Latest / Trumponomics / The Trade War Has Already Caused a Recession for America's Factories

Transcript

The Trade War Has Already Caused a Recession for America's Factories · Trumponomics

0:03
Speaker 1: Hello, and welcome back to Stephanomics, the podcast that brings
0:07
Speaker 1: the global economy to you. Well, it's not been a
0:15
Speaker 1: quiet summer for economists. We've had fears of recession and
0:18
Speaker 1: a dramatic turn in monetary policy in Europe and the US,
0:23
Speaker 1: plus another round of tariffs and tough rhetoric in the
0:26
Speaker 1: US China trade wars, not to mention Boris Johnson and Brexit.
0:31
Speaker 1: We're going to be getting into all of that one
0:33
Speaker 1: way or another in this season of Stephanomics between now
0:36
Speaker 1: and mid November. We're also going to take a particular
0:40
Speaker 1: interest in the themes of the second annual Bloomberg New
0:43
Speaker 1: Economy Forum in Beijing, when few hundred senior business people,
0:48
Speaker 1: politicians and thinkers will be gathering to talk about the
0:51
Speaker 1: world's biggest challenges and how to overcome them. Trade, unsurprisingly,
0:56
Speaker 1: is one of the big themes, and since we were
0:58
Speaker 1: last on air, senior trade reporter Sean Donnan has been
1:02
Speaker 1: to the American Midwest to gauge the impact of trade
1:05
Speaker 1: wars on the ground. I'll be talking to him in
1:07
Speaker 1: a minute, and I'll be playing you the interview I
1:10
Speaker 1: did with the World Bank's Chief economist Penny Goldberg, who
1:13
Speaker 1: is one of the smartest trade economists anywhere. But first,
1:17
Speaker 1: here's Shaun's report. With your help, we're not only unleashing
1:26
Speaker 1: American energy, We're restoring the glory of American manufacturing, and
1:33
Speaker 1: we are reclaiming our noble Herirhage as a nation of
1:36
Speaker 1: builders again nation. When he ran for president in two
1:45
Speaker 1: thousand sixteen, Donald Trump made it a signature promise to
1:48
Speaker 1: restore the greatness of American manufacturing, and for the first
1:52
Speaker 1: two years of his presidency, it looked like that was happening.
1:57
Speaker 1: Trump's tariffs unimported steel and illuminate encouraged the opening of
2:01
Speaker 1: new and shuttered plants making raws, steal and aluminum. The
2:05
Speaker 1: US added more than four thousand manufacturing jobs. But things
2:09
Speaker 1: have turned in America's factory sector thanks partly to Trump's
2:13
Speaker 1: trade wars, and that direction of travel tends to be
2:16
Speaker 1: what matters more going into an election year. Like the
2:20
Speaker 1: broader US economy might not be in a recession, but
2:23
Speaker 1: manufacturing sure looks like it is. There's been a procession
2:27
Speaker 1: of data in recent months showing the sector is slowing.
2:30
Speaker 1: One key index showed the sector not only contracted in
2:33
Speaker 1: September but had its worst months since the dark days
2:36
Speaker 1: after the financial crisis a decade ago. Other reports have
2:39
Speaker 1: shown factory output declining in the first two quarters of
2:42
Speaker 1: this year, which meets the usual definition for a recession.
2:53
Speaker 1: The slump and manufacturing is starting to hit employment. In
2:56
Speaker 1: the first eight months of the US economy added a
2:59
Speaker 1: hundred mb thousand manufacturing jobs this year, just forty four
3:03
Speaker 1: thousand through August. But in some important states the trend
3:06
Speaker 1: is grimmer than the national statistics show twenty two states
3:10
Speaker 1: have actually seen the decline in manufacturing jobs in and
3:14
Speaker 1: those include some politically important places like Pennsylvania and Wisconsin.
3:20
Speaker 1: In both of those states, Trump's narrow winds in helped
3:24
Speaker 1: deliver him a national victory. This would be an example
3:31
Speaker 1: of a newer spreadord. Let mean, there are some uh
3:35
Speaker 1: feed mixers. Yeah, I always say, we always refer back
3:41
Speaker 1: when it comes to the steel surfs. Remember when U
3:46
Speaker 1: Bilba Ross last last March was on TV with that
3:49
Speaker 1: Campbell soup camp and uh he said six tents of
3:53
Speaker 1: one one cent. Once again, matter to anybody, this is
3:56
Speaker 1: our Campbell soup canon. It's a lot more than six
3:59
Speaker 1: tents of ones. That's Greg Petrice, the president of Coon
4:03
Speaker 1: North America, which makes farm equipment. We were standing outside
4:06
Speaker 1: his factory in Broadhead, Wisconsin, a small town near the
4:09
Speaker 1: border with Illinois, and we were talking about just how
4:12
Speaker 1: much Donald Trump's trade wars have hit not just his business,
4:15
Speaker 1: but the economy in America's heartland. How much the the
4:20
Speaker 1: we saw increases of fifteen hundred or two thousand dollars
4:25
Speaker 1: a unit just in material cost. Just how much does
4:29
Speaker 1: itself or some of these units could could run between
4:35
Speaker 1: Grand Okay, yeah, and you were saying, but you know,
4:41
Speaker 1: there's a reason most economists think terifs are terrible economic
4:45
Speaker 1: policy tool. Protect one domestic industry and you generally hurt another.
