Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: He appeared with this a month or so ago, and
Speaker 2: I talked to the team here this weekend and I
Speaker 2: just said, we've got to get Doug Irwin on to
Speaker 2: sort through this. This conversation is for every elected politician
Speaker 2: in Washington. As they listened on ninety ninety one FM
Speaker 2: this morning, Douglas Irwin is an institution. Blanche Flower is
Speaker 2: not an institution. He's just a macroeconomist. Doug Irwin is
Speaker 2: an institution at Dartmouth at College. In his ute the
Speaker 2: definitive book and still Fresh, Fresh Fresh is against the tide.
Speaker 2: It was definitive at the time, more recently is clashing
Speaker 2: over commerce. For those of you on YouTube, it's over
Speaker 2: his right shoulder at right now in his book line Office,
Speaker 2: Professor Irwin, we are honored that you would attend today.
Speaker 2: If you were to meet with a congressional leadership today,
Speaker 2: how should they respond to what the executive branch as wrought.
Speaker 1: I would say that under the US Constitution, Article one,
Speaker 1: section eight, you have power over tariffs, and the problem
Speaker 1: has been is successive Congresses have delegated so many powers
Speaker 1: of tariff setting to the president. On the assumption that
Speaker 1: the president will basically act in the national interest and
Speaker 1: tend to lower tariffs and reach trade agreements. That Congress
Speaker 1: has given up its authority, so it's time for Congress
Speaker 1: to stand up and assert itself a bit more on trade.
Speaker 1: Their constituents will be hurt by many of these measures,
Speaker 1: and yet the Republicans seem to be very quiet about it.
Speaker 2: How will they affect that reassertion. Do they need the
Speaker 2: judicial branch to support them or do they just sit
Speaker 2: down with the beverage of their choice. What do they
Speaker 2: drink at Dartmouth? It's like labats, Yes, exact labats, Doug Irwin,
Speaker 2: do they have a labat? So the presidents say this
Speaker 2: is too much.
Speaker 1: I think you have to look back to the first
Speaker 1: Trump term when President Trump almost pulled out of NAFTA
Speaker 1: and he was convinced by his Secretary of Agriculture and
Speaker 1: a few congressional allies that that would not be a
Speaker 1: right move, that he should renegotiate it because they were
Speaker 1: pointing to the harm that would be done to his voters,
Speaker 1: farmers in the Midwest, manufacturing firms in the Upper Midwest
Speaker 1: that depend on exports, and so that sort of helped
Speaker 1: convince them in terms of a longer run solution of
Speaker 1: changing legislation to and power Congress more that sort of
Speaker 1: a long run solution to what is now a short
Speaker 1: term crisis.
Speaker 3: Doug, how do we think about tariffs in a global
Speaker 3: intertwined economy. It's not like the eighteen hundreds where we
Speaker 3: imported a relatively small number of goods. We exported a
Speaker 3: relatively small number goods and then global economy to tariffs.
Speaker 3: How do they work?
Speaker 4: Yeah, you're right, it's actually very different than it was
Speaker 4: a century ago.
Speaker 1: A lot of trade a century ago was sort of
Speaker 1: in final goods or in very basic raw materials, and
Speaker 1: now what we have is integrated supply chains and international
Speaker 1: production networks. So the web of commerce and the greed
Speaker 1: to witch firms in all sectors are sort of bound
Speaker 1: to the global economy in some way. Is so much
Speaker 1: more extensive today than it was even fifty years ago,
Speaker 1: let alone a hundred years ago. The terriffs have much
Speaker 1: more ripple effects throughout the economy, and these proposed tariffs
Speaker 1: will rip apart North American supply chains and be quite
Speaker 1: extensive in terms of the reach that they will have.
