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Tariffs, Tariffs Everywhere-What Will it Do to the US Economy, Inflation & Jobs · The Ben Ferguson Podcast

0:01
Speaker 1: Welcome in is Verdic with Center Ted Kruz Ben Ferguson
0:04
Speaker 1: with it's signe to have you on this Friday morning
0:06
Speaker 1: and Center. Everybody's waking up today. They're looking at what's
0:10
Speaker 1: happening with these tariffs. They're looking at what's happening on
0:13
Speaker 1: Wall Street. There's no doubt, no matter who you are,
0:16
Speaker 1: there's a lot of anxiety, concern, angst. Those are the
0:19
Speaker 1: words I've been hearing from friends about what's happening right now.
0:23
Speaker 1: So let's break it all down for listeners and talk
0:27
Speaker 1: about where we are and what is happening, what your
0:30
Speaker 1: concerns are, what you think is happening, and what is
0:33
Speaker 1: being said by your colleagues in DC as well well.
0:36
Speaker 2: On today's podcast, there is one topic and only one topic,
0:39
Speaker 2: and that is tariffs. And I will say I believe
0:43
Speaker 2: this week may well prove the single most consequential week
0:46
Speaker 2: in the Trump administration so far, and it may be
0:49
Speaker 2: the most consequential week in all four years of the
0:52
Speaker 2: second term of the Trump administration. I think this week
0:55
Speaker 2: is consequential as a policy matter, and this week is
0:58
Speaker 2: consequential as a political matter. I think there are enormous
1:02
Speaker 2: risks there is the potential for upside, but there are
1:06
Speaker 2: enormous risks. And so what we're going to try to
1:08
Speaker 2: do on this podcast is break it down because a
1:10
Speaker 2: lot of people are trying to trying to figure out, Okay,
1:12
Speaker 2: what am I supposed to think about this? What's this
1:15
Speaker 2: going to mean? What does this mean for my job?
1:16
Speaker 2: What does this mean for my family? What does this
1:19
Speaker 2: mean when I go to the grocery store? What does
1:20
Speaker 2: this mean when I buy goods for my family? And
1:24
Speaker 2: the answer is a lot. And so we're going to
1:27
Speaker 2: break it down and try to explain what it means
1:30
Speaker 2: and what's likely to happen next. I think this podcast,
1:38
Speaker 2: in terms of the impact on the country, I think
1:42
Speaker 2: is as consequential as anything we ever talked about. So
1:45
Speaker 2: let's start with what the news is this week. On Wednesday,
1:50
Speaker 2: President Trump announced massive tariffs tariffs on virtually every country
1:55
Speaker 2: on Earth, a ten percent baseline tariff on everybody, and
2:00
Speaker 2: then specific terrafs country by country. And I'm going to
2:03
Speaker 2: go through really quickly, but there are a lot of them.
2:06
Speaker 2: So on China thirty four percent terraffs, on the European
2:09
Speaker 2: Union all of Europe twenty percent tariffs, on Vietnam forty
2:13
Speaker 2: six percent, tariffs on Taiwan thirty two percent, terrafs on
2:16
Speaker 2: Japan twenty four percent, Tariffs on India twenty six percent,
2:19
Speaker 2: terraffs on South Korea twenty five percent, terrafs on Thailand
2:22
Speaker 2: thirty six percent, terraces on Switzerland thirty one percent, Teriffs
2:26
Speaker 2: on Indonesia thirty two percent, terraffs on Malaysia twenty four percent,
2:29
Speaker 2: tariffs on Cambodia forty nine percent, tariffs on the United
2:33
Speaker 2: Kingdom ten percent, terraces on South Africa thirty percent, terraces
2:36
Speaker 2: on Brazil ten percent, tariffs on Bangladesh thirty seven percent,
2:39
Speaker 2: terraffs on Singapore ten percent, Tariffs on Israel seventeen percent,
2:44
Speaker 2: tariffs on the Philippines seventeen percent, Tariffs on Chile ten percent,
2:48
Speaker 2: terraffs on Australia ten percent, terraces on Pakistan twenty nine percent,
2:53
Speaker 2: terraces on Turkey ten percent, terraces on Sri Lanka forty
2:56
Speaker 2: four percent, terraces on Columbia ten percent, tariffs on Peru
3:01
Speaker 2: ten percent, tariffs on Nicaragua eighteen percent, tariffs on Norway
3:06
Speaker 2: fifteen percent, tariffs on Costa Rica ten percent on Jordan,
3:09
Speaker 2: twenty percent on Dominican Republic ten percent on United Arab
3:13
Speaker 2: Emirates ten percent on New Zealand ten percent on Argentina,
3:15
Speaker 2: ten percent on Ecuador, ten percent on Guatemala ten percent
3:18
Speaker 2: on Honduras ten percent on Madagascar, forty seven percent on
3:23
Speaker 2: miandmar Or Burma forty four percent on Tunisia twenty eight
3:27
Speaker 2: percent on Kazakhstan twenty seven percent on Serbia thirty seven
3:31
Speaker 2: percent on Egypt ten percent, Saudi Arabia ten percent, El
3:35
Speaker 2: Salvador ten percent, the Ivory Coast twenty one percent, Laos
3:40
Speaker 2: forty eight percent, Botswana thirty seven percent, Trinidad and Tobega
3:44
Speaker 2: ten percent, Morocco ten percent. This collectively is the highest
3:49
Speaker 2: rate of tariffs the United States has had in place
3:51
Speaker 2: since nineteen thirty, one hundred years. That is enormously consequential.
