Latest / Trumponomics / Can the World Count on ‘TACO’ Anymore?

Transcript

Can the World Count on ‘TACO’ Anymore? · Trumponomics

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephanie Flander's head
0:18
Speaker 1: of Government and Economics at Bloomberg. Welcome to Trumponomics, the
0:22
Speaker 1: podcast that looks at the economic world of Donald Trump,
0:24
Speaker 1: how he's already shaped the global economy. What on earth
0:28
Speaker 1: is going to happen next? President Trump, it's often said,
0:32
Speaker 1: approaches the presidency like a reality show. The deadlines, the
0:36
Speaker 1: late night social media posts, the multiple plot lines. It's
0:40
Speaker 1: all about keeping us all tuned in. And that might
0:44
Speaker 1: be unfair, but there's no doubt he knows how to
0:46
Speaker 1: keep his audience guessing, and he really knows how to
0:49
Speaker 1: raise the stakes. We're recording this in London on Tuesday,
0:54
Speaker 1: June twenty fourth, after twelve days of conflict between Israel
0:59
Speaker 1: and Iran, and many days of guessing quite how far
1:02
Speaker 1: the US would allow Israel to lead it into war.
1:06
Speaker 1: But peace is now broken out, or at least a
1:09
Speaker 1: fragile ceasefire. Everything may have changed again by the time
1:12
Speaker 1: you hear this, but I want to shift focus anyway
1:14
Speaker 1: to consider a conflict which could have, probably would have
1:17
Speaker 1: a much larger impact on the global economy, the trade
1:21
Speaker 1: war unleashed by President Trump with his Liberation Day tariffs
1:25
Speaker 1: on April second. Now, the ninety day ceasefire in that
1:29
Speaker 1: war runs out in just two weeks, with barely a
1:33
Speaker 1: trade deal with US trading partners in sight. But having
1:37
Speaker 1: blinked once with that ninety day pause, the assumption of many,
1:41
Speaker 1: especially in the markets, had been that Donald Trump would
1:44
Speaker 1: back down again if his so called reciprocal tariffs were
1:48
Speaker 1: again riling the markets. But the world found out this
1:52
Speaker 1: weekend that President Trump doesn't always chicken out. So should
1:56
Speaker 1: we be considering alternative plot lines for the great tariff
1:59
Speaker 1: wars of twenty twenty five. I don't know the answer
2:02
Speaker 1: to that, but I know two colleagues who can speculate
2:05
Speaker 1: more sensibly than most in Washington, d C. Sean donnand
2:09
Speaker 1: senior writer with Bloomberg on the US and global economy
2:13
Speaker 1: and a frequent participant on trumpnomics. Welcome back, Sean. Wonderful
2:17
Speaker 1: to be here and usually in New York City, but
2:19
Speaker 1: this week with me in London is John Authors. John
2:22
Speaker 1: is a senior editor for Markets and a Bloomberg opinion columnist.
2:26
Speaker 1: He was also the Ft for many years before that,
2:28
Speaker 1: and his daily newsletter Points of Return, is now one
2:32
Speaker 1: of the most read on Bloomberg. Very nice to have.
2:34
Speaker 2: You with us, John, Thank you for that very kind introduction.
2:38
Speaker 2: It's great to be here.
2:38
Speaker 1: It's all downhill from here. So Sean reminds us what
2:45
Speaker 1: the US tariff rate is now with the rest of
2:47
Speaker 1: the world, because it's obviously much higher than it was
2:50
Speaker 1: when Donald Trump took office.
2:52
Speaker 3: Right, So, we entered the year with the average applied
2:55
Speaker 3: tar f rate on US imports around two and a
2:58
Speaker 3: half percent, and it's now sitting around fifteen percent, which
3:01
Speaker 3: is its highest level since the nineteen thirties. And I
3:04
Speaker 3: think that's the key point right there. We're at the
3:07
Speaker 3: highest rate in almost a century. That is in the
3:12
Speaker 3: middle of a pause. Trump has threatened much higher tariffs
3:15
Speaker 3: that would take that average applied rate up closer to
3:18
Speaker 3: twenty five percent, which would take us to the highest
3:20
Speaker 3: rate since somewhere in the late nineteenth century.