4:49
Speaker 1: You also tend to unleash a raft of unintended consequences.
4:53
Speaker 1: Slap a tariff fund imports from a country, say China,
4:56
Speaker 1: and it will slap its own right back. You'll also
4:59
Speaker 1: raise the cost for asnesses that rely on the imports
5:01
Speaker 1: from that country. Hit the economy and growth of one
5:04
Speaker 1: of your major trading partners, and you are likely hitting
5:07
Speaker 1: demand for your own exports. Trade wars also have a
5:12
Speaker 1: tendency to escalate, and as we're now seeing in the
5:15
Speaker 1: global economy, their consequences are broad, they're hard to contain,
5:19
Speaker 1: and they're unpredictable. But for companies like Coon, the impact
5:23
Speaker 1: is very real. Just a month ago, almost half of
5:26
Speaker 1: the six workers at that Wisconsin factory were furloughed for
5:29
Speaker 1: two weeks. The same thing is happening again this month.
5:33
Speaker 1: And you're a little part of the economy. What does
5:34
Speaker 1: it look like, Yeah, it's it's uh, it's terrible because
5:39
Speaker 1: UM demand is weakening. UM prices are going up right
5:45
Speaker 1: on our input side. We have to pass out along
5:47
Speaker 1: to to the customer, and there's so much uncertainty. That's
5:55
Speaker 1: just just makes the challenges that much worse. And Kun
6:06
Speaker 1: has always used domestics deal but that's cost the company
6:09
Speaker 1: two point five million dollars more in the past year.
6:12
Speaker 1: It also spent a million dollars paying tariffs, including a
6:15
Speaker 1: hundred and thirty eight thousand dollars on one type of
6:18
Speaker 1: ball bearing and imports from China alone, which is why
6:21
Speaker 1: Petrus bristles whenever he hears Trump insisting China is paying
6:26
Speaker 1: the tariffs and it's just an outright by and he
6:28
Speaker 1: knows it. So it's uh, it's incredible. So it's really
6:33
Speaker 1: it's really hard to come in the morning and and
6:36
Speaker 1: hear that on the CNN radio UM on the drive in,
6:40
Speaker 1: and you're like signing, you're signing your fist on the steering.
6:43
Speaker 1: We was like, why would you tell people this? Farmers
6:50
Speaker 1: have been hit hard by the trade wars and that's
6:52
Speaker 1: hurting Coon. Canada, Mexico, and China have all retaliated against
6:56
Speaker 1: Trump's tariffs that's hit US agricultural exports and farm incomes.
7:01
Speaker 1: Four years ago, the factory on the edge of Broadhead
7:04
Speaker 1: was humming along. The plant, along with a sister factory
7:07
Speaker 1: in Kansas, were on the way to four hundred million
7:09
Speaker 1: dollars in sales. This year, Coon will record just two
7:12
Speaker 1: hundred and fifty million dollars in sales in North America.
7:15
Speaker 1: Petris says the Broadhead plant is running it roughly fifty capacity.
7:20
Speaker 1: The future is bright in agriculture. I mean we we
7:23
Speaker 1: believe in it for sure. Uh, as long as population grows,
7:27
Speaker 1: is going to be more food needed on not much
7:29
Speaker 1: more land. Yeah. So that's the message we continuously send
7:34
Speaker 1: to our colored boys. We'll get through this, but when
7:39
Speaker 1: we're gonna pull out of the cycle. Who knows the
7:42
Speaker 1: slowdown has meant paring back everything from shifts and production
7:46
Speaker 1: to investments. Con is continuing the work of automating its factory,
7:49
Speaker 1: but it's holding off on a new R and D
7:51
Speaker 1: facility that would cost four million dollars. We need to
7:55
Speaker 1: keep investment that we're gonna be better than the future
7:58
Speaker 1: find for the long tim But it's kind of uh,
8:03
Speaker 1: it's kind of frustrating, uh when you do that year
8:07
Speaker 1: after year after year, when you run into a fourth
8:09
Speaker 1: year of a down market, and then you run into
8:12
Speaker 1: these outside forces that this joint make it, make it worse,
8:17
Speaker 1: and and he stamped down too. Of course, it's far
8:24
Speaker 1: from certain where the U. S economy will be a
8:26
Speaker 1: year from now, or what the political ramifications will be
8:29
Speaker 1: when voters go to the polls in November of The
8:32
Speaker 1: Trump administration argues any talk of recession is overblown. Larry Cudlow,
8:37
Speaker 1: who is Trump's chief economic advisor, recently said that the
8:40
Speaker 1: president is a tough negotiator looking for the best deal here.