3:57
Speaker 2: That is, as a policy matter, a huge deal, and
4:02
Speaker 2: is a political matter, a huge deal. Now we're in
4:06
Speaker 2: a partisan political environment where right now the world is
4:11
Speaker 2: turned upside down. We are we are very much tribalized,
4:16
Speaker 2: where each side is is on their team. So Democrats
4:20
Speaker 2: right now are lighting their hair on fire. Democrats right
4:23
Speaker 2: now are saying this is a catastrophe, this is destroying America.
4:27
Speaker 2: It's the worst thing that ever happened. And a lot
4:29
Speaker 2: of the media is echoing that. Now. That is producing
4:32
Speaker 2: a lot of Republicans who are naturally defending the president
4:36
Speaker 2: and saying this is great, this is fantastic, that that that,
4:39
Speaker 2: this is that, this is a day of liberation, and
4:43
Speaker 2: and and they're they are celebrating that. I will say
4:46
Speaker 2: it's it's a fairly odd dynamic because the two worlds
4:51
Speaker 2: are inverted. So a few years ago, Republicans were the
4:55
Speaker 2: party of free trade. Yeah, Republican Republicans were the party
4:59
Speaker 2: of let's lower tariffs, let's have more trade with the world.
5:03
Speaker 2: That produces more jobs here at home, that benefits White House,
5:07
Speaker 2: that benefits American producers. And Democrats were the protectionists. You
5:12
Speaker 2: think of the Dick Gephart Democrats, the Democrats who wanted
5:17
Speaker 2: big tariffs against other countries. And so it is a
5:21
Speaker 2: bizarre dynamic that the two sides have switched and they
5:28
Speaker 2: are essentially giving opposite talking points. My view, look, I
5:34
Speaker 2: want to set aside the talking points. I want to
5:37
Speaker 2: talk about what is likely to happen, the big, big
5:41
Speaker 2: question they're two big questions. Number one, how are other
5:44
Speaker 2: countries going to react? And number two, what is the
5:47
Speaker 2: Trump administration going to do in response? Now there are
5:51
Speaker 2: two broad scenarios. One that is very very good, one
5:54
Speaker 2: that is very very bad. Here's the good scenario. The
5:58
Speaker 2: good scenario is other countries freak out. That is clearly happening.
6:02
Speaker 2: Just every country I listed is freaking out right now.
6:05
Speaker 2: And in response, other countries come rushing to the White
6:10
Speaker 2: House and say we want to negotiate a deal and
6:13
Speaker 2: we're going to dramatically lower our tariffs to US goods
6:18
Speaker 2: coming into our country. That may well happen. We're seeing
6:21
Speaker 2: some of that starting to happen. It may happen in
6:23
Speaker 2: a massive cascade. If that happens, that would be a
6:27
Speaker 2: very good thing. Now, the second question is if other
6:30
Speaker 2: countries dramatically slash their tariffs, Let's say other countries zero
6:34
Speaker 2: out their tariffs, they say, all US goods will come
6:37
Speaker 2: into our country with zero teriffs. Then the second big
6:41
Speaker 2: question is what does the Trump administration do in response?
6:44
Speaker 2: And if the Trump administration, in response to other countries
6:48
Speaker 2: slashing their terriffs zeroing out their tariffs, if the Trump
6:52
Speaker 2: administration responds by dramatically cutting these tariffs, lowering them dramatically
6:57
Speaker 2: on this side. That would be a home run for America.
7:01
Speaker 2: I would be thrilled. I would be celebrating, and that
7:04
Speaker 2: could happen. Look, look, Trump is that this is throwing
7:07
Speaker 2: a long ball deep into the end zone. And if
7:11
Speaker 2: thirty days from now, sixty days from now, ninety days
7:13
Speaker 2: from now, the world we're looking at is a world
7:16
Speaker 2: where our trading partners across the globe have slashed their
7:19
Speaker 2: tariffs on American goods and services, and the Trump administration
7:22
Speaker 2: has responded by slashing these tariffs. They've just announced. That
7:26
Speaker 2: will be a great outcome for the American economy, will
7:30
Speaker 2: be a great outcome for farmers and ranchers and small
7:32
Speaker 2: businesses and manufacturers and jobs and workers. I will celebrate,
7:37
Speaker 2: And if that happens, I will say Donald Trump had
7:41
Speaker 2: a vision on trade that very few people in the
7:43
Speaker 2: world saw. And this was a friggin home run.
7:47
Speaker 1: So the best case scenario is to see more headlines
7:50
Speaker 1: like we saw tonight, which is, for example, Communists Vietnam
7:53
Speaker 1: panics over Trump tariff. Sin's deputy Prime Minister to Washington,
7:56
Speaker 1: DC with emergency delegation and our go to a Trump
8:01
Speaker 1: family member. Eric Trump put out an interesting tweet where
8:03
Speaker 1: he said, those that get here quickly and get a
8:08
Speaker 1: deal done will get the best deal, and those left
8:11
Speaker 1: at the end, it's gonna hurt. And so it's pretty
8:15
Speaker 1: clear that's the strategy that you also just mentioned can
8:18
Speaker 1: be in theory, best case scenario.
8:20
Speaker 2: Look, and if that's what happens, hallelujah, that is a
8:24
Speaker 2: great outcome. And listen, we've all seen Donald Trump's negotiating
8:28
Speaker 2: style is frequently to pick up a two by four,
8:30
Speaker 2: smack someone in the head with it, and then negotiate
8:34
Speaker 2: down from that. And so if that's what's going on,
8:38
Speaker 2: yesterday was a two by four, it was unquestionably a
8:41
Speaker 2: two by four. And virtually every trading partner partner of
8:46
Speaker 2: America is reeling right now. If the result is everyone
8:49
Speaker 2: cuts tariffs and we have massive more American exports and
8:53
Speaker 2: farmers are sending our crops and and our livestock abroad,
8:56
Speaker 2: and manufacturers are sending our goods abroad, and service providers
9:01
Speaker 2: are setting our services abroad. That's great. Now, let me
9:05
Speaker 2: give you the downside. There's another way this could play out,
9:08
Speaker 2: which as other countries get pissed off, and they jack
9:12
Speaker 2: up tariffs, and they impose retaliatory tariffs on American goods,
9:17
Speaker 2: and the tariffs Trump put in place remain in place.
