WEBVTT - US Council of Economic Advisers Chairman Stephen Miran Talks Tariffs

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>We have Steven Meyern here with us. Stephen, you are

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<v Speaker 2>the one of the top economists at the White House

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<v Speaker 2>right now.

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<v Speaker 3>Welcome to Bloomberg.

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<v Speaker 2>You're serving in this role at a tenuous moment for

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<v Speaker 2>the economy.

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<v Speaker 3>We saw last week.

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<v Speaker 2>The Federal Reserve officials there cut economic growth outlook, also

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

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<v Speaker 2>want to know, do you think that the Fed has

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<v Speaker 2>gotten the effects of tariffs on the economy wrong?

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

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<v Speaker 1>having me.

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<v Speaker 4>Look, yeah, I think that folks that a lot of folks,

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

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<v Speaker 4>think there's quite a bit that people missbat tariffs. The

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<v Speaker 4>number one point that I make about tariffs is a

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<v Speaker 4>general point about economics, which is that when you think

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<v Speaker 4>about any economic policy, a terriff attacks anything else. Right,

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<v Speaker 4>the economists believe that the party that bears the burden

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<v Speaker 4>or the benefit of that policy is the party that's

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<v Speaker 4>more inflexible, because if you're flexible, you can change your

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<v Speaker 4>behavior to avoid the costs.

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<v Speaker 1>And so think about it this way.

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<v Speaker 4>If you were buying a house and the town that

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<v Speaker 4>you're looking at raises property taxes, right, you say, okay,

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<v Speaker 4>maybe I'm going to look at the next the house

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<v Speaker 4>in the.

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<v Speaker 1>Next town over right.

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<v Speaker 4>Whereas so you can adjust your behavior flexible, Where's the

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<v Speaker 4>seller of that house is inflexible. They already own it,

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<v Speaker 4>so they have to drop their selling price. So in

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<v Speaker 4>this example, economists would say, okay, the seller of the

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<v Speaker 4>house ends up bearing the increase in the property tax.

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<v Speaker 4>And you have to think about tariffs the same way.

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<v Speaker 4>US consumers are flexible. We have options. We can produce

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<v Speaker 4>stuff at home, we have a variety of countries, we

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<v Speaker 4>can import stuff, we can substant into home production. Whereas

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<v Speaker 4>countries that sell to the United States are inflexible.

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<v Speaker 1>They've only got the United States to sell to. There's

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<v Speaker 1>no alternative.

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<v Speaker 4>So they're the ones who will bear the burden of

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<v Speaker 4>this of these tariffs, which means that there's going to

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<v Speaker 4>be very limited passed through into downside economic risk or

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<v Speaker 4>into higher prices.

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<v Speaker 1>So I think that a lot of folks have got that.

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<v Speaker 2>But even Trump and his advisors included in your colleagues

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<v Speaker 2>Elon Musk, Scott Best in the Treasure Secretary, and others

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<v Speaker 2>are signaling a no pay, no gain concept here that

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<v Speaker 2>for a little while, things could get bumpy in the economy.

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<v Speaker 4>Yeah, so there are some risks in the economy, but

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<v Speaker 4>I think those risks predominantly derived from the transition from

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<v Speaker 4>an economy which was primarily government driven to an economy

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<v Speaker 4>that's primarily private sector driven, and that might contribute to

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<v Speaker 4>make to make things bumpier and less robust in the

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<v Speaker 4>short run. And just to give you one number that's

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<v Speaker 4>a great example of that is if you look at

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<v Speaker 4>the shares of the share of jobs created in twenty three,

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<v Speaker 4>twenty twenty three, and twenty twenty four, so the second

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<v Speaker 4>half of the Biden administration, when COVID is over, and

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<v Speaker 4>it's really just a result of bidenministration policies, seventy three

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<v Speaker 4>percent of all jobs created in those two years were

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<v Speaker 4>due to government and government adjacent sectors. By government adjacent,

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<v Speaker 4>I mean sectors like education, sectors like healthcare, social assistance.

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<v Speaker 1>These are sectors of the economy that.

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<v Speaker 4>Derive a very large or maybe even in some of them,

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<v Speaker 4>the majority of their financing ultimately from the tax payer

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<v Speaker 4>through direct transfers or subsidies. So three quarters of jobs

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<v Speaker 4>created in the last couple of years came from basically,

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<v Speaker 4>you know, sort of government expenditures and taxpayer substies. So

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<v Speaker 4>it is a brittle economy as we transition away from

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<v Speaker 4>that to the private sector.

