April 13, 2025 • 26 mins
President Trump announced a new tariff strategy called "Liberation Day" aimed at imposing reciprocal tariffs to level the playing field with other countries. Newt’s guest is David Beckworth, a former international economist for the U.S. Treasury Department and senior research fellow at the Mercatus Center. They discuss the implications of this new tariff policy. Beckworth explains the historical context and mechanics of tariffs, and the potential economic impacts, including the risk of stagflation and the effects on U.S. manufacturing. He also highlights concerns about the politicization of the Federal Reserve and the potential for increased lobbying. Their conversation also touches on the broader implications for international trade relations and the challenges businesses may face in adapting to the new tariff landscape.
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Speaker 1 (00:04):
On this episode of Newsworld. On Wednesday, April second, President
Trump held a press conference in the White House Rose
Garden to unveil his new tariff strategy, which he nicknamed
Liberation Day. For decades, many countries have imposed higher trade
barriers on the United States than America does on them.
President Trump's plan intends to strike back with tariffs that
(00:27):
are reciprocal, leveling the playing field with other nations. Here
to unpack the new Trump tariff policy, I am really
pleased to welcome my guest, David Beckworth. He's a former
international economist for the OST Treasury Department and currently a
senior research fellow with the Mercada Center and hosts of
the popular podcast Macro Music The David, welcome and thank
(01:01):
you for joining me on Newsworld.
Speaker 2 (01:03):
Well, thank you speak your getting rich, steal honor to
be on your program.
Speaker 1 (01:06):
Well, before we get to the tariffs, I have to ask,
what does macro musings mean?
Speaker 2 (01:12):
You muse over macro economics because most people their eyes
roll when you say macro economics. So we try to
make it interesting. What can be sexy and fun about macroeconomics.
So we do our best and we have some fun
on the show.
Speaker 1 (01:25):
So from your perspective as a professional economist, describe for
the average person the whole notion of tariffs. You know
what they are, why they're used.
Speaker 2 (01:36):
Well, they have a long, rich history, so there's nothing
really new here, and in fact, we still have tariffs
even before Trump stepped in. We've had a long history
of it. We've also have a long history of negotiating
tariff treaties with other countries. The WTO is a good example.
World Trade Organization. But tariffs are effectively attacks on foreign
goods that come into the country, and there's a debate
(01:59):
to who actually bears the cost of that tariff. Would
the American pay for it or would the foreigner pay
for it? And I get into how we think about that,
but there's that question as well. You can think of
it as one among many policy tools a country can use,
and countries still do use for some objective.
Speaker 1 (02:17):
What do you think Trump's reasoning is behind this sudden
dramatic shift in tariff policy.
Speaker 2 (02:23):
Well, I think there's several things. I just think he
instinctually has for a long time disliked trade deficits. I mean,
going back to the eighties, everything we've seen like Japan.
We ran big deficits with Japan back when you were
in office, and then today it's China. And I think
probably the biggest items or the table centers is China
today and then probably Japan in the eighties. I think
(02:46):
he just has this visceral instinct that trade deficits are wrong.
I think what specifically now is happening, he feels like
as a mandate and he's willing to push things forward.
And I would say maybe a third thing maybe to
add to that, is there is something amiss that's happened,
something underlying the US economy that does need to be addressed.
(03:06):
I think it's something that can be better addressed other ways.
But I do think he's put his finger on some unease.
And people elected him for her reason, right, So I
do think there's some unease out there that he's trying
to solve, and I think there's other ways to do it.
Speaker 1 (03:21):
Two pieces of data that I suspect affect him are that,
according to the UN US manufacturing as a share of
total manufacturing output worldwide, who was seventeen point four percent
in twenty twenty three, down from a peak in two
thousand and one. Of twenty eight point four percent. That's
a pretty big drop. And from nineteen ninety seven to
twenty twenty four, the estimate is that we lost around
(03:44):
five million manufacturing jobs and experienced one of the largest
drops in manufacturing employment in American history. Doesn't that sort
of require some kind of response.
