WEBVTT - How Trump’s Tariffs Plus Iran War May Help US Manufacturing 0:00:02.720 --> 0:00:08.760 Bloomberg Audio Studios, podcasts, radio news. When you look at 0:00:08.760 --> 0:00:10.960 that tariff chart and say, oh, well, wait a minute, 0:00:11.039 --> 0:00:13.080 you know, how do the tariffs today compare to what 0:00:13.119 --> 0:00:15.800 we're announced and so forth, you have to also look 0:00:15.840 --> 0:00:18.200 at the flip side and recognize that we're at the 0:00:18.239 --> 0:00:21.520 point where, you know, the very largest corporations and our 0:00:21.560 --> 0:00:24.119 trading partners have said, yes, this is working, this is 0:00:24.160 --> 0:00:26.680 going to happen. But now, of course it does have 0:00:26.800 --> 0:00:27.960 to actually happen. 0:00:37.800 --> 0:00:40.600 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:40.920 --> 0:00:43.159 and this is Trump Economics, the podcast that looks at 0:00:43.159 --> 0:00:46.680 the economic world of Donald Trump, how he's already shaken 0:00:46.720 --> 0:00:49.120 the global economy and what on earth is going to 0:00:49.159 --> 0:00:53.720 happen next. In the Fog of War, the anniversary of 0:00:53.760 --> 0:00:57.560 Donald Trump's Liberation Day announcement of tariffs on goods entering 0:00:57.600 --> 0:01:01.520 the US barely registered, we thought we'd correct that this week, 0:01:01.880 --> 0:01:04.959 analyzing how the president's tariff policies in his second term 0:01:05.280 --> 0:01:08.600 have affected the economy, and just as important, whether they've 0:01:08.600 --> 0:01:11.400 succeeded in the goals the administration set for them, which 0:01:11.520 --> 0:01:15.240 were to raise federal revenues, cut the US trade deficit 0:01:15.680 --> 0:01:20.320 and start to revive US based manufacturing. As we record 0:01:20.360 --> 0:01:23.960 this on Monday, April thirteenth, it is clear that the 0:01:24.000 --> 0:01:27.319 deep blow to growth that many feared on that day 0:01:27.360 --> 0:01:30.119 in the Rose Garden just over a year ago has 0:01:30.160 --> 0:01:33.960 not materialized. Global trade has held up, and US imports 0:01:33.959 --> 0:01:38.279 have shifted rather than tanked. Tariffs have also raised hundreds 0:01:38.280 --> 0:01:41.039 of billions of dollars in new federal revenues, albeit not 0:01:41.160 --> 0:01:44.959 quite enough to really lower the federal deficit overall. But 0:01:45.080 --> 0:01:48.400 the mainstream take of economists would be tariffs have not 0:01:48.440 --> 0:01:51.680 done much to revive domestic manufacturing, and that if the 0:01:51.720 --> 0:01:56.240 economy showed unexpected resilience last year, well that was despite 0:01:56.280 --> 0:01:59.280 the tariffs, not because of them. That's the standard take, 0:01:59.600 --> 0:02:02.680 But there are respected voices who disagree, and Orncass is 0:02:02.680 --> 0:02:04.640 one of them. Arn's been on the show before. He's 0:02:04.640 --> 0:02:08.960 a prolific economist, writer, and commentator, chief economist at the 0:02:08.960 --> 0:02:13.440 American Compass, and author of the Understanding America newsletter, and 0:02:13.520 --> 0:02:15.640 pleased to have him back to debate this issue with 0:02:15.720 --> 0:02:18.880 our chief US economist, Anna Wong, well known to regular listeners, 0:02:19.240 --> 0:02:22.040 who served both at the Federal Reserve and mister Trump's 0:02:22.040 --> 0:02:25.600 Council of Economic Advisors in his first term. Anna, great 0:02:25.639 --> 0:02:28.239 to have you, happy to be here, and Auran, thanks 0:02:28.320 --> 0:02:29.119 very much for coming back. 0:02:29.200 --> 0:02:30.880 Oh, thank you for having me and great to be 0:02:30.919 --> 0:02:31.480 here with Anna. 0:02:36.360 --> 0:02:36.560 Aran. 0:02:36.639 --> 0:02:40.560 You wrote recently that the case for Donald Trump's tariffs 0:02:40.800 --> 0:02:44.000 had strengthened, said celeberation day. How do you see that. 0:02:44.320 --> 0:02:46.520 Well, I think it goes exactly to the point that 0:02:46.600 --> 0:02:49.240 you were making in the introduction, that all of the 0:02:49.639 --> 0:02:54.160 terrible catastrophes that were promised by so many economists simply 0:02:54.200 --> 0:02:57.960 didn't materialize. I think the best way to think about tariffs, 0:02:58.000 --> 0:03:00.400 and of course tariffs are one facet of this broader 0:03:00.760 --> 0:03:04.600 effort at reindustrialization, is that, in a sense, it's an investment. 