9:21
Speaker 2: And I got to say, if we're in a scenario
9:23
Speaker 2: thirty days from now, sixty days from now, ninety days
9:25
Speaker 2: from now, with massive American tariffs and massive tariffs on
9:29
Speaker 2: American goods in every other country on Earth, that is
9:32
Speaker 2: a terrible outcome. It's terrible for Texas, which obviously I
9:36
Speaker 2: care about deeply, and it's terrible for America. It will
9:39
Speaker 2: hurt jobs and hurt America. And there is a very
9:42
Speaker 2: real risk of that. In the past we have seen
9:46
Speaker 2: when one country jacks up tariffs, it can provoke a
9:50
Speaker 2: trade war where each country accelerates tariffs, and the result
9:55
Speaker 2: would do a couple of things. Number One, it would
9:58
Speaker 2: destroy jobs here at home and do real damage to
10:01
Speaker 2: the US economy if we had tariffs everywhere. Number two,
10:05
Speaker 2: and this is a virtual certainty inflation. This is going
10:09
Speaker 2: to have a powerful upward impact on inflation. And let's
10:14
Speaker 2: take for example, all right, let's take cars. You know,
10:17
Speaker 2: Trump has announced a twenty five percent across the board
10:20
Speaker 2: tariff on cars. Yep, what does that mean. That means
10:24
Speaker 2: if you go and buy a new car, you're going
10:26
Speaker 2: to pay a hell of a lot more for that
10:28
Speaker 2: new car. And and by the way, if you buy
10:31
Speaker 2: a used car, you're going to pay a lot more
10:33
Speaker 2: for the use car because when new cars go up,
10:35
Speaker 2: used cars go up too. Because because that that that
10:38
Speaker 2: that will impact the pricing across the market. Now, now
10:41
Speaker 2: what is interesting, You might say, well, wait, wait, wait,
10:43
Speaker 2: this is just a tariff on foreign cars. So what
10:48
Speaker 2: do I care if a bunch of fancy foreign cars
10:51
Speaker 2: their prices go up? Well, you know what, a lot
10:53
Speaker 2: of Americans choose to buy foreign cars. So if you're
10:55
Speaker 2: choosing to buy a foreign car, your prices are likely
10:59
Speaker 2: to go up. They may not go up exactly twenty
11:01
Speaker 2: five percent, but they'll go up pretty close to twenty
11:03
Speaker 2: five percent. If you look at what happens when a
11:06
Speaker 2: tariff is imposed, who pays it is dependent For those
11:10
Speaker 2: of y'all who remember your your econ class, it's dependent
11:14
Speaker 2: on price elasticity. So sometimes the burden of the tariff
11:19
Speaker 2: is paid by the company, and by the way, if
11:21
Speaker 2: it's if it's paid by the company, depending on the
11:24
Speaker 2: price elasticity. That means the company's making less profits, and
11:27
Speaker 2: they may well be letting workers go and ending jobs.
11:33
Speaker 2: But for many goods it will be paid by the consumers,
11:35
Speaker 2: and the immediate impact will be prices going up. But
11:38
Speaker 2: let's take cars again. It's not just foreign cars that
11:42
Speaker 2: will go up. All the American cars, their prices are
11:45
Speaker 2: going to go up too. If all their competitors' prices
11:47
Speaker 2: go up twenty five percent. And it's not quite that simple,
11:50
Speaker 2: because it will be less than twenty five percent, but
11:52
Speaker 2: it will be in that neighborhood, you're going to see
11:55
Speaker 2: every other car price go up that much as well.
11:57
Speaker 2: And there are weird impacts given how the American supply
12:03
Speaker 2: chain works. So, for example, I was talking with one
12:09
Speaker 2: of the major US car manufacturers yesterday. You think of
12:14
Speaker 2: sort of the poster child. If you ask, you know,
12:18
Speaker 2: just the guy on the street, who's benefiting from all
12:20
Speaker 2: these tariffs, they'd probably say They're immediate answer, they'd say
12:23
Speaker 2: American car companies, GM, Ford, Chrysler. They're going to do
12:26
Speaker 2: great well. One of the big three told me last
12:29
Speaker 2: night that the impact of these tariffs will be the prices.
12:33
Speaker 2: The average prices of all of their cars will go
12:37
Speaker 2: up four five hundred dollars that when you go and
12:40
Speaker 2: buy an American car from a big American company that
12:44
Speaker 2: you will pay. They said, probably starting in June. And
12:46
Speaker 2: I asked why June, and they said, well, there's some
12:48
Speaker 2: lag in the supply chain. So they've made cars that
12:51
Speaker 2: they've sold to their dealers, and so it will be
12:54
Speaker 2: the cars they're selling to their dealers. It'll be about
12:56
Speaker 2: June when the prices go up. But they were predicting
12:58
Speaker 2: last night forty five five hundred dollars is what the
13:01
Speaker 2: price of a car will go up. And what is
13:03
Speaker 2: interesting also, so this is I said, was one of
13:06
Speaker 2: the big three car makers. They said they thought this
13:11
Speaker 2: would end up hurting them more than it helps them.
