WEBVTT - The US Economic Outlook and Examining Tariffs 0:00:02.440 --> 0:00:13.200 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.240 --> 0:00:17.560 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:17.680 --> 0:00:21.280 on applecar Player, Android Auto with the Bloomberg Business App. 0:00:21.560 --> 0:00:24.800 Listen on demand wherever you get your podcasts, or watch 0:00:24.880 --> 0:00:26.439 us live on YouTube. 0:00:26.880 --> 0:00:27.720 Joining us now. 0:00:27.760 --> 0:00:32.479 Francis Donald, Chief Economist RBC, the Royal Bank of Canada 0:00:32.520 --> 0:00:37.360 and just outstanding work on the equation that is gross 0:00:37.400 --> 0:00:42.440 domestic product. I'm fascinated by the Coca Cola earnings where 0:00:42.479 --> 0:00:45.600 they basically had no unit growth and it seemed like 0:00:45.800 --> 0:00:50.280 good organic revenue growth was all pricing power. Is pricing 0:00:50.400 --> 0:00:54.960 power going to evaporate? Is nominal GDP evaporates. 0:00:55.440 --> 0:00:59.040 Pricing power is already becoming more difficult, and that's because 0:00:59.120 --> 0:01:02.080 the general state of the consumers becoming more difficult, and 0:01:02.280 --> 0:01:05.360 most importantly, the general state of the low and middle 0:01:05.480 --> 0:01:10.360 income consumers is becoming more difficult. Very little excess savings 0:01:10.480 --> 0:01:14.280 left much less real wage growth, especially because that group 0:01:14.440 --> 0:01:18.319 is spending more on the higher inflation areas like food 0:01:18.480 --> 0:01:21.800 and energy, and those low and middle income households just 0:01:21.880 --> 0:01:25.640 haven't had that boom coming from stock market gains. They 0:01:25.640 --> 0:01:28.160 have less than five percent of their portfolio there, So 0:01:28.360 --> 0:01:31.080 back two years ago you could have pricing power because 0:01:31.120 --> 0:01:34.280 there was money to go through. That money is evaporating, 0:01:34.400 --> 0:01:36.840 and the spread between the haves and the have nots 0:01:37.160 --> 0:01:40.640 is becoming much larger, depending on what you sell and 0:01:40.680 --> 0:01:43.000 to who. That's either good news or bad news. 0:01:43.360 --> 0:01:47.120 Well, the federal government seems to be responding. They're cutting 0:01:47.160 --> 0:01:50.800 interest rates. From a fiscal perspective, lots of spending plans 0:01:50.840 --> 0:01:54.920 out there from the government. Is that enough to sustain 0:01:55.000 --> 0:01:57.680 to lift this economy, including I know you're bringing back 0:01:57.680 --> 0:02:00.400 the K shaped economy discussion for the folks that have 0:02:00.560 --> 0:02:03.120 not been participating. Is that enough to help those folks? 0:02:03.120 --> 0:02:03.440 Do you think? 0:02:03.520 --> 0:02:06.279 Well, it depends where it goes. And I can't believe 0:02:06.280 --> 0:02:09.320 we don't talk every single day about federal spending. It 0:02:09.360 --> 0:02:14.240 has been so extraordinarily disruptive to every single economic model 0:02:14.320 --> 0:02:17.000 that exists, and it has changed the way that we 0:02:17.080 --> 0:02:20.679 have to evaluate the cycle. But problematically, we see these 0:02:20.720 --> 0:02:24.320 deficits rise in spending increase, but net interest spending is 0:02:24.400 --> 0:02:27.919 now larger than defense spending. And if we're spending government 0:02:28.080 --> 0:02:31.239 money and it's going to pay treasury holders outside of 0:02:31.280 --> 0:02:34.920 the United States, that's not helping everyday Americans. It's not 0:02:35.040 --> 0:02:38.800 boosting growth, and it's not actually inflationary either. So it 0:02:38.840 --> 0:02:41.520 isn't just about the amount of government spending, which is 0:02:41.919 --> 0:02:44.960 just chaotic in terms of how it's changing the way 0:02:45.000 --> 0:02:48.720 the economy operates. It's where it's going, and defense, net 0:02:48.720 --> 0:02:52.360 interest spending, even entitlements is not going to be the 0:02:52.560 --> 0:02:57.919 juice that fuels this extended, continuous, resilient aggregate economy. 