Speaker 2: Dougr when you mentioned Frank Tausig the giant at Harvard
Speaker 2: years ago. This is folks one hundred years ago writing
Speaker 2: on terriffs. To me, there's a whole mythology going on
Speaker 2: right now, whether it's a president's affair with mister McKinley
Speaker 2: from another time and place. We trot back Lisa mentioned
Speaker 2: Smoot Holly this morning, or we go back to August
Speaker 2: of nineteen seventy one when the world turned upside down
Speaker 2: with Richard Nixon and gold, which myth Doug Irwin is
Speaker 2: most wrong.
Speaker 1: Well, I'd say the myth that the US economy grew
Speaker 1: in the late nineteenth century when we came in industrial
Speaker 1: power because of the tariff. There's a classic case of
Speaker 1: correlation not being causation. So there are a lot of
Speaker 1: reasons why the US became an industrial power after the
Speaker 1: Civil War. Up until World War One, we had massive immigration,
Speaker 1: not many people in come administration and mentioned that we
Speaker 1: were the recipient of major capital inflows from Britain and
Speaker 1: other countries. We were adopting technology from then the technological
Speaker 1: leader of Britain. We are pretty much open to the
Speaker 1: world except in trade, so we did have high tariffs,
Speaker 1: but they did promote manufacturing a bit. But if you
Speaker 1: look where the productivity growth was, it was in the
Speaker 1: service sector. It was railroads and then later electrification and telecommunications.
Speaker 1: It wasn't just manufacturing and becoming rich because of the
Speaker 1: tariff walls.
Speaker 2: If you're just joining us this morning on Bloomberg Surveillance,
Speaker 2: and thank you for joining Bloomberg. We continue with Douglas
Speaker 2: Irwin of Dartmouth at College. Many good guests coming up,
Speaker 2: including Damian Sas are in Foreign Exchange down negative five
Speaker 2: ninety one to Irwin of Dartmouth, Paul Sweeney.
Speaker 3: Professor, talk to us about these tariffs in the context
Speaker 3: of they seem to be enacted by President Trump in
Speaker 3: response to non economic issues per se, maybe whether it's
Speaker 3: the fentanyl coming into this country, whether it's immigration policy
Speaker 3: from our neighbors. Is that kind of the way tariffs
Speaker 3: should be used typically are used. How do you think
Speaker 3: about that?
Speaker 1: Well, what's interesting about these is they haven't really been
Speaker 1: vetted by the Trump economic team.
Speaker 4: His US Trade representative is not in office yet.
Speaker 1: We've just had the confirmation of the Treasury Secretary Commerce
Speaker 1: Secretary to come. So usually when countries imposed tariffs, and
Speaker 1: usually when the US has done this in the past.
Speaker 1: There's an interagency process where you deliberate and you figure
Speaker 1: out what is the best case and how can we
Speaker 1: make these work.
Speaker 4: And I think these are a.
Speaker 1: Little bit in advance of those advanced discussions within the administration.
Speaker 1: So I think you get this hodgepot, you have reasons
Speaker 1: why we're doing this. It could be the fentanyl phrase
Speaker 1: of the migrants. But we also hear still about the
Speaker 1: trade dempsit. I mean, when President Trump makes these statements,
Speaker 1: comes back to the imbalanced trade and he's actually ordered a.
Speaker 4: Review on that.
Speaker 1: But it's very hard for other countries negotiating and there
Speaker 1: are ten different things that are being fun at you
Speaker 1: at what in terms of what you're doing wrong.
Speaker 2: Dougarwin honored to have you here for breaking news. This
Speaker 2: is from Doug Ford. He is a Premier of Ontario.
Speaker 2: He's basically I mean Ontario Stretch is from just north
Speaker 2: of Hanover, New Hampshire, all the way over to Carlton
Speaker 2: College in Minnesota. But the Ontario government says they will
Speaker 2: cancel all US contracts. And what's important is this is
Speaker 2: quote We're going one step further. We'll be ripping up
Speaker 2: the province's contract with Starlink, and of course it has
Speaker 2: to do with the Elon Musk and all that. Doug
Speaker 2: Ford service sector hasn't been talked about much. Expects service
Speaker 2: sector to be harmed as much as the goods sector.