0:03:04.680 --> 0:03:08.120 It is a policy that assumes some amount of upfront 0:03:08.160 --> 0:03:12.080 cost and disruption and is intended to deliver long term 0:03:12.120 --> 0:03:15.400 benefits that are much greater. To the extent that the 0:03:15.560 --> 0:03:18.600 costs are simply not nearly as high as people who 0:03:18.600 --> 0:03:21.239 were warning they would be, that obviously makes it a 0:03:21.320 --> 0:03:25.600 much more attractive investment case. And so do we get 0:03:25.600 --> 0:03:28.560 the long term benefits? To some extent, you have to 0:03:28.600 --> 0:03:30.639 wait and see. To some extent, I think you can 0:03:30.720 --> 0:03:33.880 see positive signals, but to the extent that the case 0:03:33.919 --> 0:03:37.720 against doing this was you'll disrupt the global economy, you'll 0:03:37.720 --> 0:03:41.080 destroy growth, you'll create runaway inflation, et cetera, et cetera. 0:03:42.040 --> 0:03:45.040 Those things just aren't true, and so certainly compared to 0:03:45.080 --> 0:03:47.000 what you were thinking a year ago, I think you 0:03:47.120 --> 0:03:49.160 have to be a lot more optimistic now. 0:03:49.640 --> 0:03:52.560 You mentioned in the piece that I was citing just now, 0:03:53.040 --> 0:03:55.760 one of the arguments is that the tariffs has had 0:03:55.840 --> 0:03:59.280 less impact because relative to what was announced in the 0:03:59.360 --> 0:04:02.000 Rose Garden over a year ago, many of them have 0:04:02.080 --> 0:04:05.080 not actually been implemented. I think forty three percent of 0:04:05.120 --> 0:04:08.320 I imports not subject to tariffs. A lot of key 0:04:08.400 --> 0:04:14.400 exemptions were introduced in the days after that announcement, So 0:04:15.120 --> 0:04:17.640 you know that's obviously one response to what you're saying 0:04:17.760 --> 0:04:19.600 is just that when there's been a lot of pushback, 0:04:20.160 --> 0:04:24.000 they have been withdrawn, especially in key aras like semiconductive 0:04:24.040 --> 0:04:25.160 chips and electronics. 0:04:25.480 --> 0:04:28.080 Well, I think if you look at the criticism and 0:04:28.160 --> 0:04:32.679 predictions of doom leading up to the Liberation to announcement, frankly, 0:04:32.720 --> 0:04:36.120 they were all anchored to an assumption of much less 0:04:36.120 --> 0:04:39.000 than what Trump actually announced on Liberation Day. I mean, 0:04:39.040 --> 0:04:41.000 you can go all the way back to what economists 0:04:41.040 --> 0:04:45.320 were saying during the campaign simply about Trump's proposal for 0:04:45.360 --> 0:04:48.640 a ten percent global tariff, and even that they were 0:04:48.640 --> 0:04:52.159 saying would be disastrous. I think adamposing from Petersen's to 0:04:52.279 --> 0:04:55.279 call it lunacy. And if you look at the chart 0:04:55.680 --> 0:04:58.240 of the tariff rates as they've evolved over the year, 0:04:58.800 --> 0:05:02.520 and you just imagine XA and showing that to economists 0:05:02.560 --> 0:05:04.880 and saying what do you think of this? I think 0:05:04.920 --> 0:05:07.560 we all know they would have made the exact same 0:05:08.120 --> 0:05:12.200 claims and predictions of disaster. And conversely, to the extent 0:05:12.240 --> 0:05:15.680 that economists are looking at the tariffs they've actually unfolded 0:05:15.760 --> 0:05:20.240 and admitting well, yes, sure this actual trajectory is reasonable 0:05:20.279 --> 0:05:23.680 and not disastrous, then that's certainly fine with me. I 0:05:23.960 --> 0:05:26.320 will I will take that and put it in my pocket. 0:05:27.040 --> 0:05:29.280 Right. Well, I guess the sort of other things equal, 0:05:29.320 --> 0:05:31.240 I guess is going to kind of come into play here, 0:05:31.279 --> 0:05:33.360 because a lot of those forecasts were about what the 0:05:33.400 --> 0:05:35.800 impact on the economy is other things equal, and it 0:05:35.800 --> 0:05:37.479 turns out there were a lot of other things going on. 0:05:37.520 --> 0:05:40.320 But Anna, what's your take overall on this point? 