0:02:58.320 --> 0:03:00.760 I agree with a concern about the federal debts and 0:03:00.760 --> 0:03:02.440 deficits and all that, but a lot of folks will 0:03:02.480 --> 0:03:04.880 come back to me and say, hey, interest rates are 0:03:04.919 --> 0:03:08.120 still relatively low. People are buying our debt like crazy. 0:03:08.160 --> 0:03:09.000 Don't worry about it. 0:03:09.400 --> 0:03:11.960 Well, I don't worry about it so much from the oh, 0:03:12.000 --> 0:03:14.639 there's going to be a bond market collapse moment. I mean, 0:03:14.680 --> 0:03:17.120 the risk of that just empirically has to be higher 0:03:17.160 --> 0:03:19.440 now than it was when we didn't have mere record 0:03:19.560 --> 0:03:22.520 levels of debt to GDP. What concerns me is that 0:03:22.560 --> 0:03:24.520 at a certain point we're going to hit up against 0:03:24.520 --> 0:03:27.720 limits and if the main support, the main pillar that 0:03:27.880 --> 0:03:31.040 is driving the so called soft landing is government spending, 0:03:31.400 --> 0:03:33.920 sometime in the next four years, we're going to have 0:03:33.960 --> 0:03:36.080 to take a step back. And if the FED is 0:03:36.120 --> 0:03:38.560 not focusing on this and the fact that they actually 0:03:38.640 --> 0:03:42.040 probably can't keep rates super high it will lower future 0:03:42.080 --> 0:03:45.000 government spending, then I would do really. 0:03:44.440 --> 0:03:45.720 But are they two data dependent? 0:03:45.800 --> 0:03:47.600 You and I shared a stage and I think it 0:03:47.640 --> 0:03:50.760 was Toronto, I can't remember, but you know, the bottom line, 0:03:50.800 --> 0:03:54.240 Francis Donald is we're addicted to the parlor game. We're 0:03:54.280 --> 0:03:57.840 addicted to data dependency. And all I can say, Paul, 0:03:57.920 --> 0:03:58.920 that hasn't worked out. 0:03:59.280 --> 0:04:02.480 No, it hasn't aproach. We cannot be month to month 0:04:02.560 --> 0:04:04.800 data dependent. And I know the market runs off of this, 0:04:04.880 --> 0:04:07.520 but there's a couple reasons why. First, we have huge 0:04:07.520 --> 0:04:11.520 election uncertainty. It has paused business decision. We see this 0:04:11.640 --> 0:04:15.600 in surveys, small business surveys, ism manufacturing companies are saying 0:04:15.640 --> 0:04:18.240 we're just holding off, so that's a pause. We have 0:04:18.360 --> 0:04:21.720 really low response rates on a range of our economic data. 0:04:21.920 --> 0:04:25.559 And then related we have sizeable revisions. So we're seeing 0:04:25.600 --> 0:04:29.120 these sizeable market moves, perhaps even policy decisions that are 0:04:29.120 --> 0:04:31.680 coming off of month to month movement. We are in 0:04:31.800 --> 0:04:34.640 the dark, or at least the moment of the day 0:04:34.680 --> 0:04:38.040 where the dusk comes in we cannot see fully, So 0:04:38.200 --> 0:04:40.839 the Federal Reserve is going to have to focus on 0:04:40.880 --> 0:04:43.159 that six to twelve month view, and what they're likely 0:04:43.160 --> 0:04:45.680 seeing is the unemployment rate has been creeping higher since 0:04:45.760 --> 0:04:50.680 January of twenty twenty three. Inflation looks relatively contained, Inflation 0:04:50.800 --> 0:04:55.600 expectations are all right, low income, medium income consumers expressing 0:04:55.640 --> 0:04:58.760 concern about the labor market. They have to calibrate policy 0:04:58.800 --> 0:05:01.280 back to that more neutral level. And I hope they're 0:05:01.279 --> 0:05:03.080 not looking at month to month data and that they're 0:05:03.080 --> 0:05:05.760 looking more at three to six month trends. If they are, 0:05:05.880 --> 0:05:09.040 it's a continued easing cycle, at least down to four percent, 0:05:09.640 --> 0:05:11.120 maybe beyond that towards. 