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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: We have Steven Meyern here with us. Stephen, you are

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Speaker 2: the one of the top economists at the White House

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Speaker 2: right now.

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Speaker 3: Welcome to Bloomberg.

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Speaker 2: You're serving in this role at a tenuous moment for

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Speaker 2: the economy.

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Speaker 3: We saw last week.

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Speaker 2: The Federal Reserve officials there cut economic growth outlook, also

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Speaker 2: citing inflationary risks, mostly from Trump's trade policy. And I

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Speaker 2: want to know, do you think that the Fed has

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Speaker 2: gotten the effects of tariffs on the economy wrong?

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Speaker 1: Thanks? Oleah, it's great to be here, so thanks for

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Speaker 1: having me.

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Speaker 4: Look, yeah, I think that folks that a lot of folks,

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Speaker 4: you know, have got the effects of tariff's wrong. I

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Speaker 4: think there's quite a bit that people missbat tariffs. The

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Speaker 4: number one point that I make about tariffs is a

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Speaker 4: general point about economics, which is that when you think

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Speaker 4: about any economic policy, a terriff attacks anything else. Right,

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Speaker 4: the economists believe that the party that bears the burden

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Speaker 4: or the benefit of that policy is the party that's

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Speaker 4: more inflexible, because if you're flexible, you can change your

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Speaker 4: behavior to avoid the costs.

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Speaker 1: And so think about it this way.

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Speaker 4: If you were buying a house and the town that

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Speaker 4: you're looking at raises property taxes, right, you say, okay,

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Speaker 4: maybe I'm going to look at the next the house

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Speaker 4: in the.

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Speaker 1: Next town over right.

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Speaker 4: Whereas so you can adjust your behavior flexible, Where's the

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Speaker 4: seller of that house is inflexible. They already own it,

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Speaker 4: so they have to drop their selling price. So in

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Speaker 4: this example, economists would say, okay, the seller of the

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Speaker 4: house ends up bearing the increase in the property tax.

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Speaker 4: And you have to think about tariffs the same way.

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Speaker 4: US consumers are flexible. We have options. We can produce

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Speaker 4: stuff at home, we have a variety of countries, we

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Speaker 4: can import stuff, we can substant into home production. Whereas

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Speaker 4: countries that sell to the United States are inflexible.

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Speaker 1: They've only got the United States to sell to. There's

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Speaker 1: no alternative.

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Speaker 4: So they're the ones who will bear the burden of

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Speaker 4: this of these tariffs, which means that there's going to

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Speaker 4: be very limited passed through into downside economic risk or

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Speaker 4: into higher prices.

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Speaker 1: So I think that a lot of folks have got that.

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Speaker 2: But even Trump and his advisors included in your colleagues

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Speaker 2: Elon Musk, Scott Best in the Treasure Secretary, and others

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Speaker 2: are signaling a no pay, no gain concept here that

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Speaker 2: for a little while, things could get bumpy in the economy.

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Speaker 4: Yeah, so there are some risks in the economy, but

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Speaker 4: I think those risks predominantly derived from the transition from

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Speaker 4: an economy which was primarily government driven to an economy

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Speaker 4: that's primarily private sector driven, and that might contribute to

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Speaker 4: make to make things bumpier and less robust in the

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Speaker 4: short run. And just to give you one number that's

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Speaker 4: a great example of that is if you look at

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Speaker 4: the shares of the share of jobs created in twenty three,

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Speaker 4: twenty twenty three, and twenty twenty four, so the second

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Speaker 4: half of the Biden administration, when COVID is over, and

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Speaker 4: it's really just a result of bidenministration policies, seventy three

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Speaker 4: percent of all jobs created in those two years were

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Speaker 4: due to government and government adjacent sectors. By government adjacent,

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Speaker 4: I mean sectors like education, sectors like healthcare, social assistance.

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Speaker 1: These are sectors of the economy that.

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Speaker 4: Derive a very large or maybe even in some of them,

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Speaker 4: the majority of their financing ultimately from the tax payer

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Speaker 4: through direct transfers or subsidies. So three quarters of jobs

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Speaker 4: created in the last couple of years came from basically,

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Speaker 4: you know, sort of government expenditures and taxpayer substies. So

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Speaker 4: it is a brittle economy as we transition away from

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Speaker 4: that to the private sector.