8:44
Speaker 1: He is on Bloomberg TV last month. Never underestimate the
8:50
Speaker 1: strength of this country or the strength of this president.
8:55
Speaker 1: President Trump is doing what presidents have not done in
8:58
Speaker 1: the last five years. He sees the unfair trading practices.
9:03
Speaker 1: He wants to protect our country, our workforce, our technology,
9:07
Speaker 1: are farmers whatever, he is not going to relent. And
9:12
Speaker 1: by the way, and sheer political terms, I think the
9:16
Speaker 1: president has enormous support with respect to a rebalance and
9:22
Speaker 1: a big change in our relationship with China. Cutler also
9:27
Speaker 1: said the economy is very strong, but asked Jim Palm
9:31
Speaker 1: about it and you get a bleak reply. He's the
9:33
Speaker 1: purchasing manager at Coon's factory, and in recent months he
9:37
Speaker 1: has fielded more and more cold calls from fabricators offering
9:40
Speaker 1: their services. That's a sign that many factories have spare
9:44
Speaker 1: capacity and are chasing work. It's his own leading indicator.
9:48
Speaker 1: You can tell the healthy economy by all of a
9:50
Speaker 1: sudden these phone calls. Where they right, Yeah, that's where
9:54
Speaker 1: a lot I'm come from. This isn't just about business
9:59
Speaker 1: or economics. Of course. The last time the U saw
10:02
Speaker 1: drop in manufacturing jobs was in two thousand sixteen, and
10:05
Speaker 1: that helped Donald Trump and his protectionist trade message and
10:08
Speaker 1: some important industrial swing states where his narrow victories put
10:12
Speaker 1: him over the crucial threshold of two seventy votes in
10:15
Speaker 1: the electoral College. According to Mark Muro, a researcher at
10:18
Speaker 1: the Brookings Institution. Trump is more exposed politically to a
10:21
Speaker 1: downturn in manufacturing than any Democratic rival is likely to be. Nationally,
10:26
Speaker 1: we see Clinton Counties have half little less than half
10:31
Speaker 1: the manufacturing concentration than Trump County. So Trump County is
10:35
Speaker 1: significantly much more more oriented towards UH manufacturing. You look
10:41
Speaker 1: at the say three or four top battlegrounds in the Midwest,
10:46
Speaker 1: you're talking of employment in manufacturing compared to much lower,
10:54
Speaker 1: you know, single digits for the rest of the country.
10:57
Speaker 1: So these short number of places are heavily concentrated and
11:02
Speaker 1: Trump Trump is dependent on a base that is much
11:06
Speaker 1: more oriented towards UM manufacturing. Trump maybe a unique politician,
11:11
Speaker 1: but in politics, promises do have a tendency to come
11:14
Speaker 1: back and bite you. Trump is heavily committed to, you know,
11:20
Speaker 1: promising a manufacturing turnaround. Unfortunately, manufacturing is beginning to slump.
11:26
Speaker 1: We saw a contraction in the second quarter, and the
11:30
Speaker 1: Democrat aren't really talking about this per se. Greg Petris
11:36
Speaker 1: wouldn't tell me at first who we voted for. He
11:39
Speaker 1: later emailed to tell me he had voted for Trump,
11:42
Speaker 1: thinking that he was the pro business candidate. I won't.
11:45
Speaker 1: I won't next time around that for I'm a I'm
11:49
Speaker 1: a Republican and uh, I moved a lot, a lot
11:53
Speaker 1: to the center, let me tell you that. And I
11:55
Speaker 1: would just in the last two years, and I'm completely
11:58
Speaker 1: open to voting Democrat for Petriss. Vote won't be just
12:03
Speaker 1: about trade. But what are you seeing unfold before him
12:06
Speaker 1: certainly hasn't helped, and that's something worth paying attention to.
12:10
Speaker 1: The trade thing is just, I mean, it's just it's
12:12
Speaker 1: just stupid for Bloomberg News. I'm sewed on it. So
12:27
Speaker 1: Sean is here. Thanks for joining us again on Stephanomics.
12:31
Speaker 1: Thanks for having me listening to that. I'm interested you
12:35
Speaker 1: spend You've spent so much time on this trade war
12:38
Speaker 1: at different levels of it. Was there anything that surprised
12:41
Speaker 1: you out in the heart? Learns from what you heard? Look,
12:45
Speaker 1: I had two big takeaways from reporting this piece, and
12:48
Speaker 1: the first of them. First of it is, uh, we
12:51
Speaker 1: look at the aggregate numbers for economies to our own peril.