13:13
Speaker 2: That's what they told me last night, in part because
13:16
Speaker 2: if you look at the current supply chain of how
13:19
Speaker 2: a car has made so many cars, many cars. The
13:22
Speaker 2: big three companies make cars in America, many of them
13:25
Speaker 2: make them in Texas. But if you look at the
13:27
Speaker 2: supply chain, it's very odd. But the way it works
13:30
Speaker 2: right now is that parts, say the drive train or
13:34
Speaker 2: the chassis or different parts of the car will go
13:37
Speaker 2: back and forth across the Mexican border. So they'll build
13:41
Speaker 2: part of it in America, They'll send part of it
13:42
Speaker 2: to Mexico and build, they send part of it back
13:44
Speaker 2: to America, and it goes sometimes three, four or five
13:47
Speaker 2: times back and forth before they fully complete a car.
13:49
Speaker 2: Every time it crosses the border from Mexico, those terrafts
13:52
Speaker 2: are stacking on top of each other. So this US
13:55
Speaker 2: car company told me they actually thought that foreign car
13:58
Speaker 2: companies would benefit more than they would because if you
14:02
Speaker 2: just build the car in Germany or Japan and you
14:05
Speaker 2: send it over here, you pay one tariff, whereas these
14:07
Speaker 2: guys are getting hit on each part that is going
14:10
Speaker 2: over and back and over and back on the supply chain,
14:13
Speaker 2: and they thought they would end up. It's why they
14:16
Speaker 2: were talking about they're having to raise prices forty five
14:18
Speaker 2: hundred dollars each. One of the undeniable impacts of these
14:22
Speaker 2: tariffs is the prices that Americans are going to pay
14:25
Speaker 2: are going to go up significantly, and that is painful. Now,
14:29
Speaker 2: what are some of the good outcomes? Because President Trump
14:32
Speaker 2: is acknowledged he said, look, there may be some pain,
14:34
Speaker 2: but it's worth it if we end up in the
14:37
Speaker 2: outcome I started with, which is foreign countries slash their
14:40
Speaker 2: tariffs on American goods and we in turn lower the
14:42
Speaker 2: tariffs that the Trump administration just announced. That's a great
14:47
Speaker 2: outcome and we will see a big economic boom from that,
14:51
Speaker 2: and so I'm hoping for that. I'm rooting for that.
14:54
Speaker 2: I will celebrate and praise the administration if that's the outcome.
14:59
Speaker 2: But if it's not, here's one thing to understand. And
15:02
Speaker 2: I think I'm seeing a lot of sort of Republican
15:05
Speaker 2: cheerleaders that are kind of reflexively defending what the White
15:09
Speaker 2: House is doing. And listen, I love President Trump. I'm
15:11
Speaker 2: his strongest supporter in the Senate. I think he's doing
15:14
Speaker 2: incredible things as president. But here's one thing to understand.
15:17
Speaker 2: A tariff is a tax, and it is a tax
15:21
Speaker 2: principally on American consumers. So when I read out all
15:23
Speaker 2: those percentages, I said, you know, x percent on this country.
15:28
Speaker 2: That actually gets it wrong. So when I said, for example,
15:35
Speaker 2: twenty percent on the European Union, it's not actually the
15:38
Speaker 2: EU that pays that, it's you, Ben Ferguson. If you
15:41
Speaker 2: go buy anything from the EU, as the consumer, you're
15:44
Speaker 2: paying that tax. And so the effect of this is
15:49
Speaker 2: trillions of dollars of increased taxes on American consumers. If
15:53
Speaker 2: these if these tariffs stay in place, this is the
15:57
Speaker 2: biggest tax increase we have seen in a long long time.
16:03
Speaker 2: I got to say, I am not a fan of
16:05
Speaker 2: tax increases on American consumers. I'm not a fan of tariffs.
16:09
Speaker 2: And so if this is leverage to lower tariffs, great,
16:13
Speaker 2: But if the outcome is tariffs stay in place forever,
16:16
Speaker 2: that is going to do a lot of harm in
16:18
Speaker 2: the American economy.
16:20
Speaker 1: So let's talk timeline here. And you obviously have had
16:24
Speaker 1: a lot of conversations with the administration but also with
16:27
Speaker 1: your colleagues. Is there any guess of what this timeline
16:32
Speaker 1: could look like? Is it truly dependent on the other
16:36
Speaker 1: countries that you mentioned. I mean, I go back to
16:38
Speaker 1: that headline of Vietnam and then rushing to DC. They
16:43
Speaker 1: obviously know that this is something they don't want to
16:47
Speaker 1: deal with for a long time. And here's the reason
16:49
Speaker 1: why Vietnam is among the world's most trade dependent nations.
16:52
Speaker 1: Right their export equivalent to about ninety percent of their
16:55
Speaker 1: economic output. And guess what, the US is the most
16:59
Speaker 1: significant customer. So they've got to fix this. We have
17:04
Speaker 1: a lot of leverage I think with Vietnam, that's why
17:07
Speaker 1: they're rushing to America.
17:09
Speaker 2: Okay, so you're right about that, And listen, we're trying
17:13
Speaker 2: an experiment that hasn't been tried in really one hundred years.
17:17
Speaker 2: The last time we really saw this tried in earnest
17:20
Speaker 2: was the Smoot Holly tariffs and the Smoot Holly tariffs. Look,
17:24
Speaker 2: history has not been kind to the Smoot Holly tariffs.