Speaker 1: Not as much because they're not directly hit by tariffs.
Speaker 1: But there's a complementarity between trade and services and trade
Speaker 1: and goods, and the two often go hand in hand.
Speaker 4: So if you.
Speaker 1: Disrupt trade and goods, there's going to be some spill
Speaker 1: ow er effects, negative ones for the service sector as well.
Speaker 3: Professor. Some of the concerns here as it relates to
Speaker 3: tariffs just in general, is that they are inflationary in
Speaker 3: the US economy. How do you think about that?
Speaker 1: But I don't think they don't cause inflation in the
Speaker 1: sense of a sustained increase in the CPI. They are
Speaker 1: sort of level effects, so they will increase the level
Speaker 1: of consumer prices and industrial prices, so that will lead
Speaker 1: to a bump and measured inflation. It's not clear that
Speaker 1: FED has to respond to that, but what that means
Speaker 1: is the declining real income and purchasing power of those
Speaker 1: businesses and households. I mean, just to give you a
Speaker 1: personal example, which I shared on social media yesterday, an
Speaker 1: email from Irving Oil, which provides US with propaine, saying
Speaker 1: that any tax that's levied on them as they ship
Speaker 1: propane from Canada to the US will be directly added
Speaker 1: to the bill that we're facing here in New Hampshire.
Speaker 1: So even before the terrorists took effect, are already being
Speaker 1: warned prices are going to go.
Speaker 2: Up, Lightheiser, and it's on my table at home. No
Speaker 2: trade is free. Robert Liittheiser focused on China. Lightheiser pushed
Speaker 2: aside in the second Trump administration, Douger went on a
Speaker 2: ten percent tariff on China. How would you suggest Beijing
Speaker 2: will respond.
Speaker 1: Actually, I'm a little bit less worried about China, and
Speaker 1: I'm a little bit surprised we're going after our allies
Speaker 1: and ripping up North American supply chains by going after
Speaker 1: Canada and Mexico.
Speaker 4: I mean, the big.
Speaker 1: Rival to the US and big problem in terms of
Speaker 1: trade has been China, and yet he President Trump has
Speaker 1: deemphasized that. So I'm not going to agree with Robert
Speaker 1: Lithheiser on many things, but to the extent that he's
Speaker 1: focused mainly on China, I think that's where the administration
Speaker 1: has to look too.
Speaker 3: So, Professor, how do you think the governments of Canada
Speaker 3: and Mexico should respond? Will respond? I mean, how deep
Speaker 3: is this going to go? Do you think how long
Speaker 3: will does go?
Speaker 4: Do you think, well, it's very interesting.
Speaker 1: There's a report that the Prime Minister of Canada, Justin Trudeau,
Speaker 1: will be speaking with President today. So I'd say there's
Speaker 1: a small chance things could get averted, even though I
Speaker 1: wouldn't be too optimistic about that. But I think they're
Speaker 1: responding in the way that actually they did at least
Speaker 1: Canada did with the smooth halite care for nineteen thirty.
Speaker 4: That is not to take it sitting down to retaliate.
Speaker 1: And they're very strategic in terms of the goods that
Speaker 1: they put pressure points on that are important in the
Speaker 1: US when I'm putting those tariffs on.
Speaker 4: So they try to post tariffs on things.
Speaker 1: That will maximize the political harm in the US, but
Speaker 1: at least economic harm for Canada because there'll be subst
Speaker 1: to products that they can import.
Speaker 2: Doug The World Stopped for Against Tide, An intellectual history
Speaker 2: of free trade, thirty some years ago. The final chapter
Speaker 2: thirty some years ago, Page two seventeen, The past and
Speaker 2: future of free trade? Okay, WTO. I was in Jimmy
Speaker 2: Chang's office in Hong Kong the day WTO collapsed. Doug Irwin,
Speaker 2: what is the future of free trade? After GAT, after Uruguay,
Speaker 2: after WTO, and now Trump? What is the future?