0:05:10.839 --> 0:05:14.080 Three what's your view of the US economy here? Is 0:05:14.080 --> 0:05:18.360 it resilient or do we really still have to think 0:05:18.400 --> 0:05:19.240 about a recession? 0:05:19.520 --> 0:05:22.320 Can I be bold and ask which US economy? Because 0:05:22.360 --> 0:05:25.680 I'm having trouble just thinking about one US economy right now. 0:05:25.839 --> 0:05:28.640 If I aggregate all of the parts, real difficult to 0:05:28.640 --> 0:05:31.000 get two quarters of negative GDP, in part because of 0:05:31.040 --> 0:05:33.600 how much government spending is coming through. So I can't 0:05:33.640 --> 0:05:36.400 be in the recession camp because that's not formally a recession. 0:05:36.680 --> 0:05:40.240 But if I look at manufacturing. Manufacturing has been contracting 0:05:40.320 --> 0:05:43.320 in the US since twenty eighteen. Industrial production is smaller. 0:05:43.560 --> 0:05:46.640 Existing home sales are thirty percent below where they were 0:05:46.640 --> 0:05:48.880 before COVID. They're at the level they were in the 0:05:48.880 --> 0:05:52.599 Great Financial Crisis. Small businesses, who employ eighty percent of 0:05:52.640 --> 0:05:54.960 the population are the most negative they've been since the 0:05:54.960 --> 0:05:58.320 Great Financial Crisis. So on aggregate things look good, supported 0:05:58.320 --> 0:06:01.520 by a really strong high end and CEOs, but the 0:06:01.520 --> 0:06:02.760 rest of the economy is nice. 0:06:02.800 --> 0:06:04.159 Here Francis, we don't care. 0:06:04.560 --> 0:06:07.440 All we care is that the Rangers scored with fifty 0:06:07.440 --> 0:06:10.800 four seconds and that Brazinski scored. 0:06:10.440 --> 0:06:11.440 At two oh five. 0:06:12.080 --> 0:06:16.920 That clocked years in my Montreal Canadians seven to two. 0:06:17.760 --> 0:06:21.719 It's another difficult year, isn't it. It's a rebuilding year. 0:06:22.240 --> 0:06:24.560 A rebuilding year is a good way to think about it. 0:06:24.640 --> 0:06:25.400 I would agree with. 0:06:25.360 --> 0:06:26.520 You, Tom. 0:06:26.880 --> 0:06:29.719 You should see the RBC tickets at the forum. Oh 0:06:30.640 --> 0:06:31.880 it's why she went to RBC. 0:06:32.080 --> 0:06:36.200 Yeah, I couldn't possibly comment, Francis. 0:06:35.640 --> 0:06:37.520 Thank you so much with RBC. 0:06:37.560 --> 0:06:39.919 I can't say enough about her at research get that 0:06:40.040 --> 0:06:44.040 from the Royal Bank of Canada RBC. At Capital Markets, 0:06:44.080 --> 0:06:47.440 we protect the copyright of all of our guests. 0:06:51.920 --> 0:06:55.760 You're listening to the Bloomberg Surveillance Podcast. Catch US Live 0:06:55.880 --> 0:06:59.159 weekday afternoons from seven to ten am. Easter Listen on 0:06:59.200 --> 0:07:02.440 Apple car Play and androyd Otto with a Bloomberg Business app, 0:07:02.600 --> 0:07:04.320 or watch US Live on YouTube. 0:07:04.640 --> 0:07:08.800 David Kelly joins Chief Global Strategist at JP Morgan Asset 0:07:08.839 --> 0:07:12.560 Manage you with decades of experience, David, eighteen months ago, 0:07:12.680 --> 0:07:16.920 you established a responsible vector that we would see non 0:07:16.960 --> 0:07:22.239 farm payrolls come down various employment statistics in the emotion 0:07:22.400 --> 0:07:25.160 of maybe a negative non farm payrolls. 0:07:25.160 --> 0:07:26.080 We didn't get there. 0:07:26.520 --> 0:07:29.400 But can we revisit this and say we're in the 0:07:29.440 --> 0:07:33.440 process of worser labor statistics. 0:07:34.440 --> 0:07:36.680 Well, the problem, Tom is you've got a very good 0:07:36.720 --> 0:07:40.960 memory for bad forecasts. There was always a risk that 0:07:41.160 --> 0:07:43.680 we would see a negative employment number because really we've 0:07:43.960 --> 0:07:48.720 seen very great deal volatility in payrolls, and so asian 0:07:48.760 --> 0:07:51.720 months ago we did see some weakness. We still never thought. 