Speaker 1: Welcome in is Verdic with Center Ted Kruz Ben Ferguson
Speaker 1: with it's signe to have you on this Friday morning
Speaker 1: and Center. Everybody's waking up today. They're looking at what's
Speaker 1: happening with these tariffs. They're looking at what's happening on
Speaker 1: Wall Street. There's no doubt, no matter who you are,
Speaker 1: there's a lot of anxiety, concern, angst. Those are the
Speaker 1: words I've been hearing from friends about what's happening right now.
Speaker 1: So let's break it all down for listeners and talk
Speaker 1: about where we are and what is happening, what your
Speaker 1: concerns are, what you think is happening, and what is
Speaker 1: being said by your colleagues in DC as well well.
Speaker 2: On today's podcast, there is one topic and only one topic,
Speaker 2: and that is tariffs. And I will say I believe
Speaker 2: this week may well prove the single most consequential week
Speaker 2: in the Trump administration so far, and it may be
Speaker 2: the most consequential week in all four years of the
Speaker 2: second term of the Trump administration. I think this week
Speaker 2: is consequential as a policy matter, and this week is
Speaker 2: consequential as a political matter. I think there are enormous
Speaker 2: risks there is the potential for upside, but there are
Speaker 2: enormous risks. And so what we're going to try to
Speaker 2: do on this podcast is break it down because a
Speaker 2: lot of people are trying to trying to figure out, Okay,
Speaker 2: what am I supposed to think about this? What's this
Speaker 2: going to mean? What does this mean for my job?
Speaker 2: What does this mean for my family? What does this
Speaker 2: mean when I go to the grocery store? What does
Speaker 2: this mean when I buy goods for my family? And
Speaker 2: the answer is a lot. And so we're going to
Speaker 2: break it down and try to explain what it means
Speaker 2: and what's likely to happen next. I think this podcast,
Speaker 2: in terms of the impact on the country, I think
Speaker 2: is as consequential as anything we ever talked about. So
Speaker 2: let's start with what the news is this week. On Wednesday,
Speaker 2: President Trump announced massive tariffs tariffs on virtually every country
Speaker 2: on Earth, a ten percent baseline tariff on everybody, and
Speaker 2: then specific terrafs country by country. And I'm going to
Speaker 2: go through really quickly, but there are a lot of them.
Speaker 2: So on China thirty four percent terraffs, on the European
Speaker 2: Union all of Europe twenty percent tariffs, on Vietnam forty
Speaker 2: six percent, tariffs on Taiwan thirty two percent, terrafs on
Speaker 2: Japan twenty four percent, Tariffs on India twenty six percent,
Speaker 2: terraffs on South Korea twenty five percent, terrafs on Thailand
Speaker 2: thirty six percent, terraces on Switzerland thirty one percent, Teriffs
Speaker 2: on Indonesia thirty two percent, terraffs on Malaysia twenty four percent,
Speaker 2: tariffs on Cambodia forty nine percent, tariffs on the United
Speaker 2: Kingdom ten percent, terraces on South Africa thirty percent, terraces
Speaker 2: on Brazil ten percent, tariffs on Bangladesh thirty seven percent,
Speaker 2: terraffs on Singapore ten percent, Tariffs on Israel seventeen percent,
Speaker 2: tariffs on the Philippines seventeen percent, Tariffs on Chile ten percent,
Speaker 2: terraffs on Australia ten percent, terraces on Pakistan twenty nine percent,
Speaker 2: terraces on Turkey ten percent, terraces on Sri Lanka forty
Speaker 2: four percent, terraces on Columbia ten percent, tariffs on Peru
Speaker 2: ten percent, tariffs on Nicaragua eighteen percent, tariffs on Norway
Speaker 2: fifteen percent, tariffs on Costa Rica ten percent on Jordan,
Speaker 2: twenty percent on Dominican Republic ten percent on United Arab
Speaker 2: Emirates ten percent on New Zealand ten percent on Argentina,
Speaker 2: ten percent on Ecuador, ten percent on Guatemala ten percent
Speaker 2: on Honduras ten percent on Madagascar, forty seven percent on
Speaker 2: miandmar Or Burma forty four percent on Tunisia twenty eight
Speaker 2: percent on Kazakhstan twenty seven percent on Serbia thirty seven
Speaker 2: percent on Egypt ten percent, Saudi Arabia ten percent, El
Speaker 2: Salvador ten percent, the Ivory Coast twenty one percent, Laos
Speaker 2: forty eight percent, Botswana thirty seven percent, Trinidad and Tobega
Speaker 2: ten percent, Morocco ten percent. This collectively is the highest
Speaker 2: rate of tariffs the United States has had in place
Speaker 2: since nineteen thirty, one hundred years. That is enormously consequential.