0:05:40.480 --> 0:05:44.800 Well, I think certainly on GDP growth and inflation, that 0:05:44.880 --> 0:05:50.600 it's not as disastrous as Aren said, as most economists think, though, 0:05:50.640 --> 0:05:53.720 I have to say it came almost exactly as we 0:05:53.800 --> 0:05:57.920 expected on inflation front, because we did expect that core 0:05:58.000 --> 0:06:00.640 PC would get to three percent at the end of 0:06:00.720 --> 0:06:03.719 the year on Liberation Day, and it did get to 0:06:03.839 --> 0:06:05.839 three percent at the end of the year, but not 0:06:05.920 --> 0:06:10.120 higher than that. However, that doesn't mean that there's no 0:06:10.240 --> 0:06:14.200 negatives from it. Our team does calculate that about zero 0:06:14.200 --> 0:06:17.680 point two two point three percentage point increase on the 0:06:17.760 --> 0:06:22.400 unemployment rate could be due to firms eating the tariff 0:06:22.640 --> 0:06:26.960 in their profit margin enhance slower hiring as a result. 0:06:27.160 --> 0:06:31.600 So I think there is some negative impact from the tariffs. 0:06:32.160 --> 0:06:37.159 Lauren's responding to the mainstream view and pointing out that 0:06:37.320 --> 0:06:40.440 it was wrong in the sort of magnitude of the impact. 0:06:40.720 --> 0:06:43.120 I guess it feels like a less positive argument to 0:06:43.160 --> 0:06:47.719 say it's damage less than expected as opposed to helping 0:06:47.800 --> 0:06:51.080 the economy. So I quite like to get into where 0:06:51.360 --> 0:06:55.920 you see the potential for that long term shift in 0:06:55.960 --> 0:06:58.559 the structure of the economy that the administration was looking 0:06:58.560 --> 0:07:00.760 for with this understanding that it would have just happened 0:07:00.800 --> 0:07:03.479 in a year or what would you point to in 0:07:03.720 --> 0:07:05.719 when you talk about we don't yet know whether that 0:07:05.839 --> 0:07:07.720 investment is going to pay off. You know, what are 0:07:07.760 --> 0:07:09.280 the encouraging pieces for you? 0:07:10.040 --> 0:07:11.760 Well, I think the way to think about it is 0:07:11.840 --> 0:07:15.000 to map out what would we expect success to look 0:07:15.120 --> 0:07:18.800 like and then hold ourselves accountable to that. And so, 0:07:19.320 --> 0:07:21.520 in my mind anyway, the theory of the case has 0:07:21.560 --> 0:07:25.680 always been imposing tariffs is going to shift relative prices. 0:07:25.760 --> 0:07:28.880 It's going to shift business cases for where you want 0:07:28.920 --> 0:07:33.720 to produce and deliver for the American market. And so 0:07:33.800 --> 0:07:37.320 the initial thing you're going to see is shifts in 0:07:37.800 --> 0:07:42.320 demand for domestic production. Because prices have shift, You're going 0:07:42.360 --> 0:07:46.320 to start to see more demand for industrial production in particular, 0:07:46.920 --> 0:07:49.480 you're going to start to see output rise. Hopefully you're 0:07:49.520 --> 0:07:53.200 going to start to see productivity gains in existing factories. 0:07:53.880 --> 0:07:55.880 But then what you really need is, okay, people to 0:07:55.920 --> 0:07:58.960 respond by saying we are actually going to build new 0:07:59.000 --> 0:08:03.480 capacity in the United States and going from concluding that 0:08:03.520 --> 0:08:05.560 things have in fact change to figuring out what that 0:08:05.680 --> 0:08:09.080 means to making plans to putting shovels in the ground. 0:08:10.600 --> 0:08:12.920 That's a year or two process right there, and so 0:08:13.000 --> 0:08:16.880 I think one year in the question has to be okay, 0:08:16.880 --> 0:08:20.520 did the manufacturing sector get healthier or weaker? And then 0:08:20.560 --> 0:08:22.640 as we head into years two and three, you have 0:08:22.760 --> 0:08:26.720 to actually see those large scale new investments taking place. 0:08:27.320 --> 0:08:30.440 And on that basic question, did the manufacturing sector get healthier? 