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<v Speaker 2>But the FED and you know FED officials are correct

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<v Speaker 2>then that there will be at least short term pain

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<v Speaker 2>as tariffskick in.

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<v Speaker 4>So I don't think that there's going to be material

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<v Speaker 4>short term pain from the tariffs. I think the short

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<v Speaker 4>term pain is coming from the reorientation of the of

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<v Speaker 4>the economy from the government to the to the private sector. Now,

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<v Speaker 4>of course, you know, as you know, the tariff situation

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<v Speaker 4>is still developing, and the President will decide what he

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<v Speaker 4>wants to. The President will decide what the tariffs are

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<v Speaker 4>on April second, and has been very clear telegraphing.

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

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<v Speaker 2>that the President has tasked his advisors and his team

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<v Speaker 2>with an immense job here to come up with these

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<v Speaker 2>tariffs for next week.

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<v Speaker 3>What can you share about the contours of this.

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<v Speaker 2>We expect country by country tariffs, sectoral tariffs being announced.

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<v Speaker 4>Sure, So look, you know, it's important to calculate a

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

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<v Speaker 4>when you're thinking about tear about fair and reciprocal tariffs,

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<v Speaker 4>those include outright tariff rates that have a country's charges,

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<v Speaker 4>and they also include non tariff barriers right ways that

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<v Speaker 4>countries prevent us selling our experts into their markets through

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<v Speaker 4>means other than tariffs, through not opening their markets, through

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<v Speaker 4>intellectual property theft or or lack of enforcement, through currency changes,

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<v Speaker 4>through regulatory you know, regulatory differences that prohibit our products

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<v Speaker 4>from entering their markets. And you have to consider this

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<v Speaker 4>entire host of things, right, and so the dimensions of

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<v Speaker 4>analysis can get really big, really fast. Now that goes

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<v Speaker 4>at odds with another principle, which is that simplicity is great, right,

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<v Speaker 4>and so the you know, simplicity is a virtue when

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<v Speaker 4>you think about these things in one in one sense

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<v Speaker 4>because it makes it more difficult for other countries to gain.

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<v Speaker 4>Now this situation is developing, you know, the team and

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<v Speaker 4>there and the president are entertaining or entertaining options. It

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<v Speaker 4>would be wrong for me to get ahead of that,

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<v Speaker 4>but you know, we'll we'll find out soon, Stephen.

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<v Speaker 2>The other thing that a lot of people here at

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<v Speaker 2>Bloomberg have been talking about.

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<v Speaker 3>Is this paper that you wrote.

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<v Speaker 2>In November, after elections, but before you were nominated to

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<v Speaker 2>be cechair. The title of this paper was a User's

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<v Speaker 2>Guide to Restructuring the Global Trading System, and it has

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<v Speaker 2>caused a stir. You talk about some unorthodox policies like

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<v Speaker 2>revaluing US gold stocks, applying a user fee to treasuries,

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<v Speaker 2>and a new global currency accord. Can you tell me

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<v Speaker 2>how much of this is in the works now?

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<v Speaker 4>Yeah, So I'm glad you brought that up, because this

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<v Speaker 4>paper seems to have taken on a life of its

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

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<v Speaker 4>a paper that it's a catalog of available options, and

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

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<v Speaker 4>evaluate how useful or not useful, or easy or difficult

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<v Speaker 4>those various recipes are to make.

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<v Speaker 1>Some of them are easy, some are tough.

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<v Speaker 4>Some are you know, you know, some are are are

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<v Speaker 4>filling satisfying meals, and some will leave you hungry again

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<v Speaker 4>in a half an hour. And my goal in that

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<v Speaker 4>paper was to provide an evaluation of options that a

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<v Speaker 4>cost benefit analysis of risks and rewards, so that whoever

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<v Speaker 4>was making a decision, you know, sort of could have

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<v Speaker 4>that available if if if helpful. To be clear, you know,

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<v Speaker 4>I'm not the chef, right The president is the chef,

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<v Speaker 4>and he's been very clear, very clear that he's focused

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<v Speaker 4>on fair and reciprocal tariffs.

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<v Speaker 1>He couldn't be clearer.

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<v Speaker 4>And so anybody who's anybody who's thinking that that something

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<v Speaker 4>that I that I included in a catalog in November

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<v Speaker 4>is the source of is what the policy agenda is?

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<v Speaker 1>Now? You know, I think I think that's wrong.