0:07:51.800 --> 0:07:54.360 We didn't quite call for recession last year. We're still 0:07:54.360 --> 0:07:57.360 calling for a recession right now, and we could you know, 0:07:57.680 --> 0:07:59.200 the payroll report we get at the end of next 0:07:59.240 --> 0:08:02.680 week that's going to be also because of weather issues also, 0:08:03.400 --> 0:08:05.840 But to me. The most important thing, please, is it 0:08:05.960 --> 0:08:08.560 next week we're going to publish a GDP number of 0:08:08.600 --> 0:08:11.320 about three percent or maybe more than three percent in 0:08:11.440 --> 0:08:14.760 annualized growth in the third quarter, following a quarter of 0:08:14.760 --> 0:08:17.680 three percent growth annualized in the second quarter. And that 0:08:17.760 --> 0:08:20.720 tells me the comm's got plenty momentum, and so an 0:08:20.760 --> 0:08:24.280 average should still generate positive player growth. So I'm a 0:08:24.320 --> 0:08:28.160 little bit more optimistic than that old headline would suggest. 0:08:28.560 --> 0:08:31.000 This is I love about the show, Paul, the classics 0:08:31.040 --> 0:08:32.400 that come out. It's a tough business. 0:08:32.440 --> 0:08:35.320 You got to make a call, and David made a 0:08:35.320 --> 0:08:37.920 call in first fire. I'm concerned out the X axis. 0:08:37.920 --> 0:08:40.000 He's going to be right at some point. But just 0:08:40.080 --> 0:08:42.839 three percent GDP. No one saw this coming. 0:08:42.840 --> 0:08:45.360 No one saw this coming. So David, let's think about this. 0:08:45.400 --> 0:08:47.439 I mean, when I you know, JP Morgan asset Management, 0:08:47.520 --> 0:08:51.400 nobody more global than you. Guys, where do you see 0:08:51.640 --> 0:08:53.640 kind of the best opportunities here? When you sit down 0:08:53.640 --> 0:08:55.480 with your clients and you sit down on your portfolio managers, 0:08:55.520 --> 0:08:57.960 where you seeing the best opportunities globally here? 0:08:59.120 --> 0:09:00.840 Well, I think it's I think this is a time 0:09:00.880 --> 0:09:03.680 when people all need to think about protecting the down side. 0:09:03.679 --> 0:09:07.160 And it's not because of any concern about the economy, 0:09:07.240 --> 0:09:09.760 global economy or the US economy. I mean, and you 0:09:09.800 --> 0:09:12.559 know there are global economies mixed. The US economy is 0:09:12.600 --> 0:09:15.760 doing pretty pretty well, but valuations are very high, so 0:09:16.240 --> 0:09:19.080 you know, I think the opportunity is in diversifying into 0:09:19.120 --> 0:09:21.880 areas that are not overly expensive right now. 0:09:22.120 --> 0:09:23.200 But really that is more. 0:09:23.440 --> 0:09:26.480 It's also much about finding another way to goose out returns, 0:09:26.480 --> 0:09:29.000 which honestly have been great. It's really a way of 0:09:29.320 --> 0:09:31.600 protecting portfolios of this stage by making sure you're not 0:09:31.640 --> 0:09:35.480 too concentrated after such an extraordinary bill market of the 0:09:35.600 --> 0:09:36.719 last two years. 0:09:37.240 --> 0:09:39.800 What needs what do we need out there to sustain 0:09:39.840 --> 0:09:41.880 this bull market? I've got it fit a reserve that 0:09:42.120 --> 0:09:45.120 is cutting rates on U sure to what degree or what? 0:09:45.280 --> 0:09:48.000 You know, how quickly? I think I've got a pretty 0:09:48.040 --> 0:09:51.080 decent earnings outlook here, at least here in the US. 0:09:51.679 --> 0:09:55.280 Is that enough to continue to push risk assets higher? 0:09:56.559 --> 0:09:57.360 Not quite. 0:09:57.760 --> 0:10:01.600 I think we need a relatively benign outcome from the 0:10:01.920 --> 0:10:06.360 election because there is a danger. I mean, obviously it's 0:10:06.559 --> 0:10:10.880 greater potential for a Republican sweep than Democratic sweep, but 0:10:10.920 --> 0:10:15.000 a sweep in either side would mean more aggressive fiscal policy, 0:10:15.000 --> 0:10:17.360 which could push up long term interustrates, and already seeing 0:10:17.400 --> 0:10:22.320 that to some extent, in as former President Trump's polling 0:10:22.400 --> 0:10:25.520 numbers have improved slightly, we've seen long term rates go 0:10:25.679 --> 0:10:28.120 up because there's the thought that if you have a 0:10:28.160 --> 0:10:30.360 Republican sweep, you're going to have a much more aggressive 0:10:30.360 --> 0:10:34.360 fiscal policy along with the trade war, which could push 0:10:34.480 --> 0:10:37.800 up higher could cause higher inflation. So I think there 0:10:37.840 --> 0:10:40.160 is a danger of a policy mistake, not so much 0:10:40.160 --> 0:10:42.240 of the Federal Reserve, but from the federal government here, 0:10:43.040 --> 0:10:45.880 and that I think is an investgy to think about. 