0:08:30.920 --> 0:08:33.480 And again, this is a place where you had widespread 0:08:33.520 --> 0:08:37.199 predictions that this will actively harm manufacturing, this will weaken 0:08:37.240 --> 0:08:40.520 the sector. I think it's clear that the sector has strengthened. 0:08:40.520 --> 0:08:43.160 We've seen real productivity growth for the first time in 0:08:43.200 --> 0:08:46.880 a long time, reversing a long downward trend. We've seen 0:08:46.920 --> 0:08:49.960 output growth again for the first time in a long time, 0:08:50.040 --> 0:08:53.640 reversing a downward trend. And on the more subjective measures, 0:08:53.679 --> 0:08:57.760 the so called purchaser manager indices that survey people in 0:08:57.760 --> 0:09:02.319 the industry and ask about conditions, we've seen an uptick significantly, 0:09:02.360 --> 0:09:04.240 really bringing it all the way back to the very 0:09:04.280 --> 0:09:07.280 peak of coming out of COVID when things were at 0:09:07.280 --> 0:09:10.320 their strongest. So those are what I would be looking for, 0:09:10.360 --> 0:09:12.600 and I would say, frankly, I wish the investment numbers 0:09:12.600 --> 0:09:16.000 were a little higher right now. It's certainly not all roses, 0:09:16.360 --> 0:09:19.560 but it all points to a manufacturing sector that is 0:09:19.679 --> 0:09:22.480 responding to tariffs in the way we would want it 0:09:22.520 --> 0:09:26.880 to respond, not sort of weakening and getting counterproductive effects. 0:09:27.280 --> 0:09:30.080 Do you think, by and large, though, the response is 0:09:30.280 --> 0:09:33.880 slightly to be if only because of the need to 0:09:34.120 --> 0:09:36.360 compete in the world, there's going to be much more 0:09:36.400 --> 0:09:40.160 around automation than around creating jobs. I mean, we have 0:09:40.240 --> 0:09:43.839 seen still another eighty thousand manufacturing jobs go since the 0:09:43.880 --> 0:09:47.560 beginning of last year, and that's continuing a long trend. 0:09:48.360 --> 0:09:51.280 Well, I think you know those things are not mutually exclusive, 0:09:51.360 --> 0:09:55.000 automation and employment to the country. I think they're complementary. 0:09:55.600 --> 0:09:59.040 The decline in productivity in US manufacturing has made it 0:09:59.120 --> 0:10:03.320 less competitive, has made those jobs worse jobs. It is 0:10:03.480 --> 0:10:07.480 increasing automation, increasing productivity that is going to make the 0:10:07.600 --> 0:10:11.120 US sector more competitive and effective and is going to 0:10:11.280 --> 0:10:14.680 increase demand and output. And that's what's going to create 0:10:14.679 --> 0:10:17.520 the employment opportunities. And so you know, it's certainly not 0:10:17.600 --> 0:10:20.000 the case that you're going to employ as many people 0:10:20.559 --> 0:10:24.120 in the United States in manufacturing as you would if 0:10:24.200 --> 0:10:28.280 it were nineteen sixty. You were using nineteen sixty technology 0:10:28.320 --> 0:10:31.800 and trying to produce twenty twenty six output. But that's 0:10:31.880 --> 0:10:34.920 never been the history of manufacturing for a long period 0:10:34.960 --> 0:10:39.520 of time, we got strong manufacturing productivity gains with very 0:10:39.520 --> 0:10:42.719 strong employment in the sector. The question is whether you're 0:10:42.760 --> 0:10:46.920 getting demand for domestic manufacturing and you're getting healthy growth 0:10:46.920 --> 0:10:49.320 and output, And that's what I think the tariffs really 0:10:49.360 --> 0:10:49.959 focus on. 0:10:50.400 --> 0:10:52.160 You know, a lot of people would say the test 0:10:52.200 --> 0:10:55.160 of this is whether or not lower the trade deficits 0:10:55.559 --> 0:10:58.160 just on that understanding that it's a long term thing, 0:10:58.200 --> 0:11:00.960 and there's lots of factors. Well, has happened to the 0:11:01.080 --> 0:11:04.319 US trade deficit since Donald Trump came into office. 