3:23
Speaker 1: I'm glad we started with that because it's something to
3:25
Speaker 1: bear in mind that there's one of the clever things
3:27
Speaker 1: that President Trump does is sort of change our perceptions
3:31
Speaker 1: of how bigger number is or how small a number is.
3:33
Speaker 1: So just falling on from that, as you say, there's
3:36
Speaker 1: a ceasefire with the sort of big reciprocal tariffs, those
3:40
Speaker 1: ones that he announced in the Rose Garden with a
3:42
Speaker 1: big menu board. But that would mean a much larger
3:47
Speaker 1: increase in average tariphraates. As you said, it's about another
3:50
Speaker 1: twenty percent increase in the US tariffhrase and quite a
3:54
Speaker 1: hit even just for the US economy.
3:56
Speaker 3: Absolutely, we should go back and remember that when those
4:01
Speaker 3: initial Liberation Day tariffs were announced, most economists very quickly
4:06
Speaker 3: started predicting a recession in the United States, and that
4:09
Speaker 3: we saw the chances of a recession from big banks
4:14
Speaker 3: and big Wall Street analytical shops go up above fifty percent,
4:19
Speaker 3: and it was a pretty immediate threat of a pretty
4:23
Speaker 3: dramatic slowdown in the US economy. What we've ended up
4:28
Speaker 3: with is a much more benign scenario, but one still
4:35
Speaker 3: where we're going to see slower growth and higher prices.
4:39
Speaker 3: We're just not going to tumble into that dramatic recession.
4:42
Speaker 1: So John, I mean Sean said, when those tarifts were announced,
4:45
Speaker 1: we saw lots of people expecting a recession, and there
4:50
Speaker 1: was a lot of action in the bomb markets, which
4:52
Speaker 1: probably did force Donald Trump's hand in announcing that ninety
4:56
Speaker 1: day cease five. But it was only a ninety day ceasfive.
4:58
Speaker 1: So how come everything's been so quiet since then and
5:02
Speaker 1: even now in the lead up to this deadline, when
5:04
Speaker 1: the deals that were supposed to be signed are just
5:06
Speaker 1: nowhere to be seen. Apart from that rather feeble UK deal.
5:09
Speaker 2: Which wasn't really a dealer. All of us speaking today
5:12
Speaker 2: are alumni of the Financial Times. To mention the guy
5:15
Speaker 2: who is actually still at the Financial Times, I will
5:17
Speaker 2: colleague Robert Armstrong came up with the glorious acronym TUCO
5:21
Speaker 2: for Trump Always chickens Out.
5:24
Speaker 1: I was thinking it's great for him to get credit
5:26
Speaker 1: for that, But I wonder whether he, given how much
5:28
Speaker 1: Donald Trump apparently hates it, I wonder whether he's sort
5:30
Speaker 1: of wishing it would been a bit more anonymous.
5:32
Speaker 2: I gathered yes. But anyway, the point is that when
5:36
Speaker 2: he used that phrase, it touched a nerve beyond the
5:40
Speaker 2: tariff truces. There had been the earlier deciding he was
5:44
Speaker 2: going to lift the fentanyl tariffs on Mexico and Canada
5:48
Speaker 2: in return for really no concessions at all. There was
5:51
Speaker 2: the brief threat to see if he could fire Jerom
5:54
Speaker 2: Powell from the FED. That's also got removed quite quickly,
5:58
Speaker 2: and so there really was a sense in the market
6:01
Speaker 2: that this was something you could rely on, that it
6:03
Speaker 2: was like a put option that Trump always chickens out.