12:54
Speaker 1: I think in some ways it's the geography of upturns
12:59
Speaker 1: and downturn that actually matter, especially in in the political context.
13:04
Speaker 1: So you know, the economy looks different in Broadhead, Wisconsin
13:08
Speaker 1: than it does sitting here inside the Beltway here in Washington,
13:13
Speaker 1: or from what it looks like in New York City.
13:15
Speaker 1: You're in uh in parts of Michigan right now where
13:18
Speaker 1: they're dealing with a GM strike. You know, we need
13:21
Speaker 1: to think not just about those aggregate headline numbers, but
13:26
Speaker 1: about what's happening down on the ground in different places.
13:29
Speaker 1: The second thing I took away, which was it was
13:31
Speaker 1: a sense of foreboding in a way. Everyone I talked
13:35
Speaker 1: to in reporting the story, from Gregg Petris at at
13:39
Speaker 1: Coon to Tomlinebarger at at Cummings, a big diesel engine maker,
13:44
Speaker 1: had a common answer when you asked them what they
13:46
Speaker 1: thought the economy would look like a year from now,
13:48
Speaker 1: and it was not that it would look better. It
13:50
Speaker 1: was that they were preparing for things to get worse.
13:53
Speaker 1: And I think that's something that's really stuck with me
13:56
Speaker 1: as I've been trying to think more about the m
14:00
Speaker 1: packed with the trade warks and how things are going
14:01
Speaker 1: to play out. Yeah, I think a lot of economists
14:04
Speaker 1: would be fascinated to hear, especially the first thing you said,
14:06
Speaker 1: because that's exactly how they're thinking has changed. Over the
14:09
Speaker 1: last few years, particularly around China. And you probably know this,
14:12
Speaker 1: but that the originally, you know, we've had this sort
14:15
Speaker 1: of view about open trade and opening trade to places
14:18
Speaker 1: like China. We knew overall that it was going to
14:22
Speaker 1: be good for the economy, but they'd be winners and losers,
14:24
Speaker 1: and the perception was that those that there would be
14:28
Speaker 1: the overall people will be better off, and that where
14:31
Speaker 1: places were really hurt, those places, you know, people would
14:35
Speaker 1: move if they lost their manufacturing job, they'd go somewhere else.
14:38
Speaker 1: And what the research has shown again and again in
14:40
Speaker 1: the last few years is that actually people don't move,
14:43
Speaker 1: and the impact of those factory closures and and squeezes
14:48
Speaker 1: on on jobs from the competition that came from abroad
14:51
Speaker 1: actually was pretty permanent in a lot of these areas.
14:54
Speaker 1: And some of those areas then voted for Donald Trump.
14:57
Speaker 1: So I think it would ring very true for the
15:00
Speaker 1: those researches. Yeah, no, absolutely, I've been the great work
15:02
Speaker 1: by David Otter and m I. T and others looking
15:05
Speaker 1: at the impact on specific zitcods. I think what's really
15:07
Speaker 1: interesting as well is how if I listened to the
15:10
Speaker 1: Trump administration today in a funny way, they sound a
15:14
Speaker 1: lot like the Obama administration in insisting that we should
15:18
Speaker 1: be looking at the arrogant numbers, that things are going great,
15:20
Speaker 1: and that you know, any pain out there is an aberration.
15:25
Speaker 1: It's not the true national story. And of course, in
15:29
Speaker 1: Donald Trump was doing exactly the opposite. So okay, so
15:32
Speaker 1: we have to lift our eyes from this to to
15:34
Speaker 1: the day to day news. You've actually been been helping
15:37
Speaker 1: to make some over the last week. What's what's the
15:40
Speaker 1: latest twist in this in the saga and the new
15:43
Speaker 1: direction that the administration that you, you and your colleague
15:46
Speaker 1: Jenny len had found out the administration was considering. Yeah, So,
15:50
Speaker 1: Jenny and I reported last week that the US administration,
15:55
Speaker 1: the White House is having discussions about how to attack
15:59
Speaker 1: the issue of financial flows between the US and China
16:03
Speaker 1: and is looking at a whole series of options to
16:07
Speaker 1: essentially limit uh the amount of American capital that flows
16:12
Speaker 1: into Chinese companies and markets. Um. Now, that is the
16:17
Speaker 1: opposite in some ways of what US administrations have done
16:21
Speaker 1: for decades. They have been encouraging China to open up
16:25
Speaker 1: so that financial investors here in the United States could
16:28
Speaker 1: benefit from the gains and the economy there and arguing
16:33
Speaker 1: that open markets, would you know, continue continue the process
16:37
Speaker 1: of economic reforms in China would be the advantage of
16:39
Speaker 1: the US. Now, what we're hearing from the administration is
16:42
Speaker 1: that really they feel some Hawks and administration who we
16:46
Speaker 1: talked to feel strongly that the US capital that flows
16:51
Speaker 1: into China in some ways is helping underwrite uh this
16:55
Speaker 1: economic rival that is rising and is the big strategic
16:59
Speaker 1: threat to the United States going forward. So we're seeing
17:02
Speaker 1: the trade wars. We've already seen a kind of an
17:06
Speaker 1: attack on direct investment Chinese investment in the United States.