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Speaker 2: But the FED and you know FED officials are correct

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Speaker 2: then that there will be at least short term pain

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Speaker 2: as tariffskick in.

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Speaker 4: So I don't think that there's going to be material

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Speaker 4: short term pain from the tariffs. I think the short

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Speaker 4: term pain is coming from the reorientation of the of

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Speaker 4: the economy from the government to the to the private sector. Now,

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Speaker 4: of course, you know, as you know, the tariff situation

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Speaker 4: is still developing, and the President will decide what he

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Speaker 4: wants to. The President will decide what the tariffs are

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Speaker 4: on April second, and has been very clear telegraphing.

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Speaker 2: That let's talk about the tariffs, what's coming down April second,

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Speaker 2: that the President has tasked his advisors and his team

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Speaker 2: with an immense job here to come up with these

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Speaker 2: tariffs for next week.

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Speaker 3: What can you share about the contours of this.

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Speaker 2: We expect country by country tariffs, sectoral tariffs being announced.

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Speaker 4: Sure, So look, you know, it's important to calculate a

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Speaker 4: whole variety of things. When you're thinking about non terrorft sort,

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Speaker 4: when you're thinking about tear about fair and reciprocal tariffs,

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Speaker 4: those include outright tariff rates that have a country's charges,

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Speaker 4: and they also include non tariff barriers right ways that

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Speaker 4: countries prevent us selling our experts into their markets through

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Speaker 4: means other than tariffs, through not opening their markets, through

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Speaker 4: intellectual property theft or or lack of enforcement, through currency changes,

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Speaker 4: through regulatory you know, regulatory differences that prohibit our products

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Speaker 4: from entering their markets. And you have to consider this

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Speaker 4: entire host of things, right, and so the dimensions of

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Speaker 4: analysis can get really big, really fast. Now that goes

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Speaker 4: at odds with another principle, which is that simplicity is great, right,

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Speaker 4: and so the you know, simplicity is a virtue when

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Speaker 4: you think about these things in one in one sense

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Speaker 4: because it makes it more difficult for other countries to gain.

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Speaker 4: Now this situation is developing, you know, the team and

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Speaker 4: there and the president are entertaining or entertaining options. It

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Speaker 4: would be wrong for me to get ahead of that,

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Speaker 4: but you know, we'll we'll find out soon, Stephen.

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Speaker 2: The other thing that a lot of people here at

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Speaker 2: Bloomberg have been talking about.

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Speaker 3: Is this paper that you wrote.

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Speaker 2: In November, after elections, but before you were nominated to

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Speaker 2: be cechair. The title of this paper was a User's

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Speaker 2: Guide to Restructuring the Global Trading System, and it has

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Speaker 2: caused a stir. You talk about some unorthodox policies like

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Speaker 2: revaluing US gold stocks, applying a user fee to treasuries,

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Speaker 2: and a new global currency accord. Can you tell me

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Speaker 2: how much of this is in the works now?

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Speaker 4: Yeah, So I'm glad you brought that up, because this

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Speaker 4: paper seems to have taken on a life of its

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Speaker 4: own against all my intents. Look, I'm pretty clear in

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Speaker 4: a paper that it's a catalog of available options, and

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Speaker 4: you know, it's a recipe book, and I'm trying to

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Speaker 4: evaluate how useful or not useful, or easy or difficult

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Speaker 4: those various recipes are to make.

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Speaker 1: Some of them are easy, some are tough.

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Speaker 4: Some are you know, you know, some are are are

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Speaker 4: filling satisfying meals, and some will leave you hungry again

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Speaker 4: in a half an hour. And my goal in that

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Speaker 4: paper was to provide an evaluation of options that a

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Speaker 4: cost benefit analysis of risks and rewards, so that whoever

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Speaker 4: was making a decision, you know, sort of could have

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Speaker 4: that available if if if helpful. To be clear, you know,

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Speaker 4: I'm not the chef, right The president is the chef,

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Speaker 4: and he's been very clear, very clear that he's focused

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Speaker 4: on fair and reciprocal tariffs.

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Speaker 1: He couldn't be clearer.

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Speaker 4: And so anybody who's anybody who's thinking that that something

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Speaker 4: that I that I included in a catalog in November

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Speaker 4: is the source of is what the policy agenda is?

