oorn cass Anna won.
Speaker 1: Thank you so much. This was great, Thank you, Thank you.
Speaker 2: Thanks for listening to Trumponomics from Bloomberg. It was hosted
Speaker 2: by me Stephanie Flanders, and I was joined by American
Speaker 2: Compass chief economist and commentator Orn Cass and Bloomberg's Chief
Speaker 2: US economist, Anna wom Trumponomics was produced by Summer Sadi
Speaker 2: and Moses And with help from Amy Keen, and sound
Speaker 2: design was by Blake Maples and Kelly Gary. Please help
Speaker 2: others find us and enjoy Trumpannomics by reviewing it wherever
Speaker 2: you listen to podcasts reviewing it highly obviously