Speaker 1: Well, it's going to be a bit of a mess,
Speaker 1: and it could be basically redrawn lines of trade based
Speaker 1: on geopolitics. But you know, most countries, speaking outside of
Speaker 1: the US now, most countries have a tremendous stake in
Speaker 1: the trading system and open trade. They're much smaller economies.
Speaker 1: They've opened up over the past thirty forty fifty years
Speaker 1: or so. They received economic benefits by and large from that,
Speaker 1: and to undo that is harmful for them. I think
Speaker 1: even if the US, because of our politics or what
Speaker 1: have you, move in a different direction, the rest of
Speaker 1: the world will still be open for business to the
Speaker 1: intent they can.
Speaker 2: I mean, Doug, I know hitters like Jamie Diamond and listening,
Speaker 2: Brian moynan and others in banking, maybe Christin Lergard. Good morning,
Speaker 2: Madame Lecguard and your team in Frankfort. Doug Irwin on
Speaker 2: the X axis, forget about j curve dynamics. I don't
Speaker 2: buy it. On the X axis, Professor Irwin, we shift
Speaker 2: from an inflationary dynamic of tariffs over to the growth
Speaker 2: or less growth dynamic on your time continuum. What's the
Speaker 2: when of that? When do we shift from a study
Speaker 2: of inflation higher to growth slower?
Speaker 1: Well, there have been a lot of independent forecasts of
Speaker 1: these Trump tariffs, and from the Tax Foundation, from the
Speaker 1: Peterson Institute for International Economics, and from other entities, and
Speaker 1: none of them have any positive effects.
Speaker 4: It's always negative.
Speaker 1: And the question is, given the scenario, how negative you
Speaker 1: go you shape point two point three point four percent
Speaker 1: off of GDP. Those are sort of where the numbers
Speaker 1: are coming in, and those will come in fairly quickly.
Speaker 1: If we actually see the tariffs go into effect on Tuesday,
Speaker 1: we'll probably see, certainly by the second or third quarter,
Speaker 1: somewhat slower growth. Now, once again that doesn't mean it's
Speaker 1: pushing us into recession, but it just means that after
Speaker 1: a year or two, our real GDP will be lower
Speaker 1: than it otherwise would have been.
Speaker 2: I got one final question, Doug. You're sort of up
Speaker 2: in you know, the edge of Canada. Yeah, handovers really
Speaker 2: money I mean, it's not a Connecticut River, and it's
Speaker 2: really it's like it's sort of like New York North.
Speaker 3: I don't mean those are hardy people up there.
Speaker 2: They're hardy. Yeah, it's a shrift bubble. Yes. What are
Speaker 2: you telling somebody over a cup of coffee this morning,
Speaker 2: Doug Irwin in Victoriaville, Quebec. You're at a diner in Victoriaville.
Speaker 2: What are you telling them to do? What should Canada do?
Speaker 1: You know, Canada was very savvy during the first Trump term.
Speaker 1: They made a lot of We talked about Congress, We
Speaker 1: opened our discussion with Congress. They realized that maybe the
Speaker 1: administration is not going to be very sympathetic, but in
Speaker 1: members of Congress are because they are much closer to
Speaker 1: how their constituents will be affected by this. And so
Speaker 1: they worked state legislatures, They worked on Capitol Hill and
Speaker 1: tried to create an environment where it constrains the administration
Speaker 1: in terms of how much they can push things and
Speaker 1: what they can do. So there may not be much
Speaker 1: support for Canada in the White House, but there are
Speaker 1: other pressure points in the business community and the state
Speaker 1: and legislatures and elsewhere that they can try to contain
Speaker 1: the damage that will be done to them from these tariffs.
Speaker 2: Douglas Irwin honored that you go to Tend, go back
Speaker 2: to Klass, get the chalk on your head and teach them.
Speaker 4: Okay, I won't tell Blanche Flower what you said.
Speaker 2: Okay, don't tell them. We're going to He's probably done
Speaker 2: in Florida right now, distant from the Terraffs. Doug Erwin,
Speaker 2: thank you so much