WEBVTT - Dartmouth Professor of Economics Douglas Irwin Talks US Trade

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>He appeared with this a month or so ago, and

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<v Speaker 2>I talked to the team here this weekend and I

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<v Speaker 2>just said, we've got to get Doug Irwin on to

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<v Speaker 2>sort through this. This conversation is for every elected politician

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<v Speaker 2>in Washington. As they listened on ninety ninety one FM

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<v Speaker 2>this morning, Douglas Irwin is an institution. Blanche Flower is

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<v Speaker 2>not an institution. He's just a macroeconomist. Doug Irwin is

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<v Speaker 2>an institution at Dartmouth at College. In his ute the

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<v Speaker 2>definitive book and still Fresh, Fresh Fresh is against the tide.

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<v Speaker 2>It was definitive at the time, more recently is clashing

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<v Speaker 2>over commerce. For those of you on YouTube, it's over

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<v Speaker 2>his right shoulder at right now in his book line Office,

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<v Speaker 2>Professor Irwin, we are honored that you would attend today.

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<v Speaker 2>If you were to meet with a congressional leadership today,

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<v Speaker 2>how should they respond to what the executive branch as wrought.

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<v Speaker 1>I would say that under the US Constitution, Article one,

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<v Speaker 1>section eight, you have power over tariffs, and the problem

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<v Speaker 1>has been is successive Congresses have delegated so many powers

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<v Speaker 1>of tariff setting to the president. On the assumption that

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<v Speaker 1>the president will basically act in the national interest and

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<v Speaker 1>tend to lower tariffs and reach trade agreements. That Congress

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<v Speaker 1>has given up its authority, so it's time for Congress

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<v Speaker 1>to stand up and assert itself a bit more on trade.

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<v Speaker 1>Their constituents will be hurt by many of these measures,

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<v Speaker 1>and yet the Republicans seem to be very quiet about it.

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<v Speaker 2>How will they affect that reassertion. Do they need the

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<v Speaker 2>judicial branch to support them or do they just sit

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<v Speaker 2>down with the beverage of their choice. What do they

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<v Speaker 2>drink at Dartmouth? It's like labats, Yes, exact labats, Doug Irwin,

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<v Speaker 2>do they have a labat? So the presidents say this

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<v Speaker 2>is too much.

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<v Speaker 1>I think you have to look back to the first

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<v Speaker 1>Trump term when President Trump almost pulled out of NAFTA

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<v Speaker 1>and he was convinced by his Secretary of Agriculture and

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<v Speaker 1>a few congressional allies that that would not be a

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<v Speaker 1>right move, that he should renegotiate it because they were

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<v Speaker 1>pointing to the harm that would be done to his voters,

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<v Speaker 1>farmers in the Midwest, manufacturing firms in the Upper Midwest

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<v Speaker 1>that depend on exports, and so that sort of helped

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<v Speaker 1>convince them in terms of a longer run solution of

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<v Speaker 1>changing legislation to and power Congress more that sort of

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<v Speaker 1>a long run solution to what is now a short

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<v Speaker 1>term crisis.

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<v Speaker 3>Doug, how do we think about tariffs in a global

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<v Speaker 3>intertwined economy. It's not like the eighteen hundreds where we

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<v Speaker 3>imported a relatively small number of goods. We exported a

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<v Speaker 3>relatively small number goods and then global economy to tariffs.

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<v Speaker 3>How do they work?

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<v Speaker 4>Yeah, you're right, it's actually very different than it was

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<v Speaker 4>a century ago.

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<v Speaker 1>A lot of trade a century ago was sort of

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<v Speaker 1>in final goods or in very basic raw materials, and

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<v Speaker 1>now what we have is integrated supply chains and international

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<v Speaker 1>production networks. So the web of commerce and the greed

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<v Speaker 1>to witch firms in all sectors are sort of bound

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<v Speaker 1>to the global economy in some way. Is so much

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<v Speaker 1>more extensive today than it was even fifty years ago,

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<v Speaker 1>let alone a hundred years ago. The terriffs have much

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<v Speaker 1>more ripple effects throughout the economy, and these proposed tariffs

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<v Speaker 1>will rip apart North American supply chains and be quite

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<v Speaker 1>extensive in terms of the reach that they will have.

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<v Speaker 2>Dougr when you mentioned Frank Tausig the giant at Harvard

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<v Speaker 2>years ago. This is folks one hundred years ago writing

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<v Speaker 2>on terriffs. To me, there's a whole mythology going on

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<v Speaker 2>right now, whether it's a president's affair with mister McKinley

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<v Speaker 2>from another time and place. We trot back Lisa mentioned

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<v Speaker 2>Smoot Holly this morning, or we go back to August

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<v Speaker 2>of nineteen seventy one when the world turned upside down

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<v Speaker 2>with Richard Nixon and gold, which myth Doug Irwin is

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<v Speaker 2>most wrong.

