Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: We have Steven Meyern here with us. Stephen, you are
Speaker 2: the one of the top economists at the White House
Speaker 2: right now.
Speaker 3: Welcome to Bloomberg.
Speaker 2: You're serving in this role at a tenuous moment for
Speaker 2: the economy.
Speaker 3: We saw last week.
Speaker 2: The Federal Reserve officials there cut economic growth outlook, also
Speaker 2: citing inflationary risks, mostly from Trump's trade policy. And I
Speaker 2: want to know, do you think that the Fed has
Speaker 2: gotten the effects of tariffs on the economy wrong?
Speaker 1: Thanks? Oleah, it's great to be here, so thanks for
Speaker 1: having me.
Speaker 4: Look, yeah, I think that folks that a lot of folks,
Speaker 4: you know, have got the effects of tariff's wrong. I
Speaker 4: think there's quite a bit that people missbat tariffs. The
Speaker 4: number one point that I make about tariffs is a
Speaker 4: general point about economics, which is that when you think
Speaker 4: about any economic policy, a terriff attacks anything else. Right,
Speaker 4: the economists believe that the party that bears the burden
Speaker 4: or the benefit of that policy is the party that's
Speaker 4: more inflexible, because if you're flexible, you can change your
Speaker 4: behavior to avoid the costs.
Speaker 1: And so think about it this way.
Speaker 4: If you were buying a house and the town that
Speaker 4: you're looking at raises property taxes, right, you say, okay,
Speaker 4: maybe I'm going to look at the next the house
Speaker 4: in the.
Speaker 1: Next town over right.
Speaker 4: Whereas so you can adjust your behavior flexible, Where's the
Speaker 4: seller of that house is inflexible. They already own it,
Speaker 4: so they have to drop their selling price. So in
Speaker 4: this example, economists would say, okay, the seller of the
Speaker 4: house ends up bearing the increase in the property tax.
Speaker 4: And you have to think about tariffs the same way.
Speaker 4: US consumers are flexible. We have options. We can produce
Speaker 4: stuff at home, we have a variety of countries, we
Speaker 4: can import stuff, we can substant into home production. Whereas
Speaker 4: countries that sell to the United States are inflexible.
Speaker 1: They've only got the United States to sell to. There's
Speaker 1: no alternative.
Speaker 4: So they're the ones who will bear the burden of
Speaker 4: this of these tariffs, which means that there's going to
Speaker 4: be very limited passed through into downside economic risk or
Speaker 4: into higher prices.
Speaker 1: So I think that a lot of folks have got that.
Speaker 2: But even Trump and his advisors included in your colleagues
Speaker 2: Elon Musk, Scott Best in the Treasure Secretary, and others
Speaker 2: are signaling a no pay, no gain concept here that
Speaker 2: for a little while, things could get bumpy in the economy.
Speaker 4: Yeah, so there are some risks in the economy, but
Speaker 4: I think those risks predominantly derived from the transition from
Speaker 4: an economy which was primarily government driven to an economy
Speaker 4: that's primarily private sector driven, and that might contribute to
Speaker 4: make to make things bumpier and less robust in the
Speaker 4: short run. And just to give you one number that's
Speaker 4: a great example of that is if you look at
Speaker 4: the shares of the share of jobs created in twenty three,
Speaker 4: twenty twenty three, and twenty twenty four, so the second
Speaker 4: half of the Biden administration, when COVID is over, and
Speaker 4: it's really just a result of bidenministration policies, seventy three
Speaker 4: percent of all jobs created in those two years were
Speaker 4: due to government and government adjacent sectors. By government adjacent,
Speaker 4: I mean sectors like education, sectors like healthcare, social assistance.
Speaker 1: These are sectors of the economy that.
Speaker 4: Derive a very large or maybe even in some of them,
Speaker 4: the majority of their financing ultimately from the tax payer
Speaker 4: through direct transfers or subsidies. So three quarters of jobs
Speaker 4: created in the last couple of years came from basically,
Speaker 4: you know, sort of government expenditures and taxpayer substies. So
Speaker 4: it is a brittle economy as we transition away from
Speaker 4: that to the private sector.