17:27
Speaker 2: They were a major contributor to the Great Depression. And
17:30
Speaker 2: what happened in response to the Smooth Holly tariffs is
17:34
Speaker 2: is my scenario to the bad scenario, which is other
17:37
Speaker 2: countries put retaliatory tariffs in place, you had a trade war,
17:41
Speaker 2: and it ended up hammering jobs and driving up inflation. Now,
17:45
Speaker 2: I will say we're in a very different world from
17:48
Speaker 2: nineteen thirty. Nineteen thirty was one hundred years ago or
17:50
Speaker 2: ninety five years ago. Today, the American economy is the
17:55
Speaker 2: largest economy in the world, so we have massively more
17:59
Speaker 2: level ridge than we did one hundred years ago. What
18:02
Speaker 2: that means is that if we have a tariff, another
18:06
Speaker 2: country has a tariff, the tariff we're imposing will hurt
18:10
Speaker 2: the other country in all likelihood more than it hurts us,
18:14
Speaker 2: because our market is a bigger deal, and so foreign countries,
18:19
Speaker 2: foreign companies facing massive tariffs, will get hurt more. And
18:24
Speaker 2: so one of the positive consequences of the tariff announcement
18:28
Speaker 2: is that we will see more foreign companies announcing new
18:33
Speaker 2: plants in America, saying we're going to build in America
18:35
Speaker 2: because the easiest way to get around the tariffs is
18:38
Speaker 2: build your products in America. That's a good thing. I'm
18:40
Speaker 2: all for bringing manufacturing back to America. Now, I will
18:44
Speaker 2: say the process of building a new plant is slow.
18:48
Speaker 2: It can take years. It can take years just to
18:51
Speaker 2: get permitted, to find the land to build the plant,
18:55
Speaker 2: to build the factory, that can take years. And in
18:58
Speaker 2: the meantime, everyone's prices go up. So we are seeing Look,
19:02
Speaker 2: we're seeing new factories being announced to the United States.
19:06
Speaker 2: I think that's great. I want as much manufacturing as
19:08
Speaker 2: possible coming back to America, coming back to Texas. But
19:12
Speaker 2: none of that happens quickly. You simply can't build a
19:16
Speaker 2: car factory in a couple of months. It it doesn't
19:20
Speaker 2: work in most places. You can't even get the damn permits,
19:23
Speaker 2: uh in less than that than a couple of years
19:27
Speaker 2: much less poor the foundation, build the factory, put the
19:30
Speaker 2: machines in, and hire the workers. So so there is
19:33
Speaker 2: real time involved. But an unquestionable benefit of this will
19:38
Speaker 2: be more manufacturing in the United States. Now, look, let
19:43
Speaker 2: me give you another basic economic principle and and and
19:46
Speaker 2: this is this is right at the heart of the
19:48
Speaker 2: debate between protectionism and free trade, and it deals with
19:53
Speaker 2: there's a school of economic thought called public choice theory,
19:55
Speaker 2: and it looks at how political decisions are made and
20:00
Speaker 2: and the basic principle of protectionism. If you put big
20:03
Speaker 2: tariffs to protect an industry, let's say steel terraffs big
20:07
Speaker 2: tariffs to protect steel, you have concentrated benefits, which is
20:11
Speaker 2: steel manufacturers steel in the United States get real benefits
20:14
Speaker 2: from that. And you often have diffuse harms. In other words,
20:19
Speaker 2: lots and lots of people are hurt, but they're hurt
20:24
Speaker 2: less acutely than the beneficiaries are benefited. Now, as a
20:28
Speaker 2: political matter, let me tell you how politicians respond to that.
20:31
Speaker 2: If you have a bunch of people that are benefited intensely,
20:35
Speaker 2: they're really motivated and they care about supporting you, and
20:38
Speaker 2: they're really excited because they're like, Wow, you just gave
20:41
Speaker 2: me a huge, huge benefit. And the people who are harmed,
20:44
Speaker 2: Like with steel tariffs, the people who are harmed is
20:47
Speaker 2: everyone who's buying steel. So oil and gas, you're putting pipelines,
20:52
Speaker 2: you're drilling wells, railroads, you're putting railroad ties. Building manufacturers,
20:56
Speaker 2: you're putting steel in building. You know it's soda and
21:02
Speaker 2: beer manufacturers you're putting either aluminium or steel, depending on
21:05
Speaker 2: what the cans are made of. But everyone who's using
21:08
Speaker 2: steel is the companies are paying more, the consumers are
21:11
Speaker 2: paying more, but it is diffuse across a lot of people.
21:14
Speaker 2: So public choice theory will tell you that politicians will
21:18
Speaker 2: care more about the concentrated benefits than the diffuse harms,
21:21
Speaker 2: even though if you measure the aggregate harms, there are
21:25
Speaker 2: in many instances much much larger than the concentrated benefits.
21:30
Speaker 2: But the aggregate harms are spread out over a ton
21:33
Speaker 2: of people, whereas the benefits are concentrated in a much
21:36
Speaker 2: smaller group of people. That's the economics behind what's going
21:40
Speaker 2: on here. The consequences of this. I think what happens
21:44
Speaker 2: on these tariffs, let's talk about politically, is going to
21:49
Speaker 2: be probably the single biggest determinant of what the twenty
21:53
Speaker 2: twenty six mid term elections look like. If these tariffs
21:57
Speaker 2: result in massively higher prices result and driving up costs
22:01
Speaker 2: for US companies, result in job losses, and put us
22:06
Speaker 2: into a recession. And to be clear, there, that is
22:10
Speaker 2: a if the tariffs remain in place and we have
22:13
Speaker 2: retaliatory tariffs, that is a very possible outcome if we
22:17
Speaker 2: go into a recession, particularly a bad recession, twenty twenty
22:21
Speaker 2: six in all likelihood politically would be a bloodbath. You
22:25
Speaker 2: would face a Democrat House, and you might even face
22:28
Speaker 2: a Democrat Senate. Look, we've got a fifty three to
22:30
Speaker 2: forty seven majority in the Senate. But if we're in
22:33
Speaker 2: the middle of a recession and people are hurting badly,
22:35
Speaker 2: they punish the party in power. And to be clear,
22:39
Speaker 2: if that happens in twenty twenty seven, in January of
22:43
Speaker 2: twenty twenty seven, the Democrat House that gets elected will
22:46
Speaker 2: immediately impeach Donald Trump, and we would spend the next
22:49
Speaker 2: two years of twenty twenty seven and twenty twenty eight
22:52
Speaker 2: with constant impeachment battles, constant investigations, constant political attacks, all
22:57
Speaker 2: of the weaponization that we saw in the first term.