0:10:46.520 --> 0:10:49.520 Why did we all get three percent GDP wrong? 0:10:49.960 --> 0:10:51.480 What of Why will C plus. 0:10:51.440 --> 0:10:55.920 I plus G plus net exports? What got us from 0:10:55.960 --> 0:10:59.199 two point x out to a legitimate six months of 0:10:59.280 --> 0:10:59.800 three percent? 0:11:00.920 --> 0:11:03.120 There are two things going on here. The most important 0:11:03.160 --> 0:11:05.920 is consumer spending. Consumer spending sixty eight percent of demand. 0:11:06.320 --> 0:11:07.880 We think that it's going to go up by more 0:11:07.920 --> 0:11:10.760 than three percent in the third quarter, maybe three and 0:11:10.800 --> 0:11:13.560 a half percent. What's going on is two things. One, 0:11:14.000 --> 0:11:17.120 the wealthy are doing extremely well here. We've seen a 0:11:17.160 --> 0:11:20.240 fifty point one trillion dollar increase in net worth in 0:11:20.280 --> 0:11:23.199 the last five years, just explosive gains in wealth, both 0:11:23.240 --> 0:11:26.120 in terms of housing wealth and stock market wealth, and 0:11:26.160 --> 0:11:29.520 that is fueling the spending of upper income consumers. And second, 0:11:29.600 --> 0:11:32.960 we've actually seen some better real income gains for our 0:11:32.960 --> 0:11:36.320 lower middle income households. We've seen just in the last month, 0:11:36.360 --> 0:11:41.559 we've seen average hourly earnings growth exceed CPI growth for 0:11:41.640 --> 0:11:44.440 the seventeenth straight month. So even though the public mood 0:11:44.520 --> 0:11:47.920 is pretty grumpy, actually lower middle income households are also 0:11:47.920 --> 0:11:51.120 seeing gains. And that's shopping up in higher food spending 0:11:51.160 --> 0:11:54.000 and higher clothing spending and the retail sales report. So overall, 0:11:54.040 --> 0:11:56.920 the consumer still has got some fuel here, and that's 0:11:56.960 --> 0:11:58.760 the biggest thing. And then the other thing is is 0:11:58.800 --> 0:12:01.199 just a lot of core spending on AI, which I 0:12:01.240 --> 0:12:04.040 think is helping investment spending overall. 0:12:04.320 --> 0:12:07.840 So when you read Michael Feroli, which I know is torture, 0:12:07.920 --> 0:12:10.839 but when you read JP Morgan economics, are they telling 0:12:10.840 --> 0:12:12.440 you it's a productivity overlay? 0:12:13.320 --> 0:12:19.040 Well, yeah, I read it very closely, but there is 0:12:19.320 --> 0:12:21.560 some productivity gains also going on. I don't think the 0:12:21.559 --> 0:12:25.000 productivity gains are really AI driven here, but if you 0:12:25.040 --> 0:12:28.120 look at the GDP numbers, productivity gains since the start 0:12:28.160 --> 0:12:30.360 of this decade have actually better than the last decade, 0:12:30.520 --> 0:12:32.920 so that's going well too. So you know, in the 0:12:32.960 --> 0:12:36.160 big aggregate numbers, the US economy is doing fine. I mean, 0:12:36.360 --> 0:12:39.280 four point one on the unemployment rate, two point four 0:12:39.320 --> 0:12:41.959 on CPI. That sums to six point five, which I 0:12:42.080 --> 0:12:44.840 used to call the misery index, to some of unemployment innovation. 0:12:45.160 --> 0:12:47.120 That's better than it's been eighty seven percent of the 0:12:47.120 --> 0:12:49.679 time over the last fifty years. So the economy is 0:12:49.720 --> 0:12:52.280 doing fine. I just worry that individual investors may be 0:12:52.600 --> 0:12:54.640 sort of caught off side here if they're overweight the 0:12:54.679 --> 0:12:56.360 overpriced within these markets. 