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<v Speaker 2>So tell me a currency accord, A mar Alago accord?

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<v Speaker 3>Is that currently in the works.

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<v Speaker 4>The President's been very clear that he's focused on fair

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<v Speaker 4>and reciprocal tariffs, and you know that's what that's what

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<v Speaker 4>that's what the team is working on.

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<v Speaker 3>Is it a twenty twenty six goal? Did you a

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<v Speaker 3>currency pact?

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<v Speaker 4>I mean, look, I would look at it this way.

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<v Speaker 4>I would look at it as the United States has

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<v Speaker 4>been running very significant trade and current account deficits for

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<v Speaker 4>a very long period of time. Those are very costly

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<v Speaker 4>to us economically, They're very they're very costly to disproportionately

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<v Speaker 4>costly to some parts of the country that are reliant

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<v Speaker 4>on manufacturing and reliant in exports, and there's a variety

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<v Speaker 4>of means of trying to address that problem. Right, the

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<v Speaker 4>President very clear that he wants to start with tariffs,

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<v Speaker 4>and that's what that's what we're doing.

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<v Speaker 1>Right.

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<v Speaker 4>We are starting. We are starting with tariffs. We have

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<v Speaker 4>been moving in tariffs. We are going to continue moving

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

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<v Speaker 4>the sole focus right now. Could it be something that

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<v Speaker 4>is entertained down the road, sure it could, but right

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<v Speaker 4>now the President is focused on tariffs.

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<v Speaker 2>In the paper, you talk about an overvalued dollar? Is

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<v Speaker 2>that still the case?

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<v Speaker 4>Look, another thing that I think most of the economics

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<v Speaker 4>profession gets wrong about tariffs is that all of these

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<v Speaker 4>models of international trade all assume that trade eventually balances,

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<v Speaker 4>and that if you run a trade deficit, the dollar

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<v Speaker 4>will weaken and that will restore the trade deficit to balance.

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<v Speaker 4>If you run a trade surplus, the dollar will strengthen

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<v Speaker 4>and that will restore the trade surplus to balance. And

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<v Speaker 4>so therefore the currency will adjust to balance trade over time,

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<v Speaker 4>and there's no need for tariffs because the economy is

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<v Speaker 4>basically self adjusting, self equilibrating.

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<v Speaker 1>As an economist would say, however, it seems very clear

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<v Speaker 1>that that's not the case.

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<v Speaker 4>We've been running current account deficits for five decades now,

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<v Speaker 4>and they only get worse in dollar terms and percentage

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<v Speaker 4>terms lately.

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<v Speaker 1>So you know, I think.

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<v Speaker 4>It's very clear that that standard model of the economy

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<v Speaker 4>that assumes away the need for tariffs is wrong because

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<v Speaker 4>we have been running those persistent, those persistent current account

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<v Speaker 4>and trade deficits. If the dollar were able to weaken

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<v Speaker 4>to equilibrate trade, then we wouldn't have a lot of

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<v Speaker 4>the to balance trade deficits. Then we wouldn't have a

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<v Speaker 4>lot of the problems that tariffs and other policies are

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<v Speaker 4>designed to address, because expert US experts would be more

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<v Speaker 4>competitive on the global stage and we and be as

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<v Speaker 4>cheated by other countries.

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<v Speaker 2>Trump has talked a lot about maintaining the dollars the

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<v Speaker 2>world's reserve asset, but also there's a desire for a

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<v Speaker 2>weaker exchange rate.

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<v Speaker 3>Aren't these dueling forces.

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<v Speaker 4>So there's a variety of means which you can take

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<v Speaker 4>to try to address the problems in demand, which the

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<v Speaker 4>allocation of demand across countries, which leads to the persistent

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<v Speaker 4>trade deficits that we have in the United States, and

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<v Speaker 4>that we have had for decades in the United States.

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<v Speaker 4>There are various means of doing so right. Some of

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<v Speaker 4>these means go down different paths right, and some of

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<v Speaker 4>these means would be dollar positive, some of these means

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<v Speaker 4>would be dollar negative. And again, the point of the

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<v Speaker 4>esset that I wrote in November was to evaluate the

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<v Speaker 4>variety of paths. And just because there are many ways

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<v Speaker 4>to get to an end result doesn't mean you want

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<v Speaker 4>to take all the paths at once.

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<v Speaker 1>I mean, you can't cut yourself in half.

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<v Speaker 3>All right, Well, thank you so much for joining Steve

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<v Speaker 3>lovely to have you