6:06
Speaker 2: You can safely ignore him. If other people are selling
6:11
Speaker 2: because they think there is more political risk because Trump
6:15
Speaker 2: might actually go through with what he's doing, then it
6:17
Speaker 2: makes sense to buy. And that's basically the logic that
6:21
Speaker 2: has moved. And that means that officially we are moving
6:25
Speaker 2: back to whatever number Swan gave us over twenty five
6:29
Speaker 2: percent average tariffs two weeks from now, which is economic
6:33
Speaker 2: armageddon scenario. I know nobody who thinks that wouldn't cause
6:36
Speaker 2: a recession if you actually had tariffs that eye for
6:38
Speaker 2: any length of time. And yet people are so calm.
6:41
Speaker 2: There is a strong assumption that Trump does always chicken out. Now,
6:47
Speaker 2: the interesting thing is, after we've the effect of the
6:50
Speaker 2: bunker buster in Iran, which does it has to be said,
6:54
Speaker 2: show that Trump doesn't absolutely always chicken out, might actually
6:58
Speaker 2: make it easier for the administration to chicken out on
7:03
Speaker 2: this one, or to take a step.
7:06
Speaker 1: Back to contorted Trump in logical Yes.
7:09
Speaker 2: Now that we have shown that at least once you
7:11
Speaker 2: can't rely on Trump not to go through with a threat,
7:15
Speaker 2: and particularly when so far it looks as though the
7:18
Speaker 2: threat is working out for him. That makes it politically
7:21
Speaker 2: much easier for him to step back on the tariffs.
7:26
Speaker 1: At sure, you're sitting in DC, you spend more time
7:29
Speaker 1: trying to get into the brain of Donald Trump. That
7:32
Speaker 1: doesn't sound too uncomfortable. Does that ring true to you
7:35
Speaker 1: that that's how the White House might be thinking about it.
7:37
Speaker 3: Look, I think there's definitely some recalculating that's happening around
7:42
Speaker 3: the world in all those capitals that are dealing with
7:45
Speaker 3: the prospect of higher tariffs. You know, Donald Trump followed
7:49
Speaker 3: through on a pretty dramatic threat, and I think around
7:53
Speaker 3: tariffs he may do it again. But we may see
7:56
Speaker 3: a version of what we've seen in the wake of
7:58
Speaker 3: Iran is a pretty dramatic escalation and again an attempt
8:03
Speaker 3: to raise the leverage on other countries, to increase the
8:07
Speaker 3: heat to force people to the table. We've seen him
8:10
Speaker 3: do that actually during the ceasefire by threatening fifty percent
8:14
Speaker 3: tariffs on the EU because they weren't negotiating fast enough,
8:18
Speaker 3: and that prompted some pretty rapid action on the EU side,
8:22
Speaker 3: where they quickly jumped on some planes came to Washington
8:24
Speaker 3: and toxic accelerated at least for a few days. So
8:28
Speaker 3: we may see something like that again this time around.
8:31
Speaker 3: But I think in all of this we have to
8:33
Speaker 3: remember where Trump's trying to get to, right, and I
8:37
Speaker 3: think actually the first time he was asked about this
8:40
Speaker 3: taco acronym, he was had a kind of indignant response,
8:45
Speaker 3: but he also laid out very clearly how he negotiates,
8:48
Speaker 3: and he says, I throw out an extreme number that
8:53
Speaker 3: causes people to come to the table, and then we
8:55
Speaker 3: finally settle at a lower number. And that's what he's
8:57
Speaker 3: been doing here. The fact that we are now here
9:00
Speaker 3: in the end of June thinking about a ten percent
9:04
Speaker 3: tariff on the world, which a year ago would have
9:07
Speaker 3: been an incredibly dramatic policy gesture as some kind of
9:12
Speaker 3: benign option, means that Trump and the administration have actually
9:16
Speaker 3: succeeded in a way and doing what they do, which
9:19
Speaker 3: is shifting the framing, shifting the assumptions out there in
9:23
Speaker 3: the world about what's normal. Plus we should mention these
9:26
Speaker 3: pretty dramatic sectoral tariffs, So twenty five percent tariffs on
9:30
Speaker 3: cars coming into the United States, some looming investigations on
9:35
Speaker 3: semiconductors and copper and lumber, all of which are going
9:39
Speaker 3: to include not just the raw materials but products that
9:41
Speaker 3: are made of those things. You know, that being accepted
9:45
Speaker 3: as normal is to me still the mind blowing thing here,
9:48
Speaker 3: and that's perhaps Donald Trump's great achievement. I think, you know,
9:52
Speaker 3: you can say Trump always chickens out, but if financial
9:56
Speaker 3: markets read it as him chickening out, Trump actually wins
10:00
Speaker 3: because he gets what he wants, which is tariffs and
10:04
Speaker 3: the revenues that come.