0:12:56.840 --> 0:13:00.200 You know, yeah, I mean just sorry, sorry, Paul. 0:13:00.200 --> 0:13:02.120 No, I was just gonna say, that's exactly how I feel. 0:13:02.120 --> 0:13:04.600 I mean, it seems like things are generally pretty decent 0:13:04.600 --> 0:13:08.839 out there, but that's probably tom to a reasonable level 0:13:09.000 --> 0:13:09.640 reflecting in. 0:13:09.559 --> 0:13:11.920 The markets, and it folds right into the election, yep, 0:13:12.000 --> 0:13:14.200 of an election of politics of habs and have not. 0:13:14.320 --> 0:13:17.280 Look to Kaylee Lines and Joe Matthew for their coverage 0:13:17.280 --> 0:13:19.440 of that heating up here in three hours. David Kelly, 0:13:20.000 --> 0:13:22.600 thank you so much. With JP Morgan can't say enough 0:13:23.000 --> 0:13:23.920 about the bodywork. 0:13:24.160 --> 0:13:28.400 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:13:28.480 --> 0:13:31.720 starting at seven am Eastern on applecar Play and Android 0:13:31.720 --> 0:13:34.600 Auto with the Bloomberg Business App. You can also listen 0:13:34.679 --> 0:13:37.800 live on Amazon Alexa from our flagship New York station, 0:13:38.200 --> 0:13:40.840 Just Say Alexa, playing Bloomberg eleven thirty. 0:13:40.960 --> 0:13:45.839 Let us dig into the tariff debate Ernie Tedesky. First 0:13:45.840 --> 0:13:48.920 of all, Ernie came out of the Stanford combine, and 0:13:48.920 --> 0:13:51.480 he's of course been at the White House CEA and 0:13:51.520 --> 0:13:57.280 he's written an incredibly historic treatment on tariffs. Ernie, first 0:13:57.320 --> 0:13:59.760 of all, did you study with John Taylor? Like when 0:13:59.800 --> 0:14:01.720 you and as Stanford. Did you have to sit there 0:14:01.720 --> 0:14:04.400 in a lecture hall with John Taylor dressed up like 0:14:04.440 --> 0:14:04.960 a raisin? 0:14:06.160 --> 0:14:09.480 I missed out. I demanded my tuition back. I was 0:14:09.520 --> 0:14:11.520 there when John Taylor was on sabbatical. 0:14:11.679 --> 0:14:12.079 There you go. 0:14:12.320 --> 0:14:15.400 My econ one was taught by somebody else. 0:14:15.600 --> 0:14:19.120 Unfortunately, when you look at the foundations of economics, you 0:14:19.160 --> 0:14:21.560 look at history, and you have nailed it with your 0:14:21.600 --> 0:14:25.560 Bloomberg opinion piece. Right now, the average tariff is two 0:14:25.600 --> 0:14:29.200 point five percent. I would think most Americans to get hire. 0:14:29.760 --> 0:14:32.360 We could go back to World War two eighteen ninety nine, 0:14:32.560 --> 0:14:36.320 or dare I say, to the shocking tarriffs of about 0:14:36.360 --> 0:14:41.760 eighteen twenty, what are Harris and Trump going to do? So? 0:14:41.800 --> 0:14:45.560 I think Harris is going to basically keep business as 0:14:45.640 --> 0:14:49.280 usual right now, very much like Biden has done. Biden 0:14:49.440 --> 0:14:53.080 kept the Trump tariffs, increased a few of them, but 0:14:53.440 --> 0:14:56.680 you know, basically rearranged some of the tariffs, mainly on 0:14:56.800 --> 0:15:02.040 national security grounds. What Trump has done or has proposed, 0:15:02.360 --> 0:15:05.120 and what we looked at in our Budget lab report 0:15:05.240 --> 0:15:08.520 that was the basis of my Bloomberg opinion column is 0:15:09.040 --> 0:15:13.240 he's proposed, you know, a bunch of different expansion ideas 0:15:13.320 --> 0:15:15.760 for tariffs, and they've been all over the place. And 0:15:15.800 --> 0:15:17.800 so what we did in our report was we you know, 0:15:17.840 --> 0:15:20.440 we listened to his remarks over the course of the campaign, 0:15:20.440 --> 0:15:24.080 and we tried to piece together twelve different scenarios that 0:15:24.200 --> 0:15:27.520 captured the spirit of what President Trump has talked about, 0:15:27.800 --> 0:15:30.360 and we created a range of different proposals, you know, 0:15:30.440 --> 0:15:34.000 on the low end, ten percent on all countries, sixty 0:15:34.040 --> 0:15:37.720 percent on China but exempting all countries with which the 0:15:37.800 --> 0:15:41.160 United States currently has a free trade agreement, and on 0:15:41.200 --> 0:15:44.800 the high end, twenty percent on all countries, sixty percent 0:15:44.880 --> 0:15:47.560 on China and two hundred percent on Mexico. So that 0:15:47.600 --> 0:15:51.240 gave us a bookend of ranges for different ideas. 