17:10
Speaker 1: We've seen a kind of technology leg to the trade
17:13
Speaker 1: wars with the restrictions on Huawei and so on. But
17:16
Speaker 1: this is the kind of capital wars, if you will,
17:19
Speaker 1: and that's the next leg of where things are heading.
17:22
Speaker 1: Do you when you step back those who are thinking
17:27
Speaker 1: about what does the trade war mean not just for
17:30
Speaker 1: the Midwest of America but for the broader global economy.
17:34
Speaker 1: Are we going to see some kind of break out
17:38
Speaker 1: of of peace? How is that looking? I mean, if
17:41
Speaker 1: you've already said, you know, we've seen an expansion of
17:44
Speaker 1: the potential territory of this war, but also some positive
17:47
Speaker 1: signs on just the trade aspect. Yeah, so we're in
17:51
Speaker 1: a new round of negotiations, if you will. We'll have Luha,
17:55
Speaker 1: the Chinese Vice Premier, coming to Washington in the middle
17:59
Speaker 1: of octow where we are expecting some substantive talks. We're
18:04
Speaker 1: not expecting the two sides to come out and say
18:08
Speaker 1: they've hatched a grand bargain and and pieces upon us. Uh.
18:12
Speaker 1: But I think there's there's an important context again. We
18:15
Speaker 1: we've got our step way back and and look at
18:18
Speaker 1: where we are. We are in a much worse place
18:21
Speaker 1: in terms of the economic relations between the US and China,
18:25
Speaker 1: and in terms of the tariffs that have been put
18:27
Speaker 1: in pace now on some three and sixty billion dollars
18:30
Speaker 1: and imports from China then we were a year ago
18:32
Speaker 1: or even six months ago. That has been a feature
18:36
Speaker 1: throughout of these trade wars that that I think about
18:39
Speaker 1: a lot. We get a lot of talk about negotiations,
18:42
Speaker 1: truce uh, some uh, some temporary peace, if you will.
18:48
Speaker 1: But underlying that has throughout has been this kind of
18:51
Speaker 1: steady escalation. And it's a little bit the kind of
18:54
Speaker 1: the boiling of the frog scenario, you know, where where
18:57
Speaker 1: it's you you get these moments where they turned down
19:01
Speaker 1: the heat, but the heat is where they turned down
19:03
Speaker 1: the fire a little bit, but the heat is still
19:06
Speaker 1: going up and eventually you know the global economy is
19:08
Speaker 1: going to suffer. Well, on that ominous metaphor, I think
19:12
Speaker 1: I'll let you get back to your reporting, but I
19:15
Speaker 1: know we're going to have you back on stephonomics in
19:17
Speaker 1: this series. But thanks very much. Sure, thanks for having
19:20
Speaker 1: me now Inshore's piece earlier, we got that grassroots perspective
19:30
Speaker 1: on Donald Trump's trade wars, now here on Stephanomics. We're
19:33
Speaker 1: always looking for ways to draw the dots between that
19:35
Speaker 1: kind of reporting and the big picture analysis you get
19:38
Speaker 1: from economists and other experts. I had a fantastic opportunity
19:42
Speaker 1: to do just that this week when I interviewed Penny Goldberg,
19:45
Speaker 1: the chief economist of the World Bank, when she was
19:48
Speaker 1: in London to deliver a lecture for a UK think tank.
19:51
Speaker 1: She's one of the world's foremost trade economists, and the
19:54
Speaker 1: subject of her lecture was the impact of globalization on
19:57
Speaker 1: the distribution of income. We talked about lots of things,
20:01
Speaker 1: but I was most interested to hear whether her expert
20:04
Speaker 1: analysis could make sense of what Sean had been seeing
20:07
Speaker 1: and hearing on the ground in the Midwest. I'm delighted
20:14
Speaker 1: that we're going to be able to also play some
20:16
Speaker 1: of this interview for my podcast Ephonomics. And one of
20:18
Speaker 1: the things that the continual theme on the podcast has
20:22
Speaker 1: been the trade wars and the impact of trade wars.