10:05
Speaker 1: With them, I guess it's now it's going to be
10:07
Speaker 1: It's going to be Trump. Trump always cashes out, He's
10:09
Speaker 1: managed to come away, you know, he's cashed out.
10:12
Speaker 3: Or Trump always gets what he wants, or I mean,
10:15
Speaker 3: you know, there's all all sorts of acronyms and memes
10:17
Speaker 3: we can come up with.
10:19
Speaker 1: I think John, you and I had both seen this.
10:21
Speaker 1: To the slot, the chief economist of Apollo and sends
10:24
Speaker 1: around these influential notes and charts. This is something he'd
10:28
Speaker 1: framed as all sort of part of a cunning plan
10:30
Speaker 1: of Donald Trump's that we're going to end up in
10:32
Speaker 1: a place that we recognize as being modest, which isn't
10:36
Speaker 1: really modest at all.
10:37
Speaker 2: Yes, and there is a pretty real chance that will happen,
10:41
Speaker 2: because it gives him some grace. The specific suggestion that
10:44
Speaker 2: Towston comes up with is that the net, rather than
10:49
Speaker 2: that on the three month deadline, he will announce a
10:51
Speaker 2: twelve month further period and people can continue to get ready,
10:58
Speaker 2: but they can feel much more of a sense of
11:01
Speaker 2: certainty and not notice that the tariffs the US are
11:06
Speaker 2: charging of their highest since the nineteen thirties.
11:08
Speaker 1: So this would be July night saying or sometime before
11:11
Speaker 1: July nine's saying, actually, we're going so well with our
11:13
Speaker 1: trade negotiations, we're going to let them run another year.
11:15
Speaker 2: Yes, And I think the point there is that if
11:20
Speaker 2: inflation hasn't picked up due to tariffs after another twelve months,
11:26
Speaker 2: then there will be some degree of confidence that a
11:30
Speaker 2: lot of us, including myself, certainly have been wrong in
11:33
Speaker 2: thinking that tariffs would be directly inflationary. And similarly, if
11:37
Speaker 2: the most recent pmi's manufacturing surveys Japan, Eurozone, the UK,
11:43
Speaker 2: the US, they're all higher than they were three months ago.
11:46
Speaker 2: In the era when we've known about tariffs and when
11:49
Speaker 2: we've had the ten percent tariff. There are any number
11:52
Speaker 2: of reasons which you probably don't want to go into
11:54
Speaker 2: the weeds, why you might well expect the tariff effect
11:57
Speaker 2: to take a while to show itself. Give it another
12:00
Speaker 2: twelve months. If inflation does pick up, which most people
12:05
Speaker 2: on Wall Street think that it pretty much inevitably will
12:09
Speaker 2: to some extent, that becomes a big issue for Donald Trump,
12:16
Speaker 2: because that's one thing he must not allow to happen,
12:19
Speaker 2: is inflation to start increasing again. And it becomes almost
12:25
Speaker 2: like a put option or a balancing mechanism that if
12:29
Speaker 2: inflation takes off, if people begin to think it's your
12:32
Speaker 2: stupid ten percent tariff, which is meaning our prices are
12:35
Speaker 2: going up, that will become a major inhibiting factor. That
12:39
Speaker 2: will probably be the end of the tariff agender.