0:15:52.320 --> 0:15:56.240 So, Ernie, what did the textbooks tell us that tariffs 0:15:56.280 --> 0:15:59.560 are designed to do? And then the question is do 0:15:59.600 --> 0:16:00.160 they work? 0:16:00.000 --> 0:16:00.080 Ok? 0:16:01.240 --> 0:16:06.040 Yeah, so the textbook tells us that tariffs are designed 0:16:06.080 --> 0:16:11.080 to protect domestic industry from outside influence and to let 0:16:11.120 --> 0:16:15.360 domestic industry grow. I think that there has been this 0:16:15.880 --> 0:16:20.880 sort of historic argument that tariffs were good when America 0:16:20.920 --> 0:16:24.160 was young, like in the eighteen hundreds, and that was 0:16:24.200 --> 0:16:26.920 sort of accepted wisdom. I will say that over the 0:16:27.000 --> 0:16:30.440 last twenty years there's been more and more challenges to 0:16:30.520 --> 0:16:33.120 that accepted wisdom. You know, you've seen more and more 0:16:33.320 --> 0:16:37.360 historic American economic research that says that America grew in 0:16:37.400 --> 0:16:41.880 the eighteen hundreds despite our really high tariffs. Tariffs in 0:16:41.960 --> 0:16:45.520 the eighteen hundreds were upwards of forty or fifty percent 0:16:45.800 --> 0:16:50.480 in average effective rates back then. But that was sort 0:16:50.520 --> 0:16:53.920 of the rationale. But then the textbook tells you that 0:16:54.160 --> 0:16:58.520 as you know, as your country matures, as its domestic 0:16:58.520 --> 0:17:02.320 industry becomes more competitive of with global markets, you know 0:17:02.480 --> 0:17:08.320 the advantages of having you know, having inputs and and 0:17:08.320 --> 0:17:11.920 and and capital and labor, you know, compete on a 0:17:12.000 --> 0:17:15.240 on an even playing field in a global market. Outweigh 0:17:15.320 --> 0:17:20.400 the protectionism of of of throwing up uh protectionist tariffs 0:17:20.440 --> 0:17:25.560 on your border. And you know the what we have, 0:17:25.760 --> 0:17:27.879 you know, the evidence of what we have seen is 0:17:27.920 --> 0:17:32.520 that you know, tariffs nowadays, you know, don't work as 0:17:32.640 --> 0:17:36.240 advertised in terms of creating jobs. And that doesn't mean 0:17:36.320 --> 0:17:40.040 that if you throw up a tariff, you know, we're 0:17:40.080 --> 0:17:43.960 not saying that in no cases, you know, no jobs 0:17:43.960 --> 0:17:46.760 are created. What we're saying is that net net you know, 0:17:47.440 --> 0:17:50.120 the you know, the bad outweigh the right that that 0:17:50.200 --> 0:17:52.479 the you know exactly that that that the cost to 0:17:53.040 --> 0:17:56.360 factories of you know of of increased part parts coming in, 0:17:56.720 --> 0:17:59.840 you know, for laying off workers outweighs you know, any 0:18:00.080 --> 0:18:00.960 actory that creates it. 0:18:01.000 --> 0:18:03.080 Okay, Ernie, because the time, I want to cut to 0:18:03.119 --> 0:18:06.400 the chase here. President Trump, in his conversation with John 0:18:06.440 --> 0:18:09.800 mickels Wade of Bloomberg News, was adamant that he's talking 0:18:09.880 --> 0:18:14.919 about a magnitude of tariffs that will create a jump 0:18:15.000 --> 0:18:19.240 condition of labor formation in America. I don't want to 0:18:19.280 --> 0:18:20.560 go politics on this. 0:18:21.000 --> 0:18:21.640 I want to go. 0:18:21.840 --> 0:18:26.760 Is there any history taught it's Stanford or Berkeley, that 0:18:27.440 --> 0:18:30.240 is Barry Keen Green or Brad DeLong going to