Speaker 2: But the FED and you know FED officials are correct
Speaker 2: then that there will be at least short term pain
Speaker 2: as tariffskick in.
Speaker 4: So I don't think that there's going to be material
Speaker 4: short term pain from the tariffs. I think the short
Speaker 4: term pain is coming from the reorientation of the of
Speaker 4: the economy from the government to the to the private sector. Now,
Speaker 4: of course, you know, as you know, the tariff situation
Speaker 4: is still developing, and the President will decide what he
Speaker 4: wants to. The President will decide what the tariffs are
Speaker 4: on April second, and has been very clear telegraphing.
Speaker 2: That let's talk about the tariffs, what's coming down April second,
Speaker 2: that the President has tasked his advisors and his team
Speaker 2: with an immense job here to come up with these
Speaker 2: tariffs for next week.
Speaker 3: What can you share about the contours of this.
Speaker 2: We expect country by country tariffs, sectoral tariffs being announced.
Speaker 4: Sure, So look, you know, it's important to calculate a
Speaker 4: whole variety of things. When you're thinking about non terrorft sort,
Speaker 4: when you're thinking about tear about fair and reciprocal tariffs,
Speaker 4: those include outright tariff rates that have a country's charges,
Speaker 4: and they also include non tariff barriers right ways that
Speaker 4: countries prevent us selling our experts into their markets through
Speaker 4: means other than tariffs, through not opening their markets, through
Speaker 4: intellectual property theft or or lack of enforcement, through currency changes,
Speaker 4: through regulatory you know, regulatory differences that prohibit our products
Speaker 4: from entering their markets. And you have to consider this
Speaker 4: entire host of things, right, and so the dimensions of
Speaker 4: analysis can get really big, really fast. Now that goes
Speaker 4: at odds with another principle, which is that simplicity is great, right,
Speaker 4: and so the you know, simplicity is a virtue when
Speaker 4: you think about these things in one in one sense
Speaker 4: because it makes it more difficult for other countries to gain.
Speaker 4: Now this situation is developing, you know, the team and
Speaker 4: there and the president are entertaining or entertaining options. It
Speaker 4: would be wrong for me to get ahead of that,
Speaker 4: but you know, we'll we'll find out soon, Stephen.
Speaker 2: The other thing that a lot of people here at
Speaker 2: Bloomberg have been talking about.
Speaker 3: Is this paper that you wrote.
Speaker 2: In November, after elections, but before you were nominated to
Speaker 2: be cechair. The title of this paper was a User's
Speaker 2: Guide to Restructuring the Global Trading System, and it has
Speaker 2: caused a stir. You talk about some unorthodox policies like
Speaker 2: revaluing US gold stocks, applying a user fee to treasuries,
Speaker 2: and a new global currency accord. Can you tell me
Speaker 2: how much of this is in the works now?
Speaker 4: Yeah, So I'm glad you brought that up, because this
Speaker 4: paper seems to have taken on a life of its
Speaker 4: own against all my intents. Look, I'm pretty clear in
Speaker 4: a paper that it's a catalog of available options, and
Speaker 4: you know, it's a recipe book, and I'm trying to
Speaker 4: evaluate how useful or not useful, or easy or difficult
Speaker 4: those various recipes are to make.
Speaker 1: Some of them are easy, some are tough.
Speaker 4: Some are you know, you know, some are are are
Speaker 4: filling satisfying meals, and some will leave you hungry again
Speaker 4: in a half an hour. And my goal in that
Speaker 4: paper was to provide an evaluation of options that a
Speaker 4: cost benefit analysis of risks and rewards, so that whoever
Speaker 4: was making a decision, you know, sort of could have
Speaker 4: that available if if if helpful. To be clear, you know,
Speaker 4: I'm not the chef, right The president is the chef,
Speaker 4: and he's been very clear, very clear that he's focused
Speaker 4: on fair and reciprocal tariffs.
Speaker 1: He couldn't be clearer.
Speaker 4: And so anybody who's anybody who's thinking that that something
Speaker 4: that I that I included in a catalog in November
Speaker 4: is the source of is what the policy agenda is?