Speaker 2 (03:54):
Not necessarily. I mean, if you look at a country
for example, like let's pick Germany, Okay, Germany, I think
is a good country to compare ourselves to. Germany actually
runs trade surpluses. It's also a manufacturing powerhouse, as we
need no many be probably by many things from Germany
that's manufactured, but there if you look at the number
of manufacturing jobs in Germany, it also has been declining
(04:16):
over time. So in terms of employment, I think it's
the story of automation. Point you raised about total manufacturing output, right,
that share has gone down, and I would say that
is a result of us shifting what we do from
some manufacturing to things we do in Silicon Valley, Wall Street.
We export a number of items. Manufacturing is just one
(04:39):
among many. I would really stress though, the employment in
manufacturing itself is a symptom more of automation than I
would say jobs being export overseas. Now, it's true there
was China Shock, and I think you could argue to
China shock exacerbated that trend. But if you go back
and look at manufacturing employment as a percent of total
(05:02):
employment in the US, it's been declining since nineteen fifty
and the best story is automation.
Speaker 1 (05:08):
I mean, the world has been reacting pretty negatively. Should
we be worried about that?
Speaker 2 (05:14):
I think we should because we still have a robust
manufacturing sector, and I think the terriffs, the trade war
may actually hurt what we do have already. Again, just
to be clear, we still manufacture a lot of things,
but a lot of what we manufacture depends on imports
from other countries. So, as you well know, there's no
such thing as a truly probably American made car anymore.
(05:36):
There's cars made in America, but they have pieces that
come from other parts of the world. Those things have
pieces that are produce other states, other parts of the world.
So when we impose these tariffs, we're going to actually
affect our manufacturing base in the US. Now, I think
Trump's plan is in the long run, well let's make
those inputs in the US. But that takes time. It's
(05:58):
not easy to rebuild a COMPLI cadd manufacturing process here
versus overseas. I do worry that when they retaliate, it's
going to affect our manufacturing base, and of course the
obvious maybe first effect we would worry about. And especially
I think politically, I really worry about the twenty twenty
six Mitrum elections because I think if we have big
price shocks for consumers, I think they're going to vote
(06:20):
with their feet. So Trump benefited from the fact that
Biden really blew it on inflation, right, they had the
high inflation from the pandemic. That was great for Trump.
I just hope this doesn't come to bite him in
their rear if the terrorist lead to higher prices here,
at least temporarily.
Speaker 1 (06:35):
I mean, it's intriguing to me that Trump makes this
big announcement and then the stock market just crashes. I
don't think there's any other way to describe what happened
in the next twenty four hours.
Speaker 2 (06:48):
Oh no, it's awful.
Speaker 1 (06:50):
I think the broad market in the next drop five percent,
The Doal Jones dropped sixteen hundred points, the nasdeck fell
six percent. Somebody said it's several trillion dollars in value
disappeared overnight. Was that a surprise or do you think
that was almost inevitable given the scale of the change.
Speaker 2 (07:07):
I do think it was surprising that it's been this
strong and this persistent, because this happened on Wednesday, and
we're two days later and it's still happening, and it's
in the stock market. That is literally wealth that has evaporated,
which is going to affect spending down the road, which,
as you probably know knew that probably means a recession
at some point this year. If things continue, they may
(07:28):
turn around. But stocks are down, interest rates on tenure
treasury bonds are down, which usually means concerns about the economy,
copper oil, all these things that are very cyclical or
down which really don't look well for the future. It
was surprising that foul that much. But I think what
was also surprising they maybe explains to steep dropping the market,
is the fact that the tariff rates were so high,
(07:49):
these reciprocal rates. There was the ten percent universal rate,
and then China got thirty four, Vietnam got forty six,
EU got twenty. I just think people were surprised how
big the numbers were, and that probably hit them hard.
In fact, it's interesting if you go back to that
day when it's announced, the market actually improved the first
few minutes when he started talking, because all they heard
(08:10):
was ten percent universal tariffs. You remember he pulled out
that big board that had all the rates on it.
Then the market is like, oh my goodness, and then
it started tanking. So I think the scale of the
tariffs probably has some part of the story to it.
Speaker 1 (08:23):
I thought the chart or big board as you put in,
was a very useful communications device. But the more I've
looked at it, I don't quite understand how they got
at the numbers. Can you explain how they buy country
produce these numbers.
