Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg BusinessWeek
Speaker 1: with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2: The market chaos unleashed by Donald Trump's trade war continued
Speaker 2: for a third day, as stocks, bonds, and commodities all
Speaker 2: swung wildly, buffeted by both fears of a recession and
Speaker 2: speculation the financial damage will drive him to change course.
Speaker 2: Let's bring in Cheryl Smith. She's an economist and portfolio
Speaker 2: manager at Trillium. Cheryl, good to have you with us.
Speaker 2: The market pain, if you're long in this market that
Speaker 2: we've seen has been caused by concern around tariff policy.
Speaker 2: I think many people would argue this is self inflicted.
Speaker 2: Do you think this continues or do you think that
Speaker 2: the president will change course.
Speaker 3: I think that this chaos that we're seeing is going
Speaker 3: to continue. For whatever reason, Trump likes to work in chaos.
Speaker 3: He appears to think that it keeps people on their
Speaker 3: back foot and that he can gain some kind of
Speaker 3: advantage from it. So the tariff policy really couldn't have
Speaker 3: been constructed more perfectly to create tariff He puts them on,
Speaker 3: he takes them off, he puts the money takes them off,
Speaker 3: and then there was a false rumor today that he
Speaker 3: was going to delay them by ninety days, where we
Speaker 3: got that seven percent intra day swing in the S
Speaker 3: and P five hundred. Really, everyone is on tetra hooks.
Speaker 3: Nobody knows what's real, and everybody is following the news
Speaker 3: to try and figure this out. So I think we're
Speaker 3: going to continue to see this chaos for quite a
Speaker 3: long time.
Speaker 4: Cheryl, what do you make of the upward move in
Speaker 4: treasury yields today? I guess over the longer term they
Speaker 4: have come down. That's something that President Trump has touted
Speaker 4: that interest rates are falling. But what does it tell
Speaker 4: you on a day like today when equities are so volatile,
Speaker 4: and yet we do have yields climbing pretty steadily. Ten
Speaker 4: You're up twenty paces.
Speaker 1: Points just on the day.
Speaker 3: Yeah, I think that what that tells us is that
Speaker 3: the Fed has pretty well signaled that they are not
Speaker 3: riding to the rescue. They are concerned about how the
Speaker 3: effect of these tariffs is going to play out for
Speaker 3: the US economy, but they do not yet have the
Speaker 3: data to understand it at this point. So we had
Speaker 3: some comments from Powell on Friday. We had other comments
Speaker 3: today where they're saying, no, actually, he doesn't get to
Speaker 3: do this on tariffs and then have the FED come
Speaker 3: and ride to the rescue and cut rates a lot more.
Speaker 3: And even if the FED did start doing emergency cuts
Speaker 3: for rates, I actually think that would be an even
Speaker 3: worse signal. So I think we saw a bit of
Speaker 3: bond euphoria, if you will, or you know, heading for
Speaker 3: the hills, just as a way of getting out of
Speaker 3: on Thursday and Friday. Treasuries were the easiest thing to buy.
Speaker 3: Probably some repositioning today.
Speaker 2: I'm going to call you doctor Smith because you have
Speaker 2: a PhD. You're an economist by training. True, are you
Speaker 2: concerned guilty as charge?
Speaker 1: Really?
Speaker 2: But it's good to have you talking to us about
Speaker 2: this because you have training in this, and I want
Speaker 2: to know if you think, from an economic policy perspective,
Speaker 2: what the economic consequences of this tariff policy could be
Speaker 2: on the US economy.
Speaker 3: I think the economic policy consequences can actually be quite dire,
Speaker 3: and I base that on the size of the tariffs
Speaker 3: relative to the Smooth Holly tariffs of nineteen thirty, which
Speaker 3: many people quite credibly think prolonged hastened and deepened the
Speaker 3: Great Recession, and they set off, as we are seeing
Speaker 3: set off now, a round of competitive They called them
Speaker 3: beggar thy neighbor policies, of tariffs going one country, another country, retaliating,
Speaker 3: and so forth, building up in the way that you're
Speaker 3: looking at China right now, with the United States putting
Speaker 3: on successive tariffs, China coming back and saying well, they're
Speaker 3: going to restrict things, and Trump coming out today and saying, well,
Speaker 3: in that case, I'm going to raise you another fifty
Speaker 3: basis points. This is very destructive, and we have trade
Speaker 3: works under the economic concept is called comparative advantage, that
Speaker 3: we really do better if each country does the things
Speaker 3: that it is best suited for by geography, by natural resources,
Speaker 3: by training of people to produce, and then trade so
Speaker 3: things are made most cheaply. We've seen a tremendous expansion
Speaker 3: of trade in the twentieth and twenty first century because
Speaker 3: of the fall in transportation costs that we've experienced. So
Speaker 3: we have a lot more trade going on now than
Speaker 3: we had in the nineteen thirties when the smooth Holly
Speaker 3: tariffs were put on. So I think this is really
Speaker 3: going to be a very very difficult period of transition.
Speaker 3: And most importantly, this chaos and this uncertainty that he
Speaker 3: has created means that businesses and consumers really can't plan.
Speaker 3: So for consumers, I think they're going to increase their
Speaker 3: precautionary saving. They're going to say maybe I'm going to
Speaker 3: put that off for now, I'm not going to buy
Speaker 3: that I might need it later. Things could be getting
Speaker 3: a lot worse. That's bad. On the investment side, companies
Speaker 3: have no idea what they should do in terms of
Speaker 3: organizing their production. Now, if the production they're organizing were
Speaker 3: let's say pizza parl it's easy enough. Do you buy
Speaker 3: a pizza oven or do you not buy a pizza oven.
Speaker 3: We're not talking pizza parlors. We're talking semiconductor factories, we're
Speaker 3: talking steel mails, we're talking major production plants. And any
Speaker 3: company has to look at this and say, how do
Speaker 3: I possibly make a decision about what the tariffs are
Speaker 3: going to be when I'm through making that investment, whether
Speaker 3: that is a year, two years, or seven years down
Speaker 3: the way. So it's going to affect the amount of
Speaker 3: investment that's going to have a significant effect on GDP
Speaker 3: growth and I think we've increased the risk of recession
Speaker 3: dramatically over the past four days.
Speaker 2: Pretty heavy stuff, Cheryl. We appreciate you joining us. Cheryl Smith,
Speaker 2: economist and portfolio manager at Trillium and joining us from Cambridge, Massachusetts.