12:42
Speaker 1: It is worth getting into a little bit because one
12:44
Speaker 1: of the other reasons for complacency, it was not just
12:47
Speaker 1: taco being a fun acronym and people starting to believe
12:53
Speaker 1: in it, but there was also this sense that the
12:55
Speaker 1: economic pain that we've been sort of quote unquote promised
12:58
Speaker 1: from these tariff rates a significant increase, as Sean reminds us,
13:02
Speaker 1: in historical terms, the fact that that was not slowing
13:06
Speaker 1: the economy in a visible way and was not adding
13:09
Speaker 1: to inflation in an invisible way. I think was another
13:12
Speaker 1: factor that has led people to be more relaxed about
13:14
Speaker 1: these high tariffs.
13:15
Speaker 3: Now.
13:15
Speaker 1: I was looking at the analysis that are US economists
13:21
Speaker 1: have done whether we should expect any kind of meaningful
13:24
Speaker 1: increase inflation later in the year. I mean, so far,
13:27
Speaker 1: they're not. They're not seeing it. They're seeing importers US
13:30
Speaker 1: companies taking the full brunt of the tariffs, so they're
13:33
Speaker 1: not getting any discounts from the exporting countries, which is
13:37
Speaker 1: obviously you know, Donald Trump had said it's the exporters
13:40
Speaker 1: that are paying these tariffs. So far, that's not been
13:42
Speaker 1: the case, at least at the border. They are, by
13:45
Speaker 1: and large, we're seeing it's the squeeze in profit margins
13:49
Speaker 1: rather than an increase in prices.
13:52
Speaker 3: I think one of the things with trade and tariffs
13:56
Speaker 3: is we always expect this kind of dramatic reaction in
14:01
Speaker 3: the economy, and we expect an immediate reaction in the economy.
14:04
Speaker 3: And we know that going into these tariffs is a
14:06
Speaker 3: huge build up of inventories, for example here in the
14:09
Speaker 3: United States, and the products that are on the shelves today,
14:12
Speaker 3: by and large are things oftentimes that were imported before
14:16
Speaker 3: the tariffs went into place in April, So you were
14:20
Speaker 3: never going to see a dramatic, immediate impact on inflation
14:24
Speaker 3: from these tariffs, although we should point out that steel
14:27
Speaker 3: prices in the United States have risen sharply, aluminum prices
14:31
Speaker 3: have risen sharply, and so some of the inputs that
14:35
Speaker 3: are tariff most dramatically have reacted fairly quickly. But when
14:39
Speaker 3: it kind of flows through to the consumer end, there's
14:43
Speaker 3: lots of stops on the way where you can take
14:46
Speaker 3: a little bit off in terms of costs, you can
14:48
Speaker 3: rely on inventories and so on. I was talking to
14:51
Speaker 3: someone yesterday who works for an agency that does kind
14:55
Speaker 3: of credit ratings for trade finance, and these are two
14:59
Speaker 3: companies involved in trade transactions, and they do the credit
15:04
Speaker 3: ratings on the companies, and they say, one of the
15:06
Speaker 3: things that they're seeing is a lot of small businesses
15:10
Speaker 3: really getting hit hard on the cash flow side because
15:13
Speaker 3: suddenly they're paying these tariffs that are that they weren't
15:17
Speaker 3: expecting to pay three four, six months ago. And the
15:21
Speaker 3: point that this person was making to me is that
15:22
Speaker 3: they can weather that for now, they can stretch payment
15:26
Speaker 3: terms for a little bit, but over the next sixty days,
15:29
Speaker 3: the whole game is going to change because the cash
15:32
Speaker 3: flow situation for a lot of these small business is
15:34
Speaker 3: is going to get a lot more dramatic. The payment
15:38
Speaker 3: terms being extend is going to have an impact on
15:41
Speaker 3: credit ratings, which will have an impact on access to
15:43
Speaker 3: capital and so on. And so by the end of
15:46
Speaker 3: the summer, this person was predicting, you're really going to
15:49
Speaker 3: see an impact that's much clearer and so on, and
15:53
Speaker 3: that rings true. A lot of companies will tell you, yes,
15:57
Speaker 3: we've sucked it up for now, but I've just had
16:00
Speaker 3: two months, three months of losses and at some point
16:04
Speaker 3: I need to adjust and I need to increase prices
16:07
Speaker 3: and so on. So I think there's a delayed response
16:09
Speaker 3: in the economy. And the final thing is this is,
16:13
Speaker 3: you know, the impact on an economy is we're talking
16:16
Speaker 3: about often in the tenths of percentage points in drag
16:20
Speaker 3: on growth, maybe a full percentage point in terms of
16:24
Speaker 3: a drag on growth. That is not something that is
16:28
Speaker 3: kind of felt immediately. It's an accumulation of things moving slower.