Speaker 2: That is, as a policy matter, a huge deal, and
Speaker 2: is a political matter, a huge deal. Now we're in
Speaker 2: a partisan political environment where right now the world is
Speaker 2: turned upside down. We are we are very much tribalized,
Speaker 2: where each side is is on their team. So Democrats
Speaker 2: right now are lighting their hair on fire. Democrats right
Speaker 2: now are saying this is a catastrophe, this is destroying America.
Speaker 2: It's the worst thing that ever happened. And a lot
Speaker 2: of the media is echoing that. Now. That is producing
Speaker 2: a lot of Republicans who are naturally defending the president
Speaker 2: and saying this is great, this is fantastic, that that that,
Speaker 2: this is that, this is a day of liberation, and
Speaker 2: and and they're they are celebrating that. I will say
Speaker 2: it's it's a fairly odd dynamic because the two worlds
Speaker 2: are inverted. So a few years ago, Republicans were the
Speaker 2: party of free trade. Yeah, Republican Republicans were the party
Speaker 2: of let's lower tariffs, let's have more trade with the world.
Speaker 2: That produces more jobs here at home, that benefits White House,
Speaker 2: that benefits American producers. And Democrats were the protectionists. You
Speaker 2: think of the Dick Gephart Democrats, the Democrats who wanted
Speaker 2: big tariffs against other countries. And so it is a
Speaker 2: bizarre dynamic that the two sides have switched and they
Speaker 2: are essentially giving opposite talking points. My view, look, I
Speaker 2: want to set aside the talking points. I want to
Speaker 2: talk about what is likely to happen, the big, big
Speaker 2: question they're two big questions. Number one, how are other
Speaker 2: countries going to react? And number two, what is the
Speaker 2: Trump administration going to do in response? Now there are
Speaker 2: two broad scenarios. One that is very very good, one
Speaker 2: that is very very bad. Here's the good scenario. The
Speaker 2: good scenario is other countries freak out. That is clearly happening.
Speaker 2: Just every country I listed is freaking out right now.
Speaker 2: And in response, other countries come rushing to the White
Speaker 2: House and say we want to negotiate a deal and
Speaker 2: we're going to dramatically lower our tariffs to US goods
Speaker 2: coming into our country. That may well happen. We're seeing
Speaker 2: some of that starting to happen. It may happen in
Speaker 2: a massive cascade. If that happens, that would be a
Speaker 2: very good thing. Now, the second question is if other
Speaker 2: countries dramatically slash their tariffs, Let's say other countries zero
Speaker 2: out their tariffs, they say, all US goods will come
Speaker 2: into our country with zero teriffs. Then the second big
Speaker 2: question is what does the Trump administration do in response?
Speaker 2: And if the Trump administration, in response to other countries
Speaker 2: slashing their terriffs zeroing out their tariffs, if the Trump
Speaker 2: administration responds by dramatically cutting these tariffs, lowering them dramatically
Speaker 2: on this side. That would be a home run for America.
Speaker 2: I would be thrilled. I would be celebrating, and that
Speaker 2: could happen. Look, look, Trump is that this is throwing
Speaker 2: a long ball deep into the end zone. And if
Speaker 2: thirty days from now, sixty days from now, ninety days
Speaker 2: from now, the world we're looking at is a world
Speaker 2: where our trading partners across the globe have slashed their
Speaker 2: tariffs on American goods and services, and the Trump administration
Speaker 2: has responded by slashing these tariffs. They've just announced. That
Speaker 2: will be a great outcome for the American economy, will
Speaker 2: be a great outcome for farmers and ranchers and small
Speaker 2: businesses and manufacturers and jobs and workers. I will celebrate,
Speaker 2: And if that happens, I will say Donald Trump had
Speaker 2: a vision on trade that very few people in the
Speaker 2: world saw. And this was a friggin home run.
Speaker 1: So the best case scenario is to see more headlines
Speaker 1: like we saw tonight, which is, for example, Communists Vietnam
Speaker 1: panics over Trump tariff. Sin's deputy Prime Minister to Washington,
Speaker 1: DC with emergency delegation and our go to a Trump
Speaker 1: family member. Eric Trump put out an interesting tweet where
Speaker 1: he said, those that get here quickly and get a
Speaker 1: deal done will get the best deal, and those left
Speaker 1: at the end, it's gonna hurt. And so it's pretty
Speaker 1: clear that's the strategy that you also just mentioned can
Speaker 1: be in theory, best case scenario.
Speaker 2: Look, and if that's what happens, hallelujah, that is a
Speaker 2: great outcome. And listen, we've all seen Donald Trump's negotiating
Speaker 2: style is frequently to pick up a two by four,
Speaker 2: smack someone in the head with it, and then negotiate
Speaker 2: down from that. And so if that's what's going on,
Speaker 2: yesterday was a two by four, it was unquestionably a
Speaker 2: two by four. And virtually every trading partner partner of
Speaker 2: America is reeling right now. If the result is everyone
Speaker 2: cuts tariffs and we have massive more American exports and
Speaker 2: farmers are sending our crops and and our livestock abroad,
Speaker 2: and manufacturers are sending our goods abroad, and service providers
Speaker 2: are setting our services abroad. That's great. Now, let me
Speaker 2: give you the downside. There's another way this could play out,
Speaker 2: which as other countries get pissed off, and they jack
Speaker 2: up tariffs, and they impose retaliatory tariffs on American goods,
Speaker 2: and the tariffs Trump put in place remain in place.