23:00
Speaker 1: Deja vu, that's under.
23:02
Speaker 2: Steroids, not even deja vu. Take the first term, and
23:06
Speaker 2: and and and put it on steroids, and and so
23:10
Speaker 2: the political consequences of getting this wrong this was this
23:16
Speaker 2: is a high risk play. The upside massive, but the
23:20
Speaker 2: downside could be massive.
23:22
Speaker 1: Is this the highest risk play so far from Trump's
23:26
Speaker 1: first term second term combined so far?
23:28
Speaker 2: Not not even close by far? Yes?
23:33
Speaker 1: All right, So then I got to ask you this
23:34
Speaker 1: question behind the scenes, What are the conversations with your
23:41
Speaker 1: colleagues are on a score one to ten, how concerned
23:44
Speaker 1: are they over the scenario that you just described forty two?
23:49
Speaker 2: Okay, Look, there's another point that I think is important
23:53
Speaker 2: to understand. So so you and I did a podcast
23:55
Speaker 2: I think last week where we talked about tariffs, and
23:57
Speaker 2: and I talked about I said, listen, the president uses
24:00
Speaker 2: tariffs for two principal purposes. One is leverage as an
24:05
Speaker 2: incentive to incentivize other countries to enact policies that benefit America.
24:11
Speaker 2: And the clearest example of that is the threatened tariffs
24:13
Speaker 2: against Mexico and Canada unlessen until they help us secure
24:17
Speaker 2: the border. Now, using tariffs's leverage for something like that
24:20
Speaker 2: is very effective. The President uses it really well, and
24:24
Speaker 2: particularly using them to push securing the border. I am
24:29
Speaker 2: emphatically in favor of that. Is it has proven successful.
24:34
Speaker 2: It worked incredibly well in the first term. It produced
24:37
Speaker 2: to remain in Mexico agreement with Mexico. It produced the
24:40
Speaker 2: lowest rate of illegal immigration in forty five years, stopping
24:44
Speaker 2: the border invasion of the last four years. As an
24:46
Speaker 2: acute national security and public safety imperative, it is a
24:51
Speaker 2: mandate from the last election. It is massively important for Texas.
24:54
Speaker 2: So I'm all for using the thread of tariffs's leverage
24:57
Speaker 2: to get good policy that benefits America. But there's a
25:00
Speaker 2: second component, and this is an important thing to understand,
25:04
Speaker 2: which is Donald Trump and much of his administration believes
25:07
Speaker 2: in tariffs as an economic policy. We've all heard Donald
25:11
Speaker 2: Trump say tariff is the most beautiful word in the
25:14
Speaker 2: English language. And I do think the business community so look, look,
25:20
Speaker 2: we had the stock market plummeted, we saw massive losses
25:25
Speaker 2: in the stock market. We may well see more massive
25:27
Speaker 2: losses than the stock market. I think the business community
25:32
Speaker 2: was shocked by the magnitude of these communities of these tariffs,
25:36
Speaker 2: by the breadth of them. Look, as we talked about
25:39
Speaker 2: in our earlier podcast on tariffs, what I've urged the
25:43
Speaker 2: President's two things. Number one, focus on China, because delinking
25:47
Speaker 2: our economy from China is emphatically an America's national security
25:50
Speaker 2: interests and economic security interests. And number two, focus on reciprocity.
25:55
Speaker 2: And the reason I've said focus on reciprocity is the
25:57
Speaker 2: upside scenario I just talked about, which is, by focusing
26:01
Speaker 2: on reciprocity, if you incentivize other countries to lower their
26:03
Speaker 2: tariffs and we lower ours, that's a win win for America.
26:07
Speaker 2: But the thing to understand, I believe the business community
26:11
Speaker 2: has systematically underestimated how much President Trump and the Trump
26:16
Speaker 2: administration views tariffs as an ongoing, permanent feature of our
26:21
Speaker 2: economic policy. I can tell you virtually every time I
26:24
Speaker 2: talk with the President, I talk with the President frequently,
26:27
Speaker 2: he goes on at length. Have you seen the billions
26:30
Speaker 2: of dollars, the hundreds of billions of dollars, the trillions
26:33
Speaker 2: of dollars we are raising and are going to raise
26:36
Speaker 2: from tariffs? Now, I think a lot of people said, oh,
26:39
Speaker 2: he's going to threaten these tariffs, but he's going to
26:41
Speaker 2: lift them very quickly. If he does that, great, If
26:44
Speaker 2: he leaves them in place and we just have constant tariffs,
26:47
Speaker 2: that is a massive tax increase on the American people.
26:50
Speaker 2: And I think many people are underestimating that. The President
26:55
Speaker 2: believes and many members of his administration believe that tariffs
27:01
Speaker 2: are just a fabulous feature of the American economy. They
27:04
Speaker 2: harken back to William McKinley when he was president. Now,
27:08
Speaker 2: now look we used to have before the income tax,
27:10
Speaker 2: tariffs were the main source of revenue for the federal government,
27:13
Speaker 2: and they want to go back to that scenario. And
27:16
Speaker 2: I got to say, we're going to find out because listen,
27:19
Speaker 2: President Trump believes in this. I think in the first
27:22
Speaker 2: term he wanted to impose policies like this, and I
27:28
Speaker 2: think many Republican senators talked him out of it, pressed
27:32
Speaker 2: him back and said, look, their real risks, don't do this.