0:11:04.480 --> 0:11:07.760 So in twenty twenty four, the trade deficit as a 0:11:07.840 --> 0:11:14.199 share of GDP was hovering around the three percent figure 0:11:14.679 --> 0:11:17.160 of GDP, and in the first quarter it was even 0:11:17.360 --> 0:11:20.640 four point two percent of GDP as firms were front 0:11:20.720 --> 0:11:24.720 running the tariffs. So since then, the trade deficit has 0:11:24.760 --> 0:11:29.360 fallen to more like around two point five percent ish 0:11:29.679 --> 0:11:32.880 of GDP. But if you look at the details, what's 0:11:32.880 --> 0:11:38.080 even more striking is that all US imports in non 0:11:38.160 --> 0:11:44.520 strategic sector non semiconductor goods, non capital goods has fallen 0:11:45.040 --> 0:11:50.240 roughly ten percent below pre twenty twenty five trend. What 0:11:50.440 --> 0:11:54.199 is actually keeping the trade deficit as large as it 0:11:54.240 --> 0:11:57.840 is right now is actually US imports of capital goods 0:11:57.880 --> 0:12:02.920 like semi conductors, which is even stronger, much stronger than 0:12:03.080 --> 0:12:07.559 the years before. So with that AI story, the US 0:12:07.720 --> 0:12:11.120 trade deficit probably would have narrowed much more nana. 0:12:11.280 --> 0:12:13.520 One thing that you've highlighted throughout the year has been 0:12:13.559 --> 0:12:17.400 all this investment in data centers and the AI investments 0:12:17.480 --> 0:12:21.080 really kind of juicing the rest of GDP, and that 0:12:21.240 --> 0:12:23.840 is explicitly a sector that has been more or less 0:12:23.840 --> 0:12:28.079 excluded from tariffs. Just very soon after the Rose Garden announcement, 0:12:28.240 --> 0:12:31.360 all of those in Nvidia chips from Taiwan in and 0:12:31.400 --> 0:12:34.440 other aspects of that were made tariff free. If we 0:12:34.559 --> 0:12:39.360 hadn't had that data center boom ongoing in the US, 0:12:39.520 --> 0:12:41.960 would we be saying something different? Would it be clearer 0:12:42.160 --> 0:12:45.920 that damage or perhaps more noticeable the damage from the tariffs? 0:12:46.080 --> 0:12:48.679 And I guess the related thing is if that's the 0:12:48.679 --> 0:12:51.760 big success story, it's a success story that has been 0:12:51.840 --> 0:12:55.000 completely independent of tariffs and seem to have benefited from 0:12:55.000 --> 0:12:56.160 being without tariffs. 0:12:56.520 --> 0:12:59.719 I think most economists, including our team, would agree that 0:13:00.160 --> 0:13:05.280 the AI boom contributed to almost one percentage point of 0:13:05.360 --> 0:13:08.439 GDP in the first half of twenty twenty five during 0:13:08.440 --> 0:13:11.680 the quarter when there was the Liberation Day shock, So 0:13:11.840 --> 0:13:17.680 definitely AI served as a key cushioning factor to this shock. 0:13:18.080 --> 0:13:21.600 But I think to the question of are we seeing 0:13:22.000 --> 0:13:26.560 improvement in the manufacturing sector as a result of the 0:13:26.640 --> 0:13:29.920 tariff policies? So maybe a good way to look at 0:13:29.960 --> 0:13:32.760 it is to look at exactly where which pockets in 0:13:32.800 --> 0:13:36.800 the manufacturing sector is seeing some upturn, and for sure 0:13:36.880 --> 0:13:41.400 semi conductors, but we are also seeing improvement in aerospace 0:13:41.559 --> 0:13:44.920 and defense, very strong in fact, improvement in aerospace and 0:13:44.960 --> 0:13:48.800 defense and metals and mining. And I thought the metals 0:13:48.920 --> 0:13:52.719 and mining is the most interesting one because for decades, 0:13:53.000 --> 0:13:57.000 mining industry in the US has been decimated, and now 0:13:57.040 --> 0:14:01.200 we have fifty percent tariffs on steel and aluminum, And 0:14:01.240 --> 0:14:04.840 as an economist, I would say that to disentangle the 0:14:04.920 --> 0:14:10.000 effect of tariffs, metals is the place where it's relatively 0:14:10.040 --> 0:14:13.000 cleaner than all the other things. I think that the 0:14:13.080 --> 0:14:18.800 story that Oran is telling about increased capacity orders for 0:14:18.960 --> 0:14:23.520 factory capacity building coming online in twenty twenty six and beyond, 0:14:24.200 --> 0:14:28.239 I see, and I'm reading as anyone would these industry 0:14:28.280 --> 0:14:32.320 reports on steel and aluminum, and there are definitely factories 0:14:32.760 --> 0:14:36.360 coming online. For example, just the aluminum US does not 0:14:36.440 --> 0:14:40.960 have aluminum smelting capacity for decades, and there was an 0:14:41.000 --> 0:14:44.680 announcement