Speaker 2: And I got to say, if we're in a scenario
Speaker 2: thirty days from now, sixty days from now, ninety days
Speaker 2: from now, with massive American tariffs and massive tariffs on
Speaker 2: American goods in every other country on Earth, that is
Speaker 2: a terrible outcome. It's terrible for Texas, which obviously I
Speaker 2: care about deeply, and it's terrible for America. It will
Speaker 2: hurt jobs and hurt America. And there is a very
Speaker 2: real risk of that. In the past we have seen
Speaker 2: when one country jacks up tariffs, it can provoke a
Speaker 2: trade war where each country accelerates tariffs, and the result
Speaker 2: would do a couple of things. Number One, it would
Speaker 2: destroy jobs here at home and do real damage to
Speaker 2: the US economy if we had tariffs everywhere. Number two,
Speaker 2: and this is a virtual certainty inflation. This is going
Speaker 2: to have a powerful upward impact on inflation. And let's
Speaker 2: take for example, all right, let's take cars. You know,
Speaker 2: Trump has announced a twenty five percent across the board
Speaker 2: tariff on cars. Yep, what does that mean. That means
Speaker 2: if you go and buy a new car, you're going
Speaker 2: to pay a hell of a lot more for that
Speaker 2: new car. And and by the way, if you buy
Speaker 2: a used car, you're going to pay a lot more
Speaker 2: for the use car because when new cars go up,
Speaker 2: used cars go up too. Because because that that that
Speaker 2: that will impact the pricing across the market. Now, now
Speaker 2: what is interesting, You might say, well, wait, wait, wait,
Speaker 2: this is just a tariff on foreign cars. So what
Speaker 2: do I care if a bunch of fancy foreign cars
Speaker 2: their prices go up? Well, you know what, a lot
Speaker 2: of Americans choose to buy foreign cars. So if you're
Speaker 2: choosing to buy a foreign car, your prices are likely
Speaker 2: to go up. They may not go up exactly twenty
Speaker 2: five percent, but they'll go up pretty close to twenty
Speaker 2: five percent. If you look at what happens when a
Speaker 2: tariff is imposed, who pays it is dependent For those
Speaker 2: of y'all who remember your your econ class, it's dependent
Speaker 2: on price elasticity. So sometimes the burden of the tariff
Speaker 2: is paid by the company, and by the way, if
Speaker 2: it's if it's paid by the company, depending on the
Speaker 2: price elasticity. That means the company's making less profits, and
Speaker 2: they may well be letting workers go and ending jobs.
Speaker 2: But for many goods it will be paid by the consumers,
Speaker 2: and the immediate impact will be prices going up. But
Speaker 2: let's take cars again. It's not just foreign cars that
Speaker 2: will go up. All the American cars, their prices are
Speaker 2: going to go up too. If all their competitors' prices
Speaker 2: go up twenty five percent. And it's not quite that simple,
Speaker 2: because it will be less than twenty five percent, but
Speaker 2: it will be in that neighborhood, you're going to see
Speaker 2: every other car price go up that much as well.
Speaker 2: And there are weird impacts given how the American supply
Speaker 2: chain works. So, for example, I was talking with one
Speaker 2: of the major US car manufacturers yesterday. You think of
Speaker 2: sort of the poster child. If you ask, you know,
Speaker 2: just the guy on the street, who's benefiting from all
Speaker 2: these tariffs, they'd probably say They're immediate answer, they'd say
Speaker 2: American car companies, GM, Ford, Chrysler. They're going to do
Speaker 2: great well. One of the big three told me last
Speaker 2: night that the impact of these tariffs will be the prices.
Speaker 2: The average prices of all of their cars will go
Speaker 2: up four five hundred dollars that when you go and
Speaker 2: buy an American car from a big American company that
Speaker 2: you will pay. They said, probably starting in June. And
Speaker 2: I asked why June, and they said, well, there's some
Speaker 2: lag in the supply chain. So they've made cars that
Speaker 2: they've sold to their dealers, and so it will be
Speaker 2: the cars they're selling to their dealers. It'll be about
Speaker 2: June when the prices go up. But they were predicting
Speaker 2: last night forty five five hundred dollars is what the
Speaker 2: price of a car will go up. And what is
Speaker 2: interesting also, so this is I said, was one of
Speaker 2: the big three car makers. They said they thought this
Speaker 2: would end up hurting them more than it helps them.