16:33
Speaker 1: It's interesting though, so if you look at most of
16:35
Speaker 1: our estimates, and that you know, the Bloomberg Economics estimates
16:39
Speaker 1: sort of across the board. Actually, the biggest impact when
16:42
Speaker 1: we look at the impact on Europe of Donald Trump's
16:46
Speaker 1: trade policies on China, uncertainty is that, you know, when
16:51
Speaker 1: they sort of break down the components, by far, the
16:54
Speaker 1: biggest chunk of the hit is uncertainty. And as I
16:59
Speaker 1: said before, that's not going to go away with endless ceasefires,
17:03
Speaker 1: short term fixes truces. So that seems to me a
17:09
Speaker 1: pretty pretty significant thing for the future because people could
17:13
Speaker 1: just decide, and we're seeing this with foreign investment as well,
17:16
Speaker 1: to just decide, I don't want any piece of it
17:19
Speaker 1: because I just need certainty, even if I'm paying higher tariffs,
17:22
Speaker 1: I just don't want to be dealing with the uncertainty
17:24
Speaker 1: of being inside the US or trading with the US.
17:27
Speaker 2: Yes, now, picking up on that point where I suspect
17:30
Speaker 2: this issue is going to move is towards flows of
17:32
Speaker 2: capital rather than trade blows, because you can close off
17:36
Speaker 2: capital flows very swiftly. Indeed, and ultimately, we have a
17:42
Speaker 2: proposal in the One Big Beautiful Bill Act that would
17:44
Speaker 2: allow direct reprisal taxation on foreign capital in the US,
17:50
Speaker 2: which would have a very interesting effect on its current
17:52
Speaker 2: role in the global financial system. But it's also the
17:56
Speaker 2: case that a universal tariff is at this moment a
18:00
Speaker 2: tariff on or attacks on US company's profits. And one
18:07
Speaker 2: of the big trends of the last ten to fifteen
18:10
Speaker 2: years has been the ineluctable flow of capital into the
18:14
Speaker 2: US chasing the higher profit margins, the higher profits generated
18:18
Speaker 2: by big US companies. So what we do have with
18:23
Speaker 2: the ten percent baseline? Does we all know? It's changes
18:28
Speaker 2: at the margin that matter.
18:30
Speaker 1: There's people are reason at the margin to get out
18:31
Speaker 1: of the EUA.
18:32
Speaker 2: Yes, the odds that you will steadily see capital which
18:36
Speaker 2: has flowed in dramatic way to the US and twas
18:39
Speaker 2: not ever. Thus, it's remarkable how big the US stock
18:43
Speaker 2: market is compared to the rest of the world. It's
18:45
Speaker 2: never been bigger, and so on. That could lead to
18:50
Speaker 2: pretty serious problems years down the road, which may not
18:54
Speaker 2: be possible to directly Again, econometricians will have all kinds
18:59
Speaker 2: of arguments that's exactly why these problems are happening. But
19:02
Speaker 2: it will be harder to borrow in the US because
19:06
Speaker 2: rates will be going up and it will be harder
19:08
Speaker 2: for companies to access abundant capital because their profits and
19:13
Speaker 2: they no longer trade at the same attractive valuations. Meanwhile,
19:20
Speaker 2: any return of capital to Europe and Japan will presumably
19:25
Speaker 2: have that much more of a positive effect.
19:27
Speaker 3: There.