27:35
Speaker 2: I think of the second term, Trump feels unchained, he
27:37
Speaker 2: feels unburdened. He's like, screw it, let's go, and he
27:41
Speaker 2: believes it.
27:41
Speaker 1: I do know, by the way, that's where the threat
27:44
Speaker 1: could actually work, right, because every other country's looking at saying, hey,
27:48
Speaker 1: this is surely he's not going to do it. He
27:50
Speaker 1: does it like he's going to finch quickly. There's no
27:53
Speaker 1: indication he's going to finch per se quickly.
27:56
Speaker 2: Right.
27:56
Speaker 1: I think the real threat of it is the fact
27:58
Speaker 1: that he's actually willing to go through with it.
28:01
Speaker 2: Look, I want this to succeed. I wanted to succeed,
28:04
Speaker 2: But my definition of succeed may be different than the
28:07
Speaker 2: White Houses. My definition of succeed is dramatically lower tariffs
28:12
Speaker 2: abroad and result in dramatically lowering tariffs here. That's success
28:17
Speaker 2: for the American workers, American businesses, American growth, American prosperity.
28:21
Speaker 2: That's a great outcome. But look, I think we're going
28:26
Speaker 2: to find out one hundred years ago the US economy
28:30
Speaker 2: didn't have the leverage to have the kind of impact
28:34
Speaker 2: we do now. But I worry there are voices within
28:39
Speaker 2: the administration that want to see these tariffs continue forever
28:44
Speaker 2: and ever and ever. They don't want a lower of them.
28:46
Speaker 2: They think they're great. And what is particularly I think
28:51
Speaker 2: has has startled some observers. It wasn't just directed at China,
28:54
Speaker 2: it wasn't just directed at bad actors. It was directed
28:57
Speaker 2: against everybody that if that is the breadth of it
29:01
Speaker 2: is enormous and it carries it carries upside, but it
29:06
Speaker 2: also carries real risk.
29:07
Speaker 1: All right, let's talk timeline in your definition of short
29:11
Speaker 1: term or long term? What does that timeline look like,
29:14
Speaker 1: because obviously people are trying to figure out weathering the storm. Right,
29:18
Speaker 1: you talked about supply chain and the car is a
29:20
Speaker 1: great example. You don't feel the pain till let's say June.
29:24
Speaker 1: All right, so give us a few months for things
29:26
Speaker 1: to kind of work its way through, work it out.
29:29
Speaker 1: Is that a timeline of short term and then after
29:32
Speaker 1: that it's it's considered all right, this is long term?
29:34
Speaker 1: What is that timeline in your opinion?
29:36
Speaker 2: Well, let's be clear, the timeline was immediate. So let
29:39
Speaker 2: me read from the Wall Street Journal headline Trump tariff
29:44
Speaker 2: send out to sixteen hundred point decline, dollar slumps Asian
29:48
Speaker 2: stocks hit for a second day, fear as a recession rise.
29:50
Speaker 2: And here's what the Wall Street Journal reports, quote, US
29:53
Speaker 2: markets suffer theirs steepest decline since twenty twenty on fears
29:56
Speaker 2: President Trump's new tariffs plan will trigger a global trade
30:00
Speaker 2: war and dragged the US economy into recession. Major stock
30:03
Speaker 2: indexes dropped as much as six percent on Thursday. Stocks
30:06
Speaker 2: lost roughly three point one trillion dollars in market value,
30:11
Speaker 2: their largest one day decline since March twenty twenty. Stock
30:14
Speaker 2: index futures drifted lower Thursday evening in stocks in Japan
30:18
Speaker 2: were hit for a second day as Friday training began.
30:20
Speaker 2: In Thursday's market plunge, the Dow Industrials dropped sixteen one
30:24
Speaker 2: hundred and seventy nine points, or four percent. The tech
30:27
Speaker 2: heavy NAGS deck, which powered the market higher for years,
30:30
Speaker 2: was down six percent, pulled lower by big declines in Nvidia, Apple,
30:34
Speaker 2: and Amazon dot Com. The S and P five hundred,
30:36
Speaker 2: which fell four point eight percent, and the other benchmark
30:39
Speaker 2: suffered their sharpest decline since the early days of the
30:42
Speaker 2: COVID nineteen pandemic. The dollar meanwhile tumbled, with a Wall
30:46
Speaker 2: Street Journal Dollar index suffering at sharpest decline since twenty
30:49
Speaker 2: twenty three. Now those are immediate hits, and understand, Look,
30:53
Speaker 2: it's easy to say, okay, fine, you know that's just
30:56
Speaker 2: rich people. Look at this point, a majority of Americans
30:59
Speaker 2: have money and vested in four o one ks and iras,
31:02
Speaker 2: and so that's impacting everyone, and people don't necessarily follow
31:06
Speaker 2: their four A one K on a daily basis. Many
31:08
Speaker 2: people see their four A one K statement when it
31:11
Speaker 2: comes out at the end of the quarter. A whole
31:13
Speaker 2: lot of people are looking at that, and we'll see
31:15
Speaker 2: if that's a temporary one day hit. But if it
31:18
Speaker 2: continues to slide over the next few days, that's not
31:21
Speaker 2: waiting for six months to see the impact. That's freaking
31:24
Speaker 2: people out now. And so the consequences of this are real,
31:30
Speaker 2: and I want to be clear about something. Look, it
31:33
Speaker 2: used to be conventional wisdom in Republican politics that free
31:37
Speaker 2: trade is wonderful and we should just have no terraffs
31:40
Speaker 2: and lower terraffs. And that was almost.