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Speaker 1: Now? You know, I think I think that's wrong.

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Speaker 2: So tell me a currency accord, A mar Alago accord?

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Speaker 3: Is that currently in the works.

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Speaker 4: The President's been very clear that he's focused on fair

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Speaker 4: and reciprocal tariffs, and you know that's what that's what

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Speaker 4: that's what the team is working on.

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Speaker 3: Is it a twenty twenty six goal? Did you a

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Speaker 3: currency pact?

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Speaker 4: I mean, look, I would look at it this way.

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Speaker 4: I would look at it as the United States has

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Speaker 4: been running very significant trade and current account deficits for

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Speaker 4: a very long period of time. Those are very costly

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Speaker 4: to us economically, They're very they're very costly to disproportionately

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Speaker 4: costly to some parts of the country that are reliant

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Speaker 4: on manufacturing and reliant in exports, and there's a variety

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Speaker 4: of means of trying to address that problem. Right, the

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Speaker 4: President very clear that he wants to start with tariffs,

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Speaker 4: and that's what that's what we're doing.

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Speaker 1: Right.

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Speaker 4: We are starting. We are starting with tariffs. We have

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Speaker 4: been moving in tariffs. We are going to continue moving

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Speaker 4: on tariffs. April seconds is around the corner, and that's

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Speaker 4: the sole focus right now. Could it be something that

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Speaker 4: is entertained down the road, sure it could, but right

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Speaker 4: now the President is focused on tariffs.

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Speaker 2: In the paper, you talk about an overvalued dollar? Is

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Speaker 2: that still the case?

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Speaker 4: Look, another thing that I think most of the economics

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Speaker 4: profession gets wrong about tariffs is that all of these

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Speaker 4: models of international trade all assume that trade eventually balances,

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Speaker 4: and that if you run a trade deficit, the dollar

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Speaker 4: will weaken and that will restore the trade deficit to balance.

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Speaker 4: If you run a trade surplus, the dollar will strengthen

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Speaker 4: and that will restore the trade surplus to balance. And

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Speaker 4: so therefore the currency will adjust to balance trade over time,

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Speaker 4: and there's no need for tariffs because the economy is

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Speaker 4: basically self adjusting, self equilibrating.

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Speaker 1: As an economist would say, however, it seems very clear

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Speaker 1: that that's not the case.

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Speaker 4: We've been running current account deficits for five decades now,

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Speaker 4: and they only get worse in dollar terms and percentage

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Speaker 4: terms lately.

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Speaker 1: So you know, I think.

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Speaker 4: It's very clear that that standard model of the economy

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Speaker 4: that assumes away the need for tariffs is wrong because

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Speaker 4: we have been running those persistent, those persistent current account

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Speaker 4: and trade deficits. If the dollar were able to weaken

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Speaker 4: to equilibrate trade, then we wouldn't have a lot of

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Speaker 4: the to balance trade deficits. Then we wouldn't have a

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Speaker 4: lot of the problems that tariffs and other policies are

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Speaker 4: designed to address, because expert US experts would be more

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Speaker 4: competitive on the global stage and we and be as

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Speaker 4: cheated by other countries.

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Speaker 2: Trump has talked a lot about maintaining the dollars the

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Speaker 2: world's reserve asset, but also there's a desire for a

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Speaker 2: weaker exchange rate.

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Speaker 3: Aren't these dueling forces.

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Speaker 4: So there's a variety of means which you can take

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Speaker 4: to try to address the problems in demand, which the

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Speaker 4: allocation of demand across countries, which leads to the persistent

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Speaker 4: trade deficits that we have in the United States, and

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Speaker 4: that we have had for decades in the United States.

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Speaker 4: There are various means of doing so right. Some of

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Speaker 4: these means go down different paths right, and some of

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Speaker 4: these means would be dollar positive, some of these means

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Speaker 4: would be dollar negative. And again, the point of the

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Speaker 4: esset that I wrote in November was to evaluate the

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Speaker 4: variety of paths. And just because there are many ways

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Speaker 4: to get to an end result doesn't mean you want

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Speaker 4: to take all the paths at once.

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Speaker 1: I mean, you can't cut yourself in half.

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Speaker 3: All right, Well, thank you so much for joining Steve

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Speaker 3: lovely to have you