20:25
Speaker 1: You highlight some interesting research showing that trade policy has
20:29
Speaker 1: potentially been much more important than we thought to the
20:32
Speaker 1: growth of trade. You know, we've tended to emphasize the
20:35
Speaker 1: rise of the container and the reduction of transport costs
20:39
Speaker 1: around the world. Do you think that's been borne out
20:42
Speaker 1: by the kind of impact we're seeing on the ground
20:45
Speaker 1: of the recent tariffs in the last couple of years. So,
20:50
Speaker 1: perhaps one positive aspect of the of the recent train
20:54
Speaker 1: tensions of the recent trade war these that people and
20:58
Speaker 1: especially economists have started paying attention to trade policy. And
21:02
Speaker 1: until two to three years ago, as as you said, Um,
21:06
Speaker 1: the prevalent view both among policy makers but also among
21:11
Speaker 1: academics was that trade policy had become relevant, and so
21:15
Speaker 1: why do we worry about trade agreements and the w
21:18
Speaker 1: t o entire ifs? If trade policy was so irrelevant, Um,
21:23
Speaker 1: the current debate shows that trade policy does play an
21:27
Speaker 1: important role in ways that may be very hard to quantify.
21:31
Speaker 1: So if you try to assess the effects of the
21:33
Speaker 1: current trade war, several studies that have been conducted in
21:39
Speaker 1: order to assess the short run effects don't find any
21:42
Speaker 1: huge impacts. You know, in the aggregate, the effects are small.
21:47
Speaker 1: So far. There are distributional effects because trade always has
21:51
Speaker 1: distribution effects. But in the aggregate, we don't see a
21:54
Speaker 1: collapse of the economy. And to a certain extent, this
21:57
Speaker 1: makes sense because the United States is a very large country,
22:00
Speaker 1: so it's China. The tariff increases we're talking about are
22:03
Speaker 1: relatively small. However, what we see is an increased degree
22:09
Speaker 1: of uncertainty. Business confidence is going down, and so in
22:15
Speaker 1: the medium to long run this could have very important
22:18
Speaker 1: implications for the economy as a whole. This is where
22:22
Speaker 1: trade policy becomes important. What trade policy, what trade agreements.
22:27
Speaker 1: What the w t OH did for globalization in the
22:30
Speaker 1: last few decades was not just reducing tariffs. It was
22:34
Speaker 1: creating a system of rules that was stable and predictable,
22:38
Speaker 1: and this allowed firms to make decisions that had long
22:43
Speaker 1: run consequences. If you live in an environment where the
22:46
Speaker 1: rules change all the time. It's very hard for firms
22:50
Speaker 1: but also for individual people to make these decisions, and
22:53
Speaker 1: that's perhaps the biggest cost of what's happening right now,
22:56
Speaker 1: and it's hard to quantify that. So we haven't we
23:00
Speaker 1: haven't seen the consequences yet. But this doesn't mean it's
23:03
Speaker 1: not going to be important counter world and actually will.
23:06
Speaker 1: We talked to the manufacturers in Wisconsin and and and
23:10
Speaker 1: farmers and about but they're actually quite surprised by how much.
23:13
Speaker 1: You know, they thought it was going to be relatively
23:15
Speaker 1: small percentage changes in their costs, but they seem to
23:17
Speaker 1: have actually multiplied in their impact on the ground in
23:20
Speaker 1: terms of for some manufacturers, the costs are quite significant.
23:24
Speaker 1: But you talked about the distributional consequences. I mean, obviously
23:26
Speaker 1: it would be ironic if these tariffs, which were in
23:30
Speaker 1: part imposed in response to populist pressures and concerns about
23:34
Speaker 1: low wages and inequality, were themselves increasing inequality. But is
23:38
Speaker 1: that what you find? What's the distributional impact of these tariffs?
23:42
Speaker 1: So what we find, so this is some work I've
23:45
Speaker 1: done before joining the World Bank on the out of
23:48
Speaker 1: the gender and effects of of tariffs for the US
23:52
Speaker 1: in particular um the tarlets are paid by US buyers.
23:58
Speaker 1: This was unexpected because many thought that because the US
24:03
Speaker 1: economy is so large, part of the cost will be
24:06
Speaker 1: paid by the Chinese. So it was a bit of
24:09
Speaker 1: a surprise that we find what we call complete parcel
24:12
Speaker 1: of the type. So the prices went up one for
24:15
Speaker 1: one for the Tariffe increase. So what this means is
24:19
Speaker 1: that it's ultimately the U s side if they DOUS buyers,
24:22
Speaker 1: they US consumers who pay the price of the Tariffe increases.