Speaker 2 (08:38):
Yeah, it's not the most shining part of the presentation.
Those numbers were constructed it to be blunt. They literally
took the trade deficit between that country and the US
and divided it by imports. So there really isn't any
connection to like trade tariffs they're imposing. There's no connection
to other trade restrictions. Sometimes country can impose trade restrictions
(09:01):
on our goods without having an actual tariff. They do
some regulatory trick. So when economists think about these trade restrictions.
There's both tariffs, there's other tools they use, and it
looks like none of that was considered. It literally was
let's take the deficit, and I think again, because Trump
dislikes these bilateral trade deficits, divide by the imports. It
is very ad hoc. I mean, Israel got pretty higher.
(09:23):
I forget the exact number, and Israel has no tariffs
on US at all, and yet we applied to this
reciprocal tarifle on Israel even though Israel has nothing. So
it literally was just let's take deficits, divide by imports.
Speaker 1 (09:36):
If you're a really smart country and you've done really,
really well, you're now going to get punished.
Speaker 2 (09:41):
Yeah, more or less. You know you mentioned earlier. Is
this something we should worry about? I do think it affects,
you know, long term relationships between the US and other countries.
I think what Trump has right is his focus on China,
and we need allies to fight China. You know, this
contest we're going to have with China, the economy, security,
(10:03):
all these things. We need allies at our side. And
I worry that this elevated trade war is really going
to push them away. Why would they want to come
to the table with us now if we've burned them
on trade.
Speaker 1 (10:32):
You've recently wrote an article which I thought was interesting
called from Liberation Day to Stagflation Return For the average person.
Could you explain what stagflation is?
Speaker 2 (10:42):
Stagflation is when you have both high inflation and high unemployment,
or another way of saying that is you have both
like a recession, the economy's weak and inflation goes up.
Usually they don't do that, so usually you have high inflation,
economy is running hot, and as you know, you're story
in New nineteen seventies classic case of this was an
(11:03):
awful time, a lot of malais. You can probably describe
better than I can. That's stackflation.
Speaker 1 (11:09):
Do you expect, with this combined impact of raising prices
on imports and slowing the economy, that you could in
fact end up having inflation because prices go up at
the same time that you're having more unemployment.
Speaker 2 (11:25):
Absolutely, And that's my big concern again, and this feeds
into the point made earlier. If we get some little
taste of stackflation, I really think it could hurt the
Chiopis prospects in twenty twenty six. But here's why I'm
concerned about this. So just off the bat, these are
really high teriff rates, and that means higher prices for
US consumers. And that's something that President Trump and his
(11:46):
team is acknowledged. They're like, look, there's gonna be some
pain and they hope will be long term gain. So
let's acknowledge you things are going to get more expensive,
number one. Number two, though US consumers are already scarred
from the high ENDLA in the pandemic. If you look
at any number of measures, they're very sensitive. In fact,
they're more sensitive now than they were in twenty eighteen
(12:08):
twenty twenty, the last time Trump imposed a trade war.
Of course, there was much smaller scale back then, but
he could afford to have more room to play because
people's inflation expectations were better grounded. But if you look
anything like survey measures, if you look at Google searches
for inflation, they're at a higher level now than they
were pre twenty twenty. You're kind of playing with fire here.
(12:29):
You're going to increase prices. People are looking for price
increases to panic and to react. And then on top
of that, we're running big budget deficits and they look
like they're only going to get larger, and I mean,
how do you pay for these deficits. Well, at some
point we got to print money. We've got to monetize
the debt. You create this atmosphere's man that looks like
there's going to be inflation and become self fulfilling, and
(12:50):
then the FED might become more politicized. So there's all
these pieces that are potentially put in place that could
lead to stag plation. I'm not saying it's going to happen.
If Trump were to pull back on the trade war,
if Congress were to step up and say no, we
don't want to do this, we could avoid it. I'm
just worried that kind of a perfect storm is brewing
(13:13):
and all the good that President Trump could do might
be undermined by it.