Speaker 2: That's what they told me last night, in part because
Speaker 2: if you look at the current supply chain of how
Speaker 2: a car has made so many cars, many cars. The
Speaker 2: big three companies make cars in America, many of them
Speaker 2: make them in Texas. But if you look at the
Speaker 2: supply chain, it's very odd. But the way it works
Speaker 2: right now is that parts, say the drive train or
Speaker 2: the chassis or different parts of the car will go
Speaker 2: back and forth across the Mexican border. So they'll build
Speaker 2: part of it in America, They'll send part of it
Speaker 2: to Mexico and build, they send part of it back
Speaker 2: to America, and it goes sometimes three, four or five
Speaker 2: times back and forth before they fully complete a car.
Speaker 2: Every time it crosses the border from Mexico, those terrafts
Speaker 2: are stacking on top of each other. So this US
Speaker 2: car company told me they actually thought that foreign car
Speaker 2: companies would benefit more than they would because if you
Speaker 2: just build the car in Germany or Japan and you
Speaker 2: send it over here, you pay one tariff, whereas these
Speaker 2: guys are getting hit on each part that is going
Speaker 2: over and back and over and back on the supply chain,
Speaker 2: and they thought they would end up. It's why they
Speaker 2: were talking about they're having to raise prices forty five
Speaker 2: hundred dollars each. One of the undeniable impacts of these
Speaker 2: tariffs is the prices that Americans are going to pay
Speaker 2: are going to go up significantly, and that is painful. Now,
Speaker 2: what are some of the good outcomes? Because President Trump
Speaker 2: is acknowledged he said, look, there may be some pain,
Speaker 2: but it's worth it if we end up in the
Speaker 2: outcome I started with, which is foreign countries slash their
Speaker 2: tariffs on American goods and we in turn lower the
Speaker 2: tariffs that the Trump administration just announced. That's a great
Speaker 2: outcome and we will see a big economic boom from that,
Speaker 2: and so I'm hoping for that. I'm rooting for that.
Speaker 2: I will celebrate and praise the administration if that's the outcome.
Speaker 2: But if it's not, here's one thing to understand. And
Speaker 2: I think I'm seeing a lot of sort of Republican
Speaker 2: cheerleaders that are kind of reflexively defending what the White
Speaker 2: House is doing. And listen, I love President Trump. I'm
Speaker 2: his strongest supporter in the Senate. I think he's doing
Speaker 2: incredible things as president. But here's one thing to understand.
Speaker 2: A tariff is a tax, and it is a tax
Speaker 2: principally on American consumers. So when I read out all
Speaker 2: those percentages, I said, you know, x percent on this country.
Speaker 2: That actually gets it wrong. So when I said, for example,
Speaker 2: twenty percent on the European Union, it's not actually the
Speaker 2: EU that pays that, it's you, Ben Ferguson. If you
Speaker 2: go buy anything from the EU, as the consumer, you're
Speaker 2: paying that tax. And so the effect of this is
Speaker 2: trillions of dollars of increased taxes on American consumers. If
Speaker 2: these if these tariffs stay in place, this is the
Speaker 2: biggest tax increase we have seen in a long long time.
Speaker 2: I got to say, I am not a fan of
Speaker 2: tax increases on American consumers. I'm not a fan of tariffs.
Speaker 2: And so if this is leverage to lower tariffs, great,
Speaker 2: But if the outcome is tariffs stay in place forever,
Speaker 2: that is going to do a lot of harm in
Speaker 2: the American economy.
Speaker 1: So let's talk timeline here. And you obviously have had
Speaker 1: a lot of conversations with the administration but also with
Speaker 1: your colleagues. Is there any guess of what this timeline
Speaker 1: could look like? Is it truly dependent on the other
Speaker 1: countries that you mentioned. I mean, I go back to
Speaker 1: that headline of Vietnam and then rushing to DC. They
Speaker 1: obviously know that this is something they don't want to
Speaker 1: deal with for a long time. And here's the reason
Speaker 1: why Vietnam is among the world's most trade dependent nations.
Speaker 1: Right their export equivalent to about ninety percent of their
Speaker 1: economic output. And guess what, the US is the most
Speaker 1: significant customer. So they've got to fix this. We have
Speaker 1: a lot of leverage I think with Vietnam, that's why
Speaker 1: they're rushing to America.
Speaker 2: Okay, so you're right about that, And listen, we're trying
Speaker 2: an experiment that hasn't been tried in really one hundred years.
Speaker 2: The last time we really saw this tried in earnest
Speaker 2: was the Smoot Holly tariffs and the Smoot Holly tariffs. Look,
Speaker 2: history has not been kind to the Smoot Holly tariffs.