24:28
Speaker 1: On the other hand, there weren't gains two producers, and
24:30
Speaker 1: the reason is there is intuitively there is substitution away
24:33
Speaker 1: from imports towards domestic goods. So eventually you see some gains,
24:38
Speaker 1: but against them to accrue to producers, not to the consumer,
24:41
Speaker 1: not to the consumer side of the econmer it's interesting
24:44
Speaker 1: we should go back to this farm equipment manufacturer that
24:47
Speaker 1: we spoke to because he said precisely he got very
24:49
Speaker 1: crossy with shouting at the TVs and Donald Trump, because
24:52
Speaker 1: Donald Trump was saying the Chinese are paying for these tariffs,
24:55
Speaker 1: and we have him saying getting very cross saying that
24:58
Speaker 1: he's paying for the Chinese are't paying the You're saying
25:00
Speaker 1: he's right and Donald Trump's wrong. Um. So our present
25:05
Speaker 1: intuition is the intuition that most economist hiding fact that
25:08
Speaker 1: the US is is huge, um that there should be
25:11
Speaker 1: in terms of trade effect and and they have not
25:14
Speaker 1: happened yet so far yet, So so we do find
25:17
Speaker 1: I would qualify that that go by saying that if
25:20
Speaker 1: eventually the exchange rate moves, then part of this cost
25:23
Speaker 1: may be actually paid by the Chinese. But we have
25:26
Speaker 1: seen the exchange rate move. I mean, I guess that's
25:28
Speaker 1: the iron is that Donald trus has been complaining about
25:30
Speaker 1: the unfair advantage that the Chinese are getting from the
25:34
Speaker 1: exchange with it. But in the sense that is the
25:35
Speaker 1: Chinese paying for the tariffs, well it's it's ironic. So
25:39
Speaker 1: then change rate has moved a lot. And so the
25:42
Speaker 1: most dramatic move was when the latest startiff increases were announced.
25:46
Speaker 1: And this this was definitely in response to the tariff increases.
25:50
Speaker 1: But what's a bit of all these Until seven or
25:52
Speaker 1: eight years ago, there were many accusations that the Chinese
25:55
Speaker 1: were manipulating the change rate and that's why they were
25:58
Speaker 1: so competitive. So when the daughter became weaker, is the
26:02
Speaker 1: Chinese currency that that was actually a positive development from
26:06
Speaker 1: the point of view of the US. It made China
26:08
Speaker 1: less competitive. So to the extent that all these eventually
26:11
Speaker 1: leads the Chinese to again have a lower valued currency.
26:16
Speaker 1: I'm not sure this is again given the background, given
26:19
Speaker 1: what has happened in the past. If you look at
26:29
Speaker 1: the calls for a pause, or you might say, actually
26:33
Speaker 1: the frustration with globalization and the sort of populist fueral
26:39
Speaker 1: has produced some political responses overall, would you say those
26:44
Speaker 1: political responses have made this have taken the situation in
26:47
Speaker 1: the right direction or the wrong direction? When you think
26:50
Speaker 1: of trade, wars and other things, So, a war is
26:54
Speaker 1: never a good thing, whether it's a military war or
26:57
Speaker 1: whether it's a trade or it's an economic war. Uh.
27:00
Speaker 1: In a war, there as participants say, there are no
27:04
Speaker 1: winners and losers. There is just destruction. And that applies
27:08
Speaker 1: to economic wars as well, and that applies to trade coarse.
27:11
Speaker 1: So if you ask me if I'm in favor of
27:13
Speaker 1: the current ah, the current train tensions. No, But it
27:18
Speaker 1: just looks like the political pressures that have resulted from
27:22
Speaker 1: the uneven distribution of gains are actually producing policies that
27:27
Speaker 1: make the situation worse. Well, it's not just UM, this
27:33
Speaker 1: rising inequality that that has produced these trade tensions, and
27:36
Speaker 1: you know that's that's another topic I also cover in
27:39
Speaker 1: my talk. UM. There is also a certain perception among
27:45
Speaker 1: advanced economies that the game has been unfair, that many
27:50
Speaker 1: developing countries, many large developing countries are not played by
27:52
Speaker 1: the rules and its workers in their plants economies but
27:57
Speaker 1: ultimately pay the price. And that would add one was seeing.
28:00
Speaker 1: I don't think the pressure is coming just from workers
28:03
Speaker 1: in advanced economies. I also think it's coming from businesses
28:07
Speaker 1: and many firms, many big firms complained there is no
28:11
Speaker 1: market access to developing country. So I think there are
28:15
Speaker 1: some valid points here. The question is if this is
28:18
Speaker 1: the right way to address them. UM. So, to a
28:20
Speaker 1: certain extent, you've got many of us thought when the
28:23
Speaker 1: trade intentions UM started arising, this was the negotiation tactic
28:28
Speaker 1: to address some long standing concerns that had not been addressed.