19:27
Speaker 1: There's something we keep coming back to about, Yeah, the
19:30
Speaker 1: reasons for people to stay as invested in the US
19:33
Speaker 1: market as they are. You mentioned it. If we're thinking
19:36
Speaker 1: of things that have changed since Liberation Day, I mean,
19:39
Speaker 1: one thing that has become very apparent is the very
19:42
Speaker 1: high cost of the big, beautiful bill. Yes, and how
19:47
Speaker 1: quite how beautiful it is, and how big it is
19:49
Speaker 1: in so many ways that might not have been anticipated.
19:52
Speaker 1: And in fact, we have a story running about how
19:55
Speaker 1: the three point four trillion dollar cost of making the
19:59
Speaker 1: twenty si seventeen tax cuts, the Trump one tax cuts permanent,
20:03
Speaker 1: that the Senate Republicans are hoping to just wish that
20:07
Speaker 1: away and just say, well, that's no change in policy
20:10
Speaker 1: at all, so we don't have to count that three
20:11
Speaker 1: point four trilliant. One thing that any investor, any policy
20:15
Speaker 1: maker around the world would have to conclude looking at
20:18
Speaker 1: this is taratt are not going to go any lower
20:21
Speaker 1: than they are now because he really needs the money, Chawn,
20:25
Speaker 1: he needs that offsetting revenue. I think is it four
20:28
Speaker 1: hundred potentially four hundred billion a year.
20:32
Speaker 3: I mean, we'll see it's been about forty billion dollars
20:34
Speaker 3: that has been collected in the first two months of
20:38
Speaker 3: these terroffts. I think it was twenty two billion in May,
20:43
Speaker 3: just to give you an idea. Before the tariffs went
20:45
Speaker 3: into place, they were collecting six seven billion dollars in
20:49
Speaker 3: duties a month.
20:50
Speaker 1: So the incidents are that they could go much depending
20:52
Speaker 1: on what you think about July Nut, you could go
20:54
Speaker 1: much higher and make it absolutely the make a dent
20:56
Speaker 1: in there.
20:57
Speaker 3: Yeah. So look, I mean we could be looking at uh,
21:00
Speaker 3: you know, thirty billion dollars a month, almost four hundred
21:05
Speaker 3: billion dollars a year in terms of tariff revenues before long.
21:09
Speaker 3: That would absolutely make a dent in the costs of
21:13
Speaker 3: the big beautiful bill. And this gets into also how
21:16
Speaker 3: you score this thing. Economists will tell you though, that
21:20
Speaker 3: four hundred billion dollars is tax revenues, and some people
21:24
Speaker 3: have been out there saying this is the biggest tax
21:26
Speaker 3: increase put in place in the US since the nineteen eighties.
21:29
Speaker 3: And that's how we should be thinking about this, and
21:32
Speaker 3: that in itself may be a drag on growth in
21:34
Speaker 3: the economy, which might mean fewer tax revenues on the
21:38
Speaker 3: income and business tax side the longer run. So I
21:42
Speaker 3: mean yes, in theory today it offsets things, but the
21:47
Speaker 3: economic effects of that tax increase are likely to pull
21:51
Speaker 3: things down a little bit. And that's where if you
21:54
Speaker 3: the Congressional budget off is. All sorts of fiscal geeks
21:57
Speaker 3: in America have been looking at this, and one of
21:59
Speaker 3: the things that are really strong with is how to account
22:01
Speaker 3: for this tariff revenue and the impact of tariff's on
22:04
Speaker 3: the economy. And it's the same thing over at the FED.
22:06
Speaker 3: Because the US hasn't seen anything like this. I mean
22:10
Speaker 3: that the only analog.
22:13
Speaker 1: To since the nineteenth century.
22:14
Speaker 3: Yeah, well, well is the nineteen thirty smooth Holly tariff
22:18
Speaker 3: bill right.
22:19
Speaker 1: Well, and before that, I would say, when we depended
22:21
Speaker 1: more on tariff revenue than you know before.
22:23
Speaker 3: What happened in the nineteenth century, Yeah, but when it
22:26
Speaker 3: was a much smaller economy, government was much smaller, uh
22:29
Speaker 3: and and so on. So, but that's a long time ago.
22:32
Speaker 3: There aren't many living economists today who remember going through
22:36
Speaker 3: the after effects of the nineteen thirty Smooth Holly tarifil.