Speaker 2: They were a major contributor to the Great Depression. And
Speaker 2: what happened in response to the Smooth Holly tariffs is
Speaker 2: is my scenario to the bad scenario, which is other
Speaker 2: countries put retaliatory tariffs in place, you had a trade war,
Speaker 2: and it ended up hammering jobs and driving up inflation. Now,
Speaker 2: I will say we're in a very different world from
Speaker 2: nineteen thirty. Nineteen thirty was one hundred years ago or
Speaker 2: ninety five years ago. Today, the American economy is the
Speaker 2: largest economy in the world, so we have massively more
Speaker 2: level ridge than we did one hundred years ago. What
Speaker 2: that means is that if we have a tariff, another
Speaker 2: country has a tariff, the tariff we're imposing will hurt
Speaker 2: the other country in all likelihood more than it hurts us,
Speaker 2: because our market is a bigger deal, and so foreign countries,
Speaker 2: foreign companies facing massive tariffs, will get hurt more. And
Speaker 2: so one of the positive consequences of the tariff announcement
Speaker 2: is that we will see more foreign companies announcing new
Speaker 2: plants in America, saying we're going to build in America
Speaker 2: because the easiest way to get around the tariffs is
Speaker 2: build your products in America. That's a good thing. I'm
Speaker 2: all for bringing manufacturing back to America. Now, I will
Speaker 2: say the process of building a new plant is slow.
Speaker 2: It can take years. It can take years just to
Speaker 2: get permitted, to find the land to build the plant,
Speaker 2: to build the factory, that can take years. And in
Speaker 2: the meantime, everyone's prices go up. So we are seeing Look,
Speaker 2: we're seeing new factories being announced to the United States.
Speaker 2: I think that's great. I want as much manufacturing as
Speaker 2: possible coming back to America, coming back to Texas. But
Speaker 2: none of that happens quickly. You simply can't build a
Speaker 2: car factory in a couple of months. It it doesn't
Speaker 2: work in most places. You can't even get the damn permits,
Speaker 2: uh in less than that than a couple of years
Speaker 2: much less poor the foundation, build the factory, put the
Speaker 2: machines in, and hire the workers. So so there is
Speaker 2: real time involved. But an unquestionable benefit of this will
Speaker 2: be more manufacturing in the United States. Now, look, let
Speaker 2: me give you another basic economic principle and and and
Speaker 2: this is this is right at the heart of the
Speaker 2: debate between protectionism and free trade, and it deals with
Speaker 2: there's a school of economic thought called public choice theory,
Speaker 2: and it looks at how political decisions are made and
Speaker 2: and the basic principle of protectionism. If you put big
Speaker 2: tariffs to protect an industry, let's say steel terraffs big
Speaker 2: tariffs to protect steel, you have concentrated benefits, which is
Speaker 2: steel manufacturers steel in the United States get real benefits
Speaker 2: from that. And you often have diffuse harms. In other words,
Speaker 2: lots and lots of people are hurt, but they're hurt
Speaker 2: less acutely than the beneficiaries are benefited. Now, as a
Speaker 2: political matter, let me tell you how politicians respond to that.
Speaker 2: If you have a bunch of people that are benefited intensely,
Speaker 2: they're really motivated and they care about supporting you, and
Speaker 2: they're really excited because they're like, Wow, you just gave
Speaker 2: me a huge, huge benefit. And the people who are harmed,
Speaker 2: Like with steel tariffs, the people who are harmed is
Speaker 2: everyone who's buying steel. So oil and gas, you're putting pipelines,
Speaker 2: you're drilling wells, railroads, you're putting railroad ties. Building manufacturers,
Speaker 2: you're putting steel in building. You know it's soda and
Speaker 2: beer manufacturers you're putting either aluminium or steel, depending on
Speaker 2: what the cans are made of. But everyone who's using
Speaker 2: steel is the companies are paying more, the consumers are
Speaker 2: paying more, but it is diffuse across a lot of people.
Speaker 2: So public choice theory will tell you that politicians will
Speaker 2: care more about the concentrated benefits than the diffuse harms,
Speaker 2: even though if you measure the aggregate harms, there are
Speaker 2: in many instances much much larger than the concentrated benefits.
Speaker 2: But the aggregate harms are spread out over a ton
Speaker 2: of people, whereas the benefits are concentrated in a much
Speaker 2: smaller group of people. That's the economics behind what's going
Speaker 2: on here. The consequences of this. I think what happens
Speaker 2: on these tariffs, let's talk about politically, is going to
Speaker 2: be probably the single biggest determinant of what the twenty
Speaker 2: twenty six mid term elections look like. If these tariffs
Speaker 2: result in massively higher prices result and driving up costs
Speaker 2: for US companies, result in job losses, and put us
Speaker 2: into a recession. And to be clear, there, that is
Speaker 2: a if the tariffs remain in place and we have
Speaker 2: retaliatory tariffs, that is a very possible outcome if we
Speaker 2: go into a recession, particularly a bad recession, twenty twenty
Speaker 2: six in all likelihood politically would be a bloodbath. You
Speaker 2: would face a Democrat House, and you might even face
Speaker 2: a Democrat Senate. Look, we've got a fifty three to
Speaker 2: forty seven majority in the Senate. But if we're in
Speaker 2: the middle of a recession and people are hurting badly,
Speaker 2: they punish the party in power. And to be clear,
Speaker 2: if that happens in twenty twenty seven, in January of
Speaker 2: twenty twenty seven, the Democrat House that gets elected will
Speaker 2: immediately impeach Donald Trump, and we would spend the next
Speaker 2: two years of twenty twenty seven and twenty twenty eight
Speaker 2: with constant impeachment battles, constant investigations, constant political attacks, all
Speaker 2: of the weaponization that we saw in the first term.