Speaker 1 (13:17):
You made a point in some of your writing that
there's a potentially real threat to the Fed's independence. Why
does that matter.
Speaker 2 (13:26):
We want a central bank, our Federal Reserve, to set
monetary conditions, so that's controlling interesting rates. Back in the
day that was controlling the money supply. We want to
do that in a manner so that they hit low inflation.
Now we can argue over what's appropriate low inflation, but
they target two percent, and we want them to have
full flexibility in getting to two percent. If the President
(13:48):
comes in and says, Nope, you need to cut interest
rates right now, because look, my trade war is causing
pain and Americans need relief, and that's something that I
could easily see happening. And if they don't want to
because inflation hasn't come down, they're going to be under
political pressure. And so if they cave, what happens then
is they cut rates, they feel more inflation, and we
(14:08):
get back to the stagflationary environment. Now I'm not saying
that's going to happen, but it could happen, and that
definitely happened in the nineteen seventies. Arthur Burns Lyndon Johnson.
There were a number of stories from the seventies where
the FED got politicized and contributed to that kind of environment.
Speaker 1 (14:25):
Because Trump has been a businessman his whole career and
has scene recessions and has scene recoveries, what do you
think is in his head? Does he just see him
writing this out because economies go up and go down,
He's got to have some sense that the twenty six
election matters. There a certain amount of rolling the dice here.
Speaker 2 (14:43):
That's a great question. I wish I could read his mind.
I know what's happening. He really thinks bilateral trade deficits
are an indication of weakness, and I'm happy to discuss
why I think that's wrong. But I think it's a principle.
You could say Trump is driven by principle maybe at
some level here, because he wants to fix I mean,
notice that those tariffs that were introduced. If you think
(15:04):
about it, it's a statement about a bunch of bilateral
trade deficits. It's not really a focus on the overall
trade balance of the US all these countries. I think
he just has this firm conviction. I do wonder what
he's thinking, because his advisors himself, they have to be aware.
He came out today and said, look, we're going to
(15:24):
stick this out. In fact, China announced they're going to
match the thirty four percent tariffs we're playing on them.
They're going to match it on us. And Trump says,
I'm in this for the long game. I mean, so
maybe there's a little ego when they're as well. But
I think maybe Trump's driven by principle and is willing
to kind of suck it up.
Speaker 1 (15:40):
I was struck. I saw on YouTube an interview with
Trump I think in the eighties, and he's making the
same case. It's clear that he really does believe that
we've been taking advantage of and then we need to
reshape our international economic poss and this goes back forty years.
Speaker 2 (15:58):
Yeah, for sure, I'm sympathetic to concerns about China national security.
There is a place to make sure we're producing our weapons,
not somebody else. You know, we want to be leading
the game in AI technology, whatever the cutting edges, there's
a case for that. I do think some of the
concerns about bilateral trade deficits are a bit misguided, and
(16:19):
they may lead us to a path that may ultimately
cause problems. We all run bilateral trade deficits in our lives.
I run a trade deficit at my grocery store. I
bring groceries home. I don't give them goods, my clothes, households, firms, countries.
Bilateral trade deficits aren't necessarily a bad thing. You can
argue maybe the US's overall trade deficit is a symptom
(16:41):
of where capital flows come and go from. But an
individual bilateral trade deficit, I think is a harder case
to make.
Speaker 1 (16:48):
What is his legal authority to just arbitrarily raise in
lower tariffs? I mean, is that written into law that
the president can do that?
Speaker 2 (16:57):
I think it's this emergency authority that and was given
to the president, this trade authority. I mean, you probably
know the answer that question better than I do. But constitutionally,
I think this is the point. Maybe you're getting that Constitutionally,
Congress should be the final arbitrar. The reason the president
can is because Congress has given some of that back
to the president, even though in the Constitution is supposed
(17:18):
to be with Congress.
Speaker 1 (17:19):
So in a sense they've delegated it to him.
Speaker 2 (17:21):
They have in most cases that makes sense because some
of these treaties are very complicated, right If you're doing
a massive free trade agreement with the European Union, lots
of countries involved, it's cumbresome to have Congress with a
bunch of people try to nitpick over. It's better to
have the executive brand to do it. But when you
have the scale as big as this, when it's a
massive trade war, and then maybe it's time for Congress
(17:43):
to set back in and say, Okay, is this what
we want? Maybe they do want to support Trump, but
let's talk about it. Look, Rand Paul is uneasy with it.