22:38
Speaker 3: There's plenty you have studied it.
22:40
Speaker 1: Channel I in a sort of tax economist. I mean,
22:43
Speaker 1: there are many things that are bad about tariffs, but
22:45
Speaker 1: if you do end up with a fairly uniform ten
22:49
Speaker 1: percent tariff raid You looked at the US in the
22:52
Speaker 1: last twenty thirty years, like many countries, it has a
22:55
Speaker 1: structural neat desire to have more spending on government services
22:59
Speaker 1: than it wants to pay for in terms of taxes,
23:02
Speaker 1: and the specific thing in the US has often been
23:05
Speaker 1: a very great unwillingness to have high sales taxes compared
23:08
Speaker 1: to Europe where you have a VAT and other things.
23:11
Speaker 1: You could argue that this is a way of resolving
23:14
Speaker 1: that that you've got a step change of you're going
23:17
Speaker 1: to have a significant increase in your tariff revenue, which
23:20
Speaker 1: is probably going to be felt by consumers, but they
23:23
Speaker 1: don't see it in the same way for better or
23:25
Speaker 1: worse as VAT. If it's broadly uniform with all of
23:28
Speaker 1: the trading partners, and you have another belief alongside that
23:32
Speaker 1: that people have been sort of trading off the US
23:34
Speaker 1: and sort of you know, free loading off the US
23:37
Speaker 1: superpower for this for a long time. You know, you
23:40
Speaker 1: stop crazy. You're not necessarily comparing in the nineteen thirties.
23:43
Speaker 1: You're comparing it with a sort of structural shift in
23:47
Speaker 1: the global economy.
23:48
Speaker 3: Absolutely, And you know we've forgotten about this now, But
23:51
Speaker 3: Kamala Harris's whole political pitch against Donald Trump's tariffs was
23:56
Speaker 3: to dub them a sales tax. This was a ten
23:59
Speaker 3: percent sales tax that Donald Trump was pursuing on American consumers.
24:04
Speaker 1: So Grits get interested when they hear the words sales tax.
24:07
Speaker 1: They think, oh, that sounds great.
24:08
Speaker 3: That's what I mean. There's a kind of economically sure,
24:11
Speaker 3: you can rationalize anything, I think, including tariffs. But I
24:14
Speaker 3: do think it's going to be interesting to see as
24:18
Speaker 3: we see these things hit the economy, as we see
24:21
Speaker 3: prices go up, and they will go up. I think
24:24
Speaker 3: the political reaction is also going to be interesting. And
24:29
Speaker 3: you know, we could go from a moment where in
24:31
Speaker 3: twenty sixteen we're all talking about the backlash against globalization. Well,
24:36
Speaker 3: you know, maybe in twenty twenty six in the midterm elections,
24:41
Speaker 3: one of the narratives that emerges is a backlash against
24:45
Speaker 3: tariffs and a back lass against papers. Now that's a
24:49
Speaker 3: long way away. Smarter people than me will disagree with me,
24:53
Speaker 3: but I think that is a possibility.
24:55
Speaker 1: I'm sure Adam Smith would be proud if we were
24:57
Speaker 1: all out on the streets campaigning against tarist. John Shawn,
25:01
Speaker 1: thank you very much, Thank you, thank you, thanks for
25:08
Speaker 1: listening to Trumpnomics from Bloomberg. It was hosted by me
25:10
Speaker 1: Stephanie Flanders. I was joined by Bloomberg's John Authors and
25:14
Speaker 1: Sean Donnan. Trumpnomics is produced by Summer, Sadi and Moses
25:17
Speaker 1: and with help from Amy Keen and special thanks this
25:21
Speaker 1: week to Rachel Lewis Chrisky. Sound design is by Blake
25:25
Speaker 1: Maples and Brendan Francis. Newnham is our executive producer. Stage
25:29
Speaker 1: Bowman is Head of Podcasts and to help others find
25:33
Speaker 1: the show, please rate it and review it highly five
25:35
Speaker 1: stars wherever you listen to podcasts.