28:32
Speaker 1: And these concerns are not unique to one country. They
28:35
Speaker 1: are shared by many countries. They are shared by the
28:37
Speaker 1: United States by many countries in Europe, they are shared
28:41
Speaker 1: across administration, so they're not unique to one person, or
28:44
Speaker 1: one politician, or even one one particular country. Um So,
28:49
Speaker 1: the the trade tensions, the current climate is not just
28:55
Speaker 1: a response to inequality. It's also a response to all
28:57
Speaker 1: these allegations, all these long standing legations that the game
29:01
Speaker 1: has become really against advanced. To economists, we see all
29:04
Speaker 1: these pressures working on globalization now pushing it into reverse.
29:09
Speaker 1: When we look back, do you think we will say
29:12
Speaker 1: that this was when the world reached peak globalization. If
29:16
Speaker 1: you had asked me this question a year ago, I
29:19
Speaker 1: would have said no. Um So, when the trade tensions
29:23
Speaker 1: started rising, many of us drew parallels to what had
29:28
Speaker 1: happened in the late eighties and in the nineties with Japan.
29:31
Speaker 1: There were many similarities. At Japan was rising, there were
29:35
Speaker 1: many concerns that the workers in the United States were
29:38
Speaker 1: displaced in particular industries, especially the automobile industry. There was
29:42
Speaker 1: a rising protectionism, there were many concerns about market access.
29:46
Speaker 1: People even used exactly the same language to describe the situation.
29:49
Speaker 1: And what happened actually is there was a very short break.
29:54
Speaker 1: There was a rising protectionists, and then we had the
29:58
Speaker 1: w t O, we had global value chains, we had
30:01
Speaker 1: the hyper globalization of the nineties and globalization went on steroids.
30:06
Speaker 1: So my first reaction last year was that maybe we're
30:10
Speaker 1: experiencing We're experiencing exactly the same thing now with China,
30:14
Speaker 1: not with Japan, and this is just just a short
30:17
Speaker 1: break and eventually will return back to the old path.
30:20
Speaker 1: I'm not so sure anymore. I think perhaps we are
30:23
Speaker 1: at the turning point. It's hard to tell, but I
30:27
Speaker 1: do think that there are some elements that make the
30:29
Speaker 1: current situation very different from what happened with Japan. One
30:34
Speaker 1: of them is the sheer size of China. It's a
30:37
Speaker 1: huge country. The developing world is not where it was
30:40
Speaker 1: in the eighties or nineties. There are many countries writing.
30:45
Speaker 1: I do think that the current tensions are to a
30:49
Speaker 1: certain extended defining feature of our society, in the sense
30:54
Speaker 1: that it's no longer I think just about inequality, or
30:58
Speaker 1: just about being a liberal or conservative, or being in
31:02
Speaker 1: favor of pig or small government. There is a fundamental
31:05
Speaker 1: question whether we're embracing a global environment and open world
31:11
Speaker 1: with all the challenges this brings. It brings many benefits,
31:15
Speaker 1: but each of us is now competing at the global
31:17
Speaker 1: scale with millions of people across the world. That puts
31:21
Speaker 1: an awful lot of pressure on people. So are we
31:23
Speaker 1: willing to embrace that or do we think it's better
31:28
Speaker 1: to turn inwards and focus on our own countries. I
31:31
Speaker 1: think we're this important turning point and the policy choices
31:34
Speaker 1: that we make in the next few years are going
31:36
Speaker 1: to be quite important. Professor Penny Goldberg, thank you very
31:40
Speaker 1: much for talking to me. Thank you thanks for listening
31:49
Speaker 1: to this new series of Stephanomics. I'm so pleased to
31:52
Speaker 1: be back, and next week we'll have even more on
31:55
Speaker 1: the ground inside into the global economy and all Bloomberg reporters.
31:59
Speaker 1: In the meantime, you can find us on the Bloomberg Terminal, website,
32:02
Speaker 1: app or wherever you get your podcasts, and we'd love
32:05
Speaker 1: it if you took the time to rate and review
32:07
Speaker 1: the show so it can reach more listeners. For more
32:10
Speaker 1: news and analysis from Bloomberg Economics, follow at Economics on Twitter.
32:15
Speaker 1: You can also find me on at my Stephanomics. The
32:19
Speaker 1: story in this episode was written and reported by Sean Donnan.
32:23
Speaker 1: It was produced by Magnus Hendrickson and edited by Scott Landman,
32:26
Speaker 1: who is also the executive producer of Stephanomics. And you
32:30
Speaker 1: should really read Shawn's original article on this in Bloomberg
32:33
Speaker 1: Business Week, which was edited by Christina Lynn Blad. Special
32:37
Speaker 1: thanks to to Professor Penny Goldberg and the Institute for
32:40
Speaker 1: Fiscal Studies. Francesca Levy is the head of Bloomberg Podcast