tell 0:18:30.320 --> 0:18:34.399 me that if I get a magnitude tariff leap, I 0:18:34.520 --> 0:18:39.240 will create American jobs. Is there any evidence? No? 0:18:39.720 --> 0:18:43.000 You know, what we found in this report is the 0:18:43.040 --> 0:18:47.440 magnitude of tariffs that President Trump has proposed means number one, 0:18:47.520 --> 0:18:50.439 higher prices, you know, on the order of one and 0:18:50.480 --> 0:18:53.800 a half to five percent for consumers. So that's two 0:18:53.800 --> 0:18:57.600 thousand dollars to seventy six hundred dollars for consumers. So 0:18:57.640 --> 0:19:01.240 that creates hard choices for consumers. Have the substitute to. 0:19:01.880 --> 0:19:06.320 But is there any evidence? Is there any evidence that 0:19:06.400 --> 0:19:09.400 it will create jobs in America? My problem, and I'm 0:19:09.400 --> 0:19:12.720 thinking of William Klein. If the Peterson Institute is definitive 0:19:12.760 --> 0:19:15.760 on this, Paul, it's feel simple. They're going to raise 0:19:15.880 --> 0:19:20.040 tariffs to go after Mexico, so the jobs are gonna 0:19:20.080 --> 0:19:21.080 move to Vietnam. 0:19:21.280 --> 0:19:22.720 I don't yeah, I know, I don't know how that 0:19:22.720 --> 0:19:25.080 plays out. I don't have but yeah, no, no, And 0:19:25.400 --> 0:19:27.680 Ernie's probably the other thing we hear probably most often, 0:19:27.720 --> 0:19:30.400 and I don't know if this is true. Are tariffs 0:19:30.400 --> 0:19:31.880 a tax on the US consumer. 0:19:33.119 --> 0:19:33.560 That's right. 0:19:33.600 --> 0:19:33.679 Now. 0:19:34.080 --> 0:19:37.560 There's probably nothing else more studied in trade literature than 0:19:37.960 --> 0:19:40.160 who bears the burden of tariffs. And it's very clear 0:19:40.840 --> 0:19:43.199 it's it's the US consumer and businesses that pay the 0:19:43.200 --> 0:19:45.560 tariffs in the end, so it's not the other country. 0:19:45.960 --> 0:19:49.160 US consumers pay it at the end of the day. 0:19:49.240 --> 0:19:52.639 And so you know, that's what US consumers need to weigh. 0:19:52.680 --> 0:19:55.240 You know when they hear this rhetoric about consumers is 0:19:55.240 --> 0:19:56.760 that they're going to end up paying it. 0:19:56.680 --> 0:19:57.440 At the end of the day. 0:19:57.480 --> 0:20:01.600 And it's net. It's not going to create a job. Okay, 0:20:01.760 --> 0:20:03.760 huge clarity, Ernie, Thank you so much, Ernie. 0:20:03.760 --> 0:20:04.359 Today Shi. 0:20:09.960 --> 0:20:14.240 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:20:14.320 --> 0:20:17.520 starting at seven am Eastern on applecar Play and Android 0:20:17.560 --> 0:20:20.480 Auto with the Bloomberg Business app. You can also watch 0:20:20.560 --> 0:20:23.800 us live every weekday on YouTube and always on the 0:20:23.840 --> 0:20:24.840 Bloomberg terminal. 0:20:25.440 --> 0:20:29.720 This is the most important interview of the day. Look 0:20:29.720 --> 0:20:31.680 in the mirror tomorrow morning and say. 0:20:31.520 --> 0:20:35.000 Hey, where am I with my wealth? 0:20:35.280 --> 0:20:38.800 Creation in the trench? Is Alicia Manel the giant at 0:20:38.800 --> 0:20:42.760 Boston College announcing a retirement. Were efforting doctor Manell to 0:20:42.800 --> 0:20:45.880 have her on just a huge victory lap for all 0:20:45.920 --> 0:20:49.639 of her retirement work. Pulling the short straw for Jane 0:20:49.640 --> 0:20:53.960 Fraser at City Group was Kristin Bitterly. They said, Kristen 0:20:54.200 --> 0:20:59.600 go out there to professional organizations and help them try 0:20:59.640 --> 0:21:03.480 to get retirement. Kristin Biddley had a wealth at work. 0:21:03.840 --> 0:21:07.399 It's City Group. How bad is it you walk into 0:21:07.440 --> 0:21:11.760 a fancy law firm they're hiring City Group. What percentage 0:21:11.760 --> 0:21:16.160 of partners associates? What percentage are behind the eight ball? 0:21:16.480 --> 0:21:18.560 Well, I would say the good news is that we 0:21:18.680 --> 0:21:21.560