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<v Speaker 1>Well, I'd say the myth that the US economy grew

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<v Speaker 1>in the late nineteenth century when we came in industrial

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<v Speaker 1>power because of the tariff. There's a classic case of

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<v Speaker 1>correlation not being causation. So there are a lot of

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<v Speaker 1>reasons why the US became an industrial power after the

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<v Speaker 1>Civil War. Up until World War One, we had massive immigration,

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<v Speaker 1>not many people in come administration and mentioned that we

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<v Speaker 1>were the recipient of major capital inflows from Britain and

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<v Speaker 1>other countries. We were adopting technology from then the technological

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<v Speaker 1>leader of Britain. We are pretty much open to the

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<v Speaker 1>world except in trade, so we did have high tariffs,

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<v Speaker 1>but they did promote manufacturing a bit. But if you

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<v Speaker 1>look where the productivity growth was, it was in the

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<v Speaker 1>service sector. It was railroads and then later electrification and telecommunications.

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<v Speaker 1>It wasn't just manufacturing and becoming rich because of the

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<v Speaker 1>tariff walls.

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<v Speaker 2>If you're just joining us this morning on Bloomberg Surveillance,

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<v Speaker 2>and thank you for joining Bloomberg. We continue with Douglas

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<v Speaker 2>Irwin of Dartmouth at College. Many good guests coming up,

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<v Speaker 2>including Damian Sas are in Foreign Exchange down negative five

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<v Speaker 2>ninety one to Irwin of Dartmouth, Paul Sweeney.

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<v Speaker 3>Professor, talk to us about these tariffs in the context

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<v Speaker 3>of they seem to be enacted by President Trump in

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<v Speaker 3>response to non economic issues per se, maybe whether it's

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<v Speaker 3>the fentanyl coming into this country, whether it's immigration policy

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<v Speaker 3>from our neighbors. Is that kind of the way tariffs

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<v Speaker 3>should be used typically are used. How do you think

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<v Speaker 3>about that?

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<v Speaker 1>Well, what's interesting about these is they haven't really been

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<v Speaker 1>vetted by the Trump economic team.

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<v Speaker 4>His US Trade representative is not in office yet.

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<v Speaker 1>We've just had the confirmation of the Treasury Secretary Commerce

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<v Speaker 1>Secretary to come. So usually when countries imposed tariffs, and

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<v Speaker 1>usually when the US has done this in the past.

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<v Speaker 1>There's an interagency process where you deliberate and you figure

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<v Speaker 1>out what is the best case and how can we

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<v Speaker 1>make these work.

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<v Speaker 4>And I think these are a.

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<v Speaker 1>Little bit in advance of those advanced discussions within the administration.

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<v Speaker 1>So I think you get this hodgepot, you have reasons

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<v Speaker 1>why we're doing this. It could be the fentanyl phrase

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<v Speaker 1>of the migrants. But we also hear still about the

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<v Speaker 1>trade dempsit. I mean, when President Trump makes these statements,

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<v Speaker 1>comes back to the imbalanced trade and he's actually ordered a.

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<v Speaker 4>Review on that.

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<v Speaker 1>But it's very hard for other countries negotiating and there

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<v Speaker 1>are ten different things that are being fun at you

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<v Speaker 1>at what in terms of what you're doing wrong.

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<v Speaker 2>Dougarwin honored to have you here for breaking news. This

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<v Speaker 2>is from Doug Ford. He is a Premier of Ontario.

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<v Speaker 2>He's basically I mean Ontario Stretch is from just north

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<v Speaker 2>of Hanover, New Hampshire, all the way over to Carlton

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<v Speaker 2>College in Minnesota. But the Ontario government says they will

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<v Speaker 2>cancel all US contracts. And what's important is this is

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<v Speaker 2>quote We're going one step further. We'll be ripping up

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<v Speaker 2>the province's contract with Starlink, and of course it has

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<v Speaker 2>to do with the Elon Musk and all that. Doug

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<v Speaker 2>Ford service sector hasn't been talked about much. Expects service

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<v Speaker 2>sector to be harmed as much as the goods sector.

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<v Speaker 1>Not as much because they're not directly hit by tariffs.

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<v Speaker 1>But there's a complementarity between trade and services and trade

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<v Speaker 1>and goods, and the two often go hand in hand.

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<v Speaker 4>So if you.

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<v Speaker 1>Disrupt trade and goods, there's going to be some spill

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<v Speaker 1>ow er effects, negative ones for the service sector as well.