last year that they are going to finally start 0:14:44.760 --> 0:14:49.560 to start smelting aluminum in the US. So I think 0:14:50.000 --> 0:14:53.440 the way I would qualify Oran's argument a bit by 0:14:53.440 --> 0:14:58.520 saying that there are pockets of strength in the manufacturing sector, 0:14:58.640 --> 0:15:03.240 driven perhaps by domestic protectionalism. We saw a similar effect 0:15:03.320 --> 0:15:07.040 on metals industry in twenty eighteen as well, So when 0:15:07.480 --> 0:15:11.160 the stealing aluminum terrors came on, then you see increased 0:15:11.200 --> 0:15:15.000 production and capacity in this sector. However, the story of 0:15:15.080 --> 0:15:18.360 twenty eighteen and twenty nineteen that tear wave is that 0:15:18.800 --> 0:15:21.880 when the Section three or one for China came on 0:15:22.360 --> 0:15:25.280 and that led to a more broad based trade uncertainty 0:15:25.400 --> 0:15:29.040 shock on everything else, then investment of everything else shark 0:15:29.480 --> 0:15:33.360 going down, which offset the gains from the metals industry. 0:15:33.600 --> 0:15:36.560 So I think an ongoing question for this year Ferocity 0:15:36.640 --> 0:15:40.520 evaluate is whether this year we're going to see the 0:15:40.560 --> 0:15:42.640 trade policy uncertainty shock go away. 0:15:42.800 --> 0:15:46.960 We keep saying that Peter, it will, but then there's 0:15:46.960 --> 0:15:48.240 a whole other round we'll see. 0:15:48.280 --> 0:15:53.239 I guess yes, yes, and theoretically, investment, whatever delayed investment 0:15:53.360 --> 0:15:57.240 happened because of these uncertainty should be rebouncing. And if 0:15:57.280 --> 0:16:02.720 Orange's thesis holds true, then the tapering of uncertainty, combined 0:16:02.960 --> 0:16:07.200 with these hiron incentives to produce should lead to a 0:16:07.360 --> 0:16:12.640 very strong, more broader based manufacturing gains outside of steel 0:16:12.960 --> 0:16:15.480 and aluminum and these metals industries. 0:16:15.680 --> 0:16:17.560 I like the fact that we're just getting onto the 0:16:17.600 --> 0:16:20.240 goals of the administration when it comes to the restarting 0:16:20.280 --> 0:16:23.640 domestic production in these strategic sectors, and whether this is 0:16:23.680 --> 0:16:25.640 the right way to do it, but whether there are 0:16:25.640 --> 0:16:28.000 other things that have been going on to support some 0:16:28.080 --> 0:16:31.280 of those sectors. Do you buy what Anna's saying about 0:16:31.920 --> 0:16:35.800 the sort of nuance in which bits of manufacturing and 0:16:36.120 --> 0:16:39.280 which parts of industry are doing better? And I guess 0:16:39.280 --> 0:16:41.440 the related thing when you think about the strength of 0:16:41.480 --> 0:16:43.800 the defense industry, for example, I mean, obviously there's other 0:16:43.840 --> 0:16:45.880 things going on there. There's the state of the world, 0:16:46.280 --> 0:16:51.000 but also a big increase in defense spending in the US. 0:16:51.200 --> 0:16:54.640 Are there ways of encouraging these strategic sectors if that 0:16:54.800 --> 0:16:57.760 is the goal, that will have fewer downsides than this 0:16:58.040 --> 0:17:00.080 very broad brush approach to tear. 0:17:00.960 --> 0:17:03.800 I agree entirely with Anna about sort of looking at 0:17:03.800 --> 0:17:08.679 it in this sector bisector way, and I would highlight 0:17:08.680 --> 0:17:12.040 two other things related to that. One is it speaks 0:17:12.040 --> 0:17:14.320 to the way that tariffs are one piece of a 0:17:14.359 --> 0:17:18.439 broader strategy, and for instance, on critical minerals and mining, 0:17:19.080 --> 0:17:22.959 you're seeing significant investments that are being pushed by an 0:17:23.000 --> 0:17:28.080 active industrial policy out of Washington, by very aggressive multilateral 0:17:28.600 --> 0:17:31.919 agreements that they're in the process of establishing. And so 0:17:32.040 --> 0:17:36.240 it's not tariffs alone. Obviously, in the semiconductor space, yes, 0:17:36.280 --> 0:17:40.560 the Trump administration exempted a lot of incoming chips, but 0:17:40.680 --> 0:17:43.040 that's in the context of the Chips Act and the 0:17:43.200 --> 0:17:46.160 very aggressive effort that is leading to a massive investment 0:17:46.200 --> 0:17:51.480 boom and expansion of productive capacity in advanced semiconductors. And 0:17:51.520 --> 0:17:53.560 so if you look at what the administration has said 0:17:53.560 --> 0:17:56.960 it wants to do now, they are proposing to explicitly 0:17:57.080 --> 0:18:00.560 establish a policy that says you get those execs from 0:18:00.600 --> 0:18:03.800 the tariffs as long as you are actively investing in 0:18:03.840 --> 0:18:07.440 bringing capacity online in the US. And so you know 0:18:07.560 --> 0:18:11.199 there is a sort of broad, blunt baseline underneath the 0:18:11.240 --> 0:18:14.560 tariff policy, but there are a lot of strategic choices 0:18:14.600 --> 0:18:17.119 being made on top of it. The second thing I 0:18:17.119 --> 0:18:19.640 think it's very important to keep in mind about these 0:18:19.680 --> 0:18:22.840 tariffs is that many of them very clearly were and 0:18:22.920 --> 0:18:26.400 have been used as negotiating tariffs, by which I mean 0:18:26.440 --> 0:18:30.119 the rates announced on Liberation Day were very clearly not 0:18:30.240 --> 0:18:33.040 intended to be permanent rates. They were intended to be 0:18:33.080 --> 0:18:37.600 a new backstop against which the administration wanted to negotiate 0:18:37.640 --> 0:18:42.080 these bilateral deals, and it's done so, and in those deals, 0:18:42.080 --> 0:18:48.080 it has gotten significant concessions on market access, on purchases, 0:18:48.480 --> 0:18:52.240 especially with East Asian countries, on large amounts of foreign 0:18:52.320 --> 0:18:56.200 direct investment that were committed and are just now starting 0:18:56.240 --> 0:19:00.680 to move through the planning phase into reality. And so again, 0:19:00.720 --> 0:19:03.000 when you look at that tariff chart and say, oh, well, 0:19:03.000 --> 0:19:05.119 wait a minute, you know, how do the tariffs today 0:19:05.119 --> 0:19:07.760 compare to what we're announced and so forth, you have 0:19:07.840 --> 0:19:10.240 to also look at the flip side and recognize that 0:19:10.400 --> 0:19:13.560 this was much closer to the long run status quo 0:19:13.640 --> 0:19:17.000 that had been envisioned, and it's now coming with these 0:19:17.040 --> 0:19:21.680 potential very significant investments not just on chips, on shipbuilding, 0:19:21.760 --> 0:19:25.800 on pharma, in a whole range of areas. And so 0:19:26.040 --> 0:19:28.639 I think that's what we should be looking at is okay, 0:19:28.680 --> 0:19:31.439 are those things working. We're at the point where, you know, 0:19:31.520 --> 0:19:34.960 the very largest corporations and our trading partners have said, yes, 0:19:35.040 --> 0:19:37.760 this is working, this is going to happen. Now, of 0:19:37.760 --> 0:19:39.800 course it does have to actually happen. 0:19:44.720 --> 0:19:48.879 Content my memory is when we've had those kind of 0:19:48.880 --> 0:19:51.760 promises in the past, they haven't always come through. I mean, 0:19:51.800 --> 0:19:53.720 when you look at these big numbers coming out of 0:19:53.760 --> 0:19:57.040 these press conferences, sometimes the deals end up not actually 0:19:57.080 --> 0:20:01.679 being signed because both sides have different views of, you know, 0:20:01.760 --> 0:20:04.920 what was actually agreed. But there has been quite a 0:20:04.960 --> 0:20:07.640 lot of skepticism about whether those headline numbers are going 0:20:07.680 --> 0:20:09.800 to materialize and what do you think we're going to 0:20:09.800 --> 0:20:12.320 see all of that FDI that coming out of those deals. 0:20:12.560 --> 0:20:15.480 I think Bloomberg did a big take on it, right. 0:20:15.880 --> 0:20:18.280 I think there are a lot of people who were 0:20:18.359 --> 0:20:23.600 citing this any numbers ranging from five trillion to ten 0:20:23.720 --> 0:20:28.120 trillion of investment coming online, and there was a Bloomberg 0:20:28.160 --> 0:20:32.040 team that examined those numbers, and I think they found 0:20:32.680 --> 0:20:36.240 that even excluding the ones that is likely not going 0:20:36.240 --> 0:20:38.840 to come through, the number is still massive, on the 0:20:39.080 --> 0:20:40.200 order of trillions. 