Speaker 1: Now? You know, I think I think that's wrong.
Speaker 2: So tell me a currency accord, A mar Alago accord?
Speaker 3: Is that currently in the works.
Speaker 4: The President's been very clear that he's focused on fair
Speaker 4: and reciprocal tariffs, and you know that's what that's what
Speaker 4: that's what the team is working on.
Speaker 3: Is it a twenty twenty six goal? Did you a
Speaker 3: currency pact?
Speaker 4: I mean, look, I would look at it this way.
Speaker 4: I would look at it as the United States has
Speaker 4: been running very significant trade and current account deficits for
Speaker 4: a very long period of time. Those are very costly
Speaker 4: to us economically, They're very they're very costly to disproportionately
Speaker 4: costly to some parts of the country that are reliant
Speaker 4: on manufacturing and reliant in exports, and there's a variety
Speaker 4: of means of trying to address that problem. Right, the
Speaker 4: President very clear that he wants to start with tariffs,
Speaker 4: and that's what that's what we're doing.
Speaker 1: Right.
Speaker 4: We are starting. We are starting with tariffs. We have
Speaker 4: been moving in tariffs. We are going to continue moving
Speaker 4: on tariffs. April seconds is around the corner, and that's
Speaker 4: the sole focus right now. Could it be something that
Speaker 4: is entertained down the road, sure it could, but right
Speaker 4: now the President is focused on tariffs.
Speaker 2: In the paper, you talk about an overvalued dollar? Is
Speaker 2: that still the case?
Speaker 4: Look, another thing that I think most of the economics
Speaker 4: profession gets wrong about tariffs is that all of these
Speaker 4: models of international trade all assume that trade eventually balances,
Speaker 4: and that if you run a trade deficit, the dollar
Speaker 4: will weaken and that will restore the trade deficit to balance.
Speaker 4: If you run a trade surplus, the dollar will strengthen
Speaker 4: and that will restore the trade surplus to balance. And
Speaker 4: so therefore the currency will adjust to balance trade over time,
Speaker 4: and there's no need for tariffs because the economy is
Speaker 4: basically self adjusting, self equilibrating.
Speaker 1: As an economist would say, however, it seems very clear
Speaker 1: that that's not the case.
Speaker 4: We've been running current account deficits for five decades now,
Speaker 4: and they only get worse in dollar terms and percentage
Speaker 4: terms lately.
Speaker 1: So you know, I think.
Speaker 4: It's very clear that that standard model of the economy
Speaker 4: that assumes away the need for tariffs is wrong because
Speaker 4: we have been running those persistent, those persistent current account
Speaker 4: and trade deficits. If the dollar were able to weaken
Speaker 4: to equilibrate trade, then we wouldn't have a lot of
Speaker 4: the to balance trade deficits. Then we wouldn't have a
Speaker 4: lot of the problems that tariffs and other policies are
Speaker 4: designed to address, because expert US experts would be more
Speaker 4: competitive on the global stage and we and be as
Speaker 4: cheated by other countries.
Speaker 2: Trump has talked a lot about maintaining the dollars the
Speaker 2: world's reserve asset, but also there's a desire for a
Speaker 2: weaker exchange rate.
Speaker 3: Aren't these dueling forces.
Speaker 4: So there's a variety of means which you can take
Speaker 4: to try to address the problems in demand, which the
Speaker 4: allocation of demand across countries, which leads to the persistent
Speaker 4: trade deficits that we have in the United States, and
Speaker 4: that we have had for decades in the United States.
Speaker 4: There are various means of doing so right. Some of
Speaker 4: these means go down different paths right, and some of
Speaker 4: these means would be dollar positive, some of these means
Speaker 4: would be dollar negative. And again, the point of the
Speaker 4: esset that I wrote in November was to evaluate the
Speaker 4: variety of paths. And just because there are many ways
Speaker 4: to get to an end result doesn't mean you want
Speaker 4: to take all the paths at once.
Speaker 1: I mean, you can't cut yourself in half.
Speaker 3: All right, Well, thank you so much for joining Steve
Speaker 3: lovely to have you