Speaker 1: Deja vu, that's under.
Speaker 2: Steroids, not even deja vu. Take the first term, and
Speaker 2: and and and put it on steroids, and and so
Speaker 2: the political consequences of getting this wrong this was this
Speaker 2: is a high risk play. The upside massive, but the
Speaker 2: downside could be massive.
Speaker 1: Is this the highest risk play so far from Trump's
Speaker 1: first term second term combined so far?
Speaker 2: Not not even close by far? Yes?
Speaker 1: All right, So then I got to ask you this
Speaker 1: question behind the scenes, What are the conversations with your
Speaker 1: colleagues are on a score one to ten, how concerned
Speaker 1: are they over the scenario that you just described forty two?
Speaker 2: Okay, Look, there's another point that I think is important
Speaker 2: to understand. So so you and I did a podcast
Speaker 2: I think last week where we talked about tariffs, and
Speaker 2: and I talked about I said, listen, the president uses
Speaker 2: tariffs for two principal purposes. One is leverage as an
Speaker 2: incentive to incentivize other countries to enact policies that benefit America.
Speaker 2: And the clearest example of that is the threatened tariffs
Speaker 2: against Mexico and Canada unlessen until they help us secure
Speaker 2: the border. Now, using tariffs's leverage for something like that
Speaker 2: is very effective. The President uses it really well, and
Speaker 2: particularly using them to push securing the border. I am
Speaker 2: emphatically in favor of that. Is it has proven successful.
Speaker 2: It worked incredibly well in the first term. It produced
Speaker 2: to remain in Mexico agreement with Mexico. It produced the
Speaker 2: lowest rate of illegal immigration in forty five years, stopping
Speaker 2: the border invasion of the last four years. As an
Speaker 2: acute national security and public safety imperative, it is a
Speaker 2: mandate from the last election. It is massively important for Texas.
Speaker 2: So I'm all for using the thread of tariffs's leverage
Speaker 2: to get good policy that benefits America. But there's a
Speaker 2: second component, and this is an important thing to understand,
Speaker 2: which is Donald Trump and much of his administration believes
Speaker 2: in tariffs as an economic policy. We've all heard Donald
Speaker 2: Trump say tariff is the most beautiful word in the
Speaker 2: English language. And I do think the business community so look, look,
Speaker 2: we had the stock market plummeted, we saw massive losses
Speaker 2: in the stock market. We may well see more massive
Speaker 2: losses than the stock market. I think the business community
Speaker 2: was shocked by the magnitude of these communities of these tariffs,
Speaker 2: by the breadth of them. Look, as we talked about
Speaker 2: in our earlier podcast on tariffs, what I've urged the
Speaker 2: President's two things. Number one, focus on China, because delinking
Speaker 2: our economy from China is emphatically an America's national security
Speaker 2: interests and economic security interests. And number two, focus on reciprocity.
Speaker 2: And the reason I've said focus on reciprocity is the
Speaker 2: upside scenario I just talked about, which is, by focusing
Speaker 2: on reciprocity, if you incentivize other countries to lower their
Speaker 2: tariffs and we lower ours, that's a win win for America.
Speaker 2: But the thing to understand, I believe the business community
Speaker 2: has systematically underestimated how much President Trump and the Trump
Speaker 2: administration views tariffs as an ongoing, permanent feature of our
Speaker 2: economic policy. I can tell you virtually every time I
Speaker 2: talk with the President, I talk with the President frequently,
Speaker 2: he goes on at length. Have you seen the billions
Speaker 2: of dollars, the hundreds of billions of dollars, the trillions
Speaker 2: of dollars we are raising and are going to raise
Speaker 2: from tariffs? Now, I think a lot of people said, oh,
Speaker 2: he's going to threaten these tariffs, but he's going to
Speaker 2: lift them very quickly. If he does that, great, If
Speaker 2: he leaves them in place and we just have constant tariffs,
Speaker 2: that is a massive tax increase on the American people.
Speaker 2: And I think many people are underestimating that. The President
Speaker 2: believes and many members of his administration believe that tariffs
Speaker 2: are just a fabulous feature of the American economy. They
Speaker 2: harken back to William McKinley when he was president. Now,
Speaker 2: now look we used to have before the income tax,
Speaker 2: tariffs were the main source of revenue for the federal government,
Speaker 2: and they want to go back to that scenario. And
Speaker 2: I got to say, we're going to find out because listen,
Speaker 2: President Trump believes in this. I think in the first
Speaker 2: term he wanted to impose policies like this, and I
Speaker 2: think many Republican senators talked him out of it, pressed
Speaker 2: him back and said, look, their real risks, don't do this.