31:42
Speaker 1: Everyone ask you. This is a question. I'm just going
31:46
Speaker 1: to ask it because I know there's people listening. They
31:48
Speaker 1: want to know what the definition your definition of free
31:52
Speaker 1: trade is.
31:53
Speaker 2: That used to be conventional wisdom. And I want to
31:57
Speaker 2: give Donald Trump credit for something really significant, which is
32:00
Speaker 2: he's changed the debate on trade fundamentally. And so I
32:05
Speaker 2: believe in free trade, but I also believe in fair trade,
32:08
Speaker 2: and so when I talk about reciprocity, Donald Trump has
32:12
Speaker 2: made a very clear point and It's a powerful point,
32:14
Speaker 2: which is, many countries on Earth have been taking advantage
32:17
Speaker 2: of the United States and have been imposing really high
32:20
Speaker 2: tariffs and barriers to US goods while having free access
32:24
Speaker 2: to the American markets. And that is unfair. And so
32:28
Speaker 2: I love that President Trump is willing to use leverage
32:32
Speaker 2: to lower tariffs. I think that's great, and that really
32:34
Speaker 2: is a change in the debate. Ten years ago, there
32:37
Speaker 2: was nobody in the Republican Party making that argument, and
32:41
Speaker 2: that is the direct result of President Trump's leadership. That's
32:45
Speaker 2: a good thing. Saying we should be treated fairly, that
32:49
Speaker 2: is a good thing. That is a very different proposition
32:52
Speaker 2: from saying it doesn't matter if other countries lower their tariffs.
32:57
Speaker 2: We're going to impose tariffs on everybody because we think
32:59
Speaker 2: tariffs should be the principal vehicle of funding the economy.
33:04
Speaker 2: If the outcome of this is a multi trillion dollar
33:07
Speaker 2: tax increase on American consumers, I think that that is
33:11
Speaker 2: really consequential and really really harmful.
33:15
Speaker 1: So let me ask you one other question, and that
33:17
Speaker 1: is if these tariffs don't change center, then what would
33:21
Speaker 1: the impact be.
33:23
Speaker 2: Well, let me share an analysis that a group called
33:26
Speaker 2: the Tax Foundation did now. The Tax Foundation is a
33:30
Speaker 2: think tank based in Washington. They're very good. They're they're
33:33
Speaker 2: economic experts. They analyze tax policies. They have proven to
33:37
Speaker 2: be incredibly accurate in terms of measuring the impact of taxes.
33:42
Speaker 2: Here's what the Tax Foundation has assessed from the announcement
33:45
Speaker 2: this week. They say, if these stay in effect, the
33:48
Speaker 2: average tariff rate on all imports will rise from two
33:52
Speaker 2: point five percent in twenty twenty four to eighteen point
33:57
Speaker 2: eight percent, the highest average rate since nineteen thirty three
34:00
Speaker 2: under the tariffs announced for twenty twenty five. The consequence
34:04
Speaker 2: of those tariffs, they will cause imports to fall by
34:08
Speaker 2: slightly more than nine hundred billion dollars in twenty twenty five,
34:12
Speaker 2: or twenty eight percent. So that's what they're predicting, is
34:15
Speaker 2: that imports drop nine hundred billion dollars twenty eight percent
34:19
Speaker 2: this year. They also say the newly announced tariffs on
34:22
Speaker 2: April second will raise one point eight trillion dollars in
34:27
Speaker 2: revenue over the next decade and will shrink US GDP
34:33
Speaker 2: by zero point five percent. The April second escalation, they note,
34:38
Speaker 2: comes in addition to the previously announced tariffs, which will
34:41
Speaker 2: raise another one point three trillion dollars in revenue over
34:46
Speaker 2: the next decade and shrink US GDP by zero point
34:49
Speaker 2: three percent. Altogether, Trump's tariffs will raise nearly three point
34:54
Speaker 2: two trillion dollars in revenue over the next decade and
34:58
Speaker 2: reduce US gd by zero point eight percent. They further
35:03
Speaker 2: project the tariffs will reduce after tax income by an
35:07
Speaker 2: average of two point one percent, an amount to an
35:11
Speaker 2: average tax increase of more than two one hundred dollars
35:16
Speaker 2: per US household in twenty twenty five. Now, to be clear,
35:21
Speaker 2: that's a prediction. If these tariffs stay in place, if
35:25
Speaker 2: they don't change, if the upside that I described happens,
35:29
Speaker 2: if foreign countries slash their tariffs and Trump in turn
35:33
Speaker 2: slash these tariffs, none of those numbers hold. Instead, I
35:37
Speaker 2: think we see an enormous economic boom. But if that
35:41
Speaker 2: doesn't happen, if these tariffs stay in place as an
35:44
Speaker 2: ongoing economic policy, we're facing very real and I think
35:49
Speaker 2: very detrimental consequences.
35:51
Speaker 1: It's going to be an interesting one center. It's I
35:54
Speaker 1: think it's important that we have these conversations. Hopefully many
35:57
Speaker 1: of you listening understand this more and the ups and
36:01
Speaker 1: downs and what this will look like it's going to
36:02
Speaker 1: be changing often, and when it changes, we are going
36:06
Speaker 1: to continue to cover it day in and day out.
36:09
Speaker 1: So make sure you hit that subscribe or that auto
36:11
Speaker 1: download button wherever you listen to this podcast, share it
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Speaker 1: on social media. I hope this has helped you, and
36:18
Speaker 1: I honestly hope that you'll share it with your friends
36:20
Speaker 1: so that they will share it and they can hear
36:23
Speaker 1: exactly what we did here today in the Center. I
36:25
Speaker 1: will see you back here for our week in review
36:27
Speaker 1: on Saturday as well