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<v Speaker 3>Professor. Some of the concerns here as it relates to

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<v Speaker 3>tariffs just in general, is that they are inflationary in

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<v Speaker 3>the US economy. How do you think about that?

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<v Speaker 1>But I don't think they don't cause inflation in the

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<v Speaker 1>sense of a sustained increase in the CPI. They are

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<v Speaker 1>sort of level effects, so they will increase the level

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<v Speaker 1>of consumer prices and industrial prices, so that will lead

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<v Speaker 1>to a bump and measured inflation. It's not clear that

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<v Speaker 1>FED has to respond to that, but what that means

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<v Speaker 1>is the declining real income and purchasing power of those

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<v Speaker 1>businesses and households. I mean, just to give you a

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<v Speaker 1>personal example, which I shared on social media yesterday, an

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<v Speaker 1>email from Irving Oil, which provides US with propaine, saying

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<v Speaker 1>that any tax that's levied on them as they ship

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<v Speaker 1>propane from Canada to the US will be directly added

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<v Speaker 1>to the bill that we're facing here in New Hampshire.

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<v Speaker 1>So even before the terrorists took effect, are already being

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<v Speaker 1>warned prices are going to go.

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<v Speaker 2>Up, Lightheiser, and it's on my table at home. No

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<v Speaker 2>trade is free. Robert Liittheiser focused on China. Lightheiser pushed

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<v Speaker 2>aside in the second Trump administration, Douger went on a

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<v Speaker 2>ten percent tariff on China. How would you suggest Beijing

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<v Speaker 2>will respond.

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<v Speaker 1>Actually, I'm a little bit less worried about China, and

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<v Speaker 1>I'm a little bit surprised we're going after our allies

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<v Speaker 1>and ripping up North American supply chains by going after

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<v Speaker 1>Canada and Mexico.

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<v Speaker 4>I mean, the big.

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<v Speaker 1>Rival to the US and big problem in terms of

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<v Speaker 1>trade has been China, and yet he President Trump has

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<v Speaker 1>deemphasized that. So I'm not going to agree with Robert

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<v Speaker 1>Lithheiser on many things, but to the extent that he's

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<v Speaker 1>focused mainly on China, I think that's where the administration

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<v Speaker 1>has to look too.

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<v Speaker 3>So, Professor, how do you think the governments of Canada

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<v Speaker 3>and Mexico should respond? Will respond? I mean, how deep

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<v Speaker 3>is this going to go? Do you think how long

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<v Speaker 3>will does go?

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<v Speaker 4>Do you think, well, it's very interesting.

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<v Speaker 1>There's a report that the Prime Minister of Canada, Justin Trudeau,

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<v Speaker 1>will be speaking with President today. So I'd say there's

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<v Speaker 1>a small chance things could get averted, even though I

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<v Speaker 1>wouldn't be too optimistic about that. But I think they're

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<v Speaker 1>responding in the way that actually they did at least

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<v Speaker 1>Canada did with the smooth halite care for nineteen thirty.

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<v Speaker 4>That is not to take it sitting down to retaliate.

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<v Speaker 1>And they're very strategic in terms of the goods that

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<v Speaker 1>they put pressure points on that are important in the

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<v Speaker 1>US when I'm putting those tariffs on.

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<v Speaker 4>So they try to post tariffs on things.

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<v Speaker 1>That will maximize the political harm in the US, but

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<v Speaker 1>at least economic harm for Canada because there'll be subst

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<v Speaker 1>to products that they can import.

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<v Speaker 2>Doug The World Stopped for Against Tide, An intellectual history

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<v Speaker 2>of free trade, thirty some years ago. The final chapter

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<v Speaker 2>thirty some years ago, Page two seventeen, The past and

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<v Speaker 2>future of free trade? Okay, WTO. I was in Jimmy

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<v Speaker 2>Chang's office in Hong Kong the day WTO collapsed. Doug Irwin,

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<v Speaker 2>what is the future of free trade? After GAT, after Uruguay,

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<v Speaker 2>after WTO, and now Trump? What is the future?

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<v Speaker 1>Well, it's going to be a bit of a mess,

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<v Speaker 1>and it could be basically redrawn lines of trade based

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<v Speaker 1>on geopolitics. But you know, most countries, speaking outside of

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<v Speaker 1>the US now, most countries have a tremendous stake in

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<v Speaker 1>the trading system and open trade. They're much smaller economies.