Speaker 2: I think of the second term, Trump feels unchained, he
Speaker 2: feels unburdened. He's like, screw it, let's go, and he
Speaker 2: believes it.
Speaker 1: I do know, by the way, that's where the threat
Speaker 1: could actually work, right, because every other country's looking at saying, hey,
Speaker 1: this is surely he's not going to do it. He
Speaker 1: does it like he's going to finch quickly. There's no
Speaker 1: indication he's going to finch per se quickly.
Speaker 2: Right.
Speaker 1: I think the real threat of it is the fact
Speaker 1: that he's actually willing to go through with it.
Speaker 2: Look, I want this to succeed. I wanted to succeed,
Speaker 2: But my definition of succeed may be different than the
Speaker 2: White Houses. My definition of succeed is dramatically lower tariffs
Speaker 2: abroad and result in dramatically lowering tariffs here. That's success
Speaker 2: for the American workers, American businesses, American growth, American prosperity.
Speaker 2: That's a great outcome. But look, I think we're going
Speaker 2: to find out one hundred years ago the US economy
Speaker 2: didn't have the leverage to have the kind of impact
Speaker 2: we do now. But I worry there are voices within
Speaker 2: the administration that want to see these tariffs continue forever
Speaker 2: and ever and ever. They don't want a lower of them.
Speaker 2: They think they're great. And what is particularly I think
Speaker 2: has has startled some observers. It wasn't just directed at China,
Speaker 2: it wasn't just directed at bad actors. It was directed
Speaker 2: against everybody that if that is the breadth of it
Speaker 2: is enormous and it carries it carries upside, but it
Speaker 2: also carries real risk.
Speaker 1: All right, let's talk timeline in your definition of short
Speaker 1: term or long term? What does that timeline look like,
Speaker 1: because obviously people are trying to figure out weathering the storm. Right,
Speaker 1: you talked about supply chain and the car is a
Speaker 1: great example. You don't feel the pain till let's say June.
Speaker 1: All right, so give us a few months for things
Speaker 1: to kind of work its way through, work it out.
Speaker 1: Is that a timeline of short term and then after
Speaker 1: that it's it's considered all right, this is long term?
Speaker 1: What is that timeline in your opinion?
Speaker 2: Well, let's be clear, the timeline was immediate. So let
Speaker 2: me read from the Wall Street Journal headline Trump tariff
Speaker 2: send out to sixteen hundred point decline, dollar slumps Asian
Speaker 2: stocks hit for a second day, fear as a recession rise.
Speaker 2: And here's what the Wall Street Journal reports, quote, US
Speaker 2: markets suffer theirs steepest decline since twenty twenty on fears
Speaker 2: President Trump's new tariffs plan will trigger a global trade
Speaker 2: war and dragged the US economy into recession. Major stock
Speaker 2: indexes dropped as much as six percent on Thursday. Stocks
Speaker 2: lost roughly three point one trillion dollars in market value,
Speaker 2: their largest one day decline since March twenty twenty. Stock
Speaker 2: index futures drifted lower Thursday evening in stocks in Japan
Speaker 2: were hit for a second day as Friday training began.
Speaker 2: In Thursday's market plunge, the Dow Industrials dropped sixteen one
Speaker 2: hundred and seventy nine points, or four percent. The tech
Speaker 2: heavy NAGS deck, which powered the market higher for years,
Speaker 2: was down six percent, pulled lower by big declines in Nvidia, Apple,
Speaker 2: and Amazon dot Com. The S and P five hundred,
Speaker 2: which fell four point eight percent, and the other benchmark
Speaker 2: suffered their sharpest decline since the early days of the
Speaker 2: COVID nineteen pandemic. The dollar meanwhile tumbled, with a Wall
Speaker 2: Street Journal Dollar index suffering at sharpest decline since twenty
Speaker 2: twenty three. Now those are immediate hits, and understand, Look,
Speaker 2: it's easy to say, okay, fine, you know that's just
Speaker 2: rich people. Look at this point, a majority of Americans
Speaker 2: have money and vested in four o one ks and iras,
Speaker 2: and so that's impacting everyone, and people don't necessarily follow
Speaker 2: their four A one K on a daily basis. Many
Speaker 2: people see their four A one K statement when it
Speaker 2: comes out at the end of the quarter. A whole
Speaker 2: lot of people are looking at that, and we'll see
Speaker 2: if that's a temporary one day hit. But if it
Speaker 2: continues to slide over the next few days, that's not
Speaker 2: waiting for six months to see the impact. That's freaking
Speaker 2: people out now. And so the consequences of this are real,
Speaker 2: and I want to be clear about something. Look, it
Speaker 2: used to be conventional wisdom in Republican politics that free
Speaker 2: trade is wonderful and we should just have no terraffs
Speaker 2: and lower terraffs. And that was almost.