0:20:40.480 --> 0:20:42.520 Well, and just to add to that, so I think 0:20:42.520 --> 0:20:45.240 that's exactly right. And I mean there's a question bulk 0:20:45.320 --> 0:20:50.680 of how rapidly capital flows could actually move in that way. 0:20:50.880 --> 0:20:53.840 There's a question of how quickly, you know, the US 0:20:53.880 --> 0:20:57.720 has the capacity to actually build stuff, right. I think 0:20:57.760 --> 0:21:00.199 it's important to think of this as a decade long 0:21:00.280 --> 0:21:04.120 process and where if you actually start to see these 0:21:04.119 --> 0:21:06.720 things moving forward, I think there's a way in which 0:21:06.800 --> 0:21:09.800 the logic will sort of build on itself. You know, 0:21:09.880 --> 0:21:12.760 this is something that we saw with the Chips Act certainly, 0:21:12.960 --> 0:21:16.480 where you know, once TSMC puts the first fab there 0:21:16.480 --> 0:21:19.399 and it actually works, that builds the logic now for 0:21:19.440 --> 0:21:22.320 a lot more. That starts to bring back the ecosystem 0:21:22.720 --> 0:21:25.960 for engineering, That brings back the supply chains, and now 0:21:26.000 --> 0:21:29.560 the next investment makes more sense. It's also the story 0:21:29.600 --> 0:21:32.280 of the Japanese auto industry in the US. You know, 0:21:32.359 --> 0:21:35.439 this is back from the early nineteen eighties when Reagan 0:21:35.480 --> 0:21:38.879 actually did something very similar. Under the threat of tariffs, 0:21:39.359 --> 0:21:43.480 Japan committed to pretty much moving its auto manufacturing into 0:21:43.480 --> 0:21:46.960 the US, and what started as a few assembly factories 0:21:47.000 --> 0:21:51.520 from Honda and Toyota then became entire supply chains. The 0:21:51.600 --> 0:21:54.560 quote has only lasted a few years, but long after 0:21:54.600 --> 0:21:56.600 the quotes were gone, it didn't matter. Once that was there, 0:21:56.600 --> 0:21:58.879 it made sense to bring more over to build that 0:21:59.040 --> 0:22:02.160 entire ecosystem. And now we just take that for granted 0:22:02.240 --> 0:22:06.879 as a healthy part of a successful story for US industry. 0:22:07.000 --> 0:22:11.080 But that started from exactly that same type of process. 0:22:12.160 --> 0:22:14.800 You have a nice line in your column or and 0:22:14.840 --> 0:22:16.680 I guess, amazingly I seem to have forgotten to mention 0:22:16.720 --> 0:22:18.920 that it was in the Financial Times. But you say, 0:22:19.200 --> 0:22:22.400 economists often observe the real world and ask, but does 0:22:22.440 --> 0:22:25.959 it work in theory? Globalization worked flawlessly in theory but 0:22:26.080 --> 0:22:29.520 failed in fact. On this first anniversary of Liberation Day, 0:22:29.560 --> 0:22:33.400 the alternative is showing greater promise. One of the reasons 0:22:33.440 --> 0:22:38.240 why the traditional sort of economic view of the world 0:22:38.320 --> 0:22:43.399 has not liked protectionism tariffs is the micro effects on 0:22:43.520 --> 0:22:48.240 people's incentives, the incentive to try and lobby for exemptions, 0:22:48.320 --> 0:22:52.440 which we've seen a lot, of the complexity that it introduces, 0:22:52.680 --> 0:22:56.240 and the red tape. We know people are struggling to calculate, 0:22:56.280 --> 0:22:58.840 for example, what their aluminum tariff is and what they 0:22:58.880 --> 0:23:02.439 have to pay, and introduced a lot of complexity for 0:23:02.560 --> 0:23:05.840 producers up and down the supply chain. And it's also 0:23:05.960 --> 0:23:08.879 I mean, we have some evidence, quite strong evidence just 0:23:08.920 --> 0:23:12.840 in the gap between what China says it's exporting and 0:23:12.880 --> 0:23:16.639 what US custom thinks it's importing, you know, one hundred 0:23:16.680 --> 0:23:20.000 and twelve billion dollars gap, which at least a big 0:23:20.080 --> 0:23:24.359 chunk of which could be evading those tariffs. So, you know, 0:23:24.960 --> 0:23:28.800 just from a sort of standard economics perspective, surely one 0:23:28.840 --> 0:23:31.959 has to also be thinking about those costs in thinking 0:23:31.960 --> 0:23:34.320