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<v Speaker 1>They've opened up over the past thirty forty fifty years

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<v Speaker 1>or so. They received economic benefits by and large from that,

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<v Speaker 1>and to undo that is harmful for them. I think

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<v Speaker 1>even if the US, because of our politics or what

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<v Speaker 1>have you, move in a different direction, the rest of

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<v Speaker 1>the world will still be open for business to the

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<v Speaker 1>intent they can.

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<v Speaker 2>I mean, Doug, I know hitters like Jamie Diamond and listening,

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<v Speaker 2>Brian moynan and others in banking, maybe Christin Lergard. Good morning,

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<v Speaker 2>Madame Lecguard and your team in Frankfort. Doug Irwin on

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<v Speaker 2>the X axis, forget about j curve dynamics. I don't

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<v Speaker 2>buy it. On the X axis, Professor Irwin, we shift

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<v Speaker 2>from an inflationary dynamic of tariffs over to the growth

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<v Speaker 2>or less growth dynamic on your time continuum. What's the

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<v Speaker 2>when of that? When do we shift from a study

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<v Speaker 2>of inflation higher to growth slower?

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<v Speaker 1>Well, there have been a lot of independent forecasts of

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<v Speaker 1>these Trump tariffs, and from the Tax Foundation, from the

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<v Speaker 1>Peterson Institute for International Economics, and from other entities, and

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<v Speaker 1>none of them have any positive effects.

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<v Speaker 4>It's always negative.

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<v Speaker 1>And the question is, given the scenario, how negative you

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<v Speaker 1>go you shape point two point three point four percent

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<v Speaker 1>off of GDP. Those are sort of where the numbers

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<v Speaker 1>are coming in, and those will come in fairly quickly.

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<v Speaker 1>If we actually see the tariffs go into effect on Tuesday,

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<v Speaker 1>we'll probably see, certainly by the second or third quarter,

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<v Speaker 1>somewhat slower growth. Now, once again that doesn't mean it's

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<v Speaker 1>pushing us into recession, but it just means that after

0:12:22.360 --> 0:12:25.040
<v Speaker 1>a year or two, our real GDP will be lower

0:12:25.040 --> 0:12:26.120
<v Speaker 1>than it otherwise would have been.

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<v Speaker 2>I got one final question, Doug. You're sort of up

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<v Speaker 2>in you know, the edge of Canada. Yeah, handovers really

0:12:31.840 --> 0:12:34.600
<v Speaker 2>money I mean, it's not a Connecticut River, and it's

0:12:34.640 --> 0:12:37.360
<v Speaker 2>really it's like it's sort of like New York North.

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<v Speaker 3>I don't mean those are hardy people up there.

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<v Speaker 2>They're hardy. Yeah, it's a shrift bubble. Yes. What are

0:12:41.880 --> 0:12:44.720
<v Speaker 2>you telling somebody over a cup of coffee this morning,

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<v Speaker 2>Doug Irwin in Victoriaville, Quebec. You're at a diner in Victoriaville.

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<v Speaker 2>What are you telling them to do? What should Canada do?

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<v Speaker 1>You know, Canada was very savvy during the first Trump term.

0:12:58.640 --> 0:13:00.560
<v Speaker 1>They made a lot of We talked about Congress, We

0:13:00.600 --> 0:13:04.560
<v Speaker 1>opened our discussion with Congress. They realized that maybe the

0:13:04.559 --> 0:13:06.719
<v Speaker 1>administration is not going to be very sympathetic, but in

0:13:06.800 --> 0:13:10.920
<v Speaker 1>members of Congress are because they are much closer to

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<v Speaker 1>how their constituents will be affected by this. And so

0:13:14.000 --> 0:13:18.480
<v Speaker 1>they worked state legislatures, They worked on Capitol Hill and

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<v Speaker 1>tried to create an environment where it constrains the administration

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<v Speaker 1>in terms of how much they can push things and

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<v Speaker 1>what they can do. So there may not be much

0:13:27.520 --> 0:13:29.920
<v Speaker 1>support for Canada in the White House, but there are

0:13:29.920 --> 0:13:32.920
<v Speaker 1>other pressure points in the business community and the state

0:13:33.000 --> 0:13:36.760
<v Speaker 1>and legislatures and elsewhere that they can try to contain

0:13:37.200 --> 0:13:40.120
<v Speaker 1>the damage that will be done to them from these tariffs.

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<v Speaker 2>Douglas Irwin honored that you go to Tend, go back

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<v Speaker 2>to Klass, get the chalk on your head and teach them.

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<v Speaker 4>Okay, I won't tell Blanche Flower what you said.

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<v Speaker 2>Okay, don't tell them. We're going to He's probably done

0:13:50.360 --> 0:13:53.640
<v Speaker 2>in Florida right now, distant from the Terraffs. Doug Erwin,

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<v Speaker 2>thank you so much