Speaker 1: Everyone ask you. This is a question. I'm just going
Speaker 1: to ask it because I know there's people listening. They
Speaker 1: want to know what the definition your definition of free
Speaker 1: trade is.
Speaker 2: That used to be conventional wisdom. And I want to
Speaker 2: give Donald Trump credit for something really significant, which is
Speaker 2: he's changed the debate on trade fundamentally. And so I
Speaker 2: believe in free trade, but I also believe in fair trade,
Speaker 2: and so when I talk about reciprocity, Donald Trump has
Speaker 2: made a very clear point and It's a powerful point,
Speaker 2: which is, many countries on Earth have been taking advantage
Speaker 2: of the United States and have been imposing really high
Speaker 2: tariffs and barriers to US goods while having free access
Speaker 2: to the American markets. And that is unfair. And so
Speaker 2: I love that President Trump is willing to use leverage
Speaker 2: to lower tariffs. I think that's great, and that really
Speaker 2: is a change in the debate. Ten years ago, there
Speaker 2: was nobody in the Republican Party making that argument, and
Speaker 2: that is the direct result of President Trump's leadership. That's
Speaker 2: a good thing. Saying we should be treated fairly, that
Speaker 2: is a good thing. That is a very different proposition
Speaker 2: from saying it doesn't matter if other countries lower their tariffs.
Speaker 2: We're going to impose tariffs on everybody because we think
Speaker 2: tariffs should be the principal vehicle of funding the economy.
Speaker 2: If the outcome of this is a multi trillion dollar
Speaker 2: tax increase on American consumers, I think that that is
Speaker 2: really consequential and really really harmful.
Speaker 1: So let me ask you one other question, and that
Speaker 1: is if these tariffs don't change center, then what would
Speaker 1: the impact be.
Speaker 2: Well, let me share an analysis that a group called
Speaker 2: the Tax Foundation did now. The Tax Foundation is a
Speaker 2: think tank based in Washington. They're very good. They're they're
Speaker 2: economic experts. They analyze tax policies. They have proven to
Speaker 2: be incredibly accurate in terms of measuring the impact of taxes.
Speaker 2: Here's what the Tax Foundation has assessed from the announcement
Speaker 2: this week. They say, if these stay in effect, the
Speaker 2: average tariff rate on all imports will rise from two
Speaker 2: point five percent in twenty twenty four to eighteen point
Speaker 2: eight percent, the highest average rate since nineteen thirty three
Speaker 2: under the tariffs announced for twenty twenty five. The consequence
Speaker 2: of those tariffs, they will cause imports to fall by
Speaker 2: slightly more than nine hundred billion dollars in twenty twenty five,
Speaker 2: or twenty eight percent. So that's what they're predicting, is
Speaker 2: that imports drop nine hundred billion dollars twenty eight percent
Speaker 2: this year. They also say the newly announced tariffs on
Speaker 2: April second will raise one point eight trillion dollars in
Speaker 2: revenue over the next decade and will shrink US GDP
Speaker 2: by zero point five percent. The April second escalation, they note,
Speaker 2: comes in addition to the previously announced tariffs, which will
Speaker 2: raise another one point three trillion dollars in revenue over
Speaker 2: the next decade and shrink US GDP by zero point
Speaker 2: three percent. Altogether, Trump's tariffs will raise nearly three point
Speaker 2: two trillion dollars in revenue over the next decade and
Speaker 2: reduce US gd by zero point eight percent. They further
Speaker 2: project the tariffs will reduce after tax income by an
Speaker 2: average of two point one percent, an amount to an
Speaker 2: average tax increase of more than two one hundred dollars
Speaker 2: per US household in twenty twenty five. Now, to be clear,
Speaker 2: that's a prediction. If these tariffs stay in place, if
Speaker 2: they don't change, if the upside that I described happens,
Speaker 2: if foreign countries slash their tariffs and Trump in turn
Speaker 2: slash these tariffs, none of those numbers hold. Instead, I
Speaker 2: think we see an enormous economic boom. But if that
Speaker 2: doesn't happen, if these tariffs stay in place as an
Speaker 2: ongoing economic policy, we're facing very real and I think
Speaker 2: very detrimental consequences.
Speaker 1: It's going to be an interesting one center. It's I
Speaker 1: think it's important that we have these conversations. Hopefully many
Speaker 1: of you listening understand this more and the ups and
Speaker 1: downs and what this will look like it's going to
Speaker 1: be changing often, and when it changes, we are going
Speaker 1: to continue to cover it day in and day out.
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Speaker 1: exactly what we did here today in the Center. I
Speaker 1: will see you back here for our week in review
Speaker 1: on Saturday as well