It was interesting today Ted Cruz came out. Now he
didn't stop Trump, but he's like, look, I'm concerned about
prices affecting my constituents. So maybe we're getting to see
some kind of groundswell. We'll see some people raise questions,
(18:04):
or maybe they're just covering their rears too. I don't know.
Speaker 1 (18:23):
You go from a broad, general sweeping idea to a
specific series of actions, and then you be in to
have people who are affected by those actions point out
exactly what they mean in the real world, and all
of a sudden, it's a totally different conversation. I personally
would expect both the House and Senate to have hearings
and bring in the Trump team and say, tell us
(18:44):
how you got to this, walk us through this. It
just seems to me that it's a very large, dramatic
change carried out in one press conference. In that sense,
Franklin Roosevelt would be very proud of Trump.
Speaker 2 (18:58):
Right right. This goes back to the point you made earlier.
Why was the market so surprised right economists. Market people
say the market is a powerful institution because it brings
together all the wisdom, all the insights of people who
have skin in the game. They get paid to follow
Congress closely, they get paid to follow the president and
the executive decisions closely. And if they were this surprised
(19:21):
by it, as evidenced by the crash of the markets,
it truly was something historical. I mean, and that's what
I've told my family is, guys, we are living through
in an historical moment. I mean, never thought I would
be living through a time like this. I thought this
is something for the textbooks, But I guess I'm living
in history.
Speaker 1 (19:35):
I tell people all the time that this is the
fifth grade transformation in American history if you count Jefferson Jackson, Lincoln,
and Franklin Roosevelt. Whether or not Trump can pull it off,
we'll find out over time. But he clearly has an
sense of his own destiny of profoundly ending the Rooseveltian
era and the centralized bureaucratic structure that was the primary
(20:00):
a weapon of that era. And this is what people
do not under said. This is not just about the
United States. This is about every country. In the world.
Speaker 2 (20:07):
Yeah. Absolutely, the international order is definitely being shocked long
and hard by this. I think it'll be some time
before we can all make sense of it. I believe
it's next week. They're having the Spring meetings at the
IMF and World Bank in Washington, d C. It happens
in the spring and the falls, you know, And what
happens is all the foreign finance ministers come into town,
(20:28):
all the central bankers come into town, they have meetings. Well,
I'm willing to bet money that these next meetings, all
these foreign finance ministers are going to bring an elevator
pitch to President Trump why their country should be exempt.
And this is maybe the final maybe critique I'll mention
of the terrace. I suspect Trump will be open to negotiation,
and that's who he is. That was one of the
(20:49):
critiques earlier is on off, on off, And if he
does that, there's going to be more uncertainty. The more
you change your mind, the harder it is for businesses
to plan and build plans and to hire people. So,
whatever your view is on terras the global trading systems,
if you could just like nail it down and then
let businesses plan and move ahead.
Speaker 1 (21:11):
You've caught one of the great challenges of a Trumpean presidency,
which is he loves to negotiate. He has this very
deep belief that because we're the biggest economy, we have
far and away the greatest leverage, and so in a sense,
if he can get all these countries into bilaterals, he
has a feeling like he will almost always win because
(21:31):
our market is just so much more desirable. But I
think the downside of that is, do you create a
lot of uncertainty and make it almost impossible for businesses
to do any serious planning.
Speaker 2 (21:45):
Yeah, we see evidence of that already, still plans auto factories,
There's even been some layoffs. But the PMI is a
measure of business plans, and a number of surveys have
shown that businesses are putting cash on the sideline and waiting.
And the question is how long they wait, because if
things change month to month, if nothing else, that uncertainty
may be a dragon economic growth, even beyond the actual
(22:08):
price shocks we get from tariffs.
Speaker 1 (22:10):
I saw a study the other day. Overwhelmingly the companies
that are worth a trillion dollars are American, with the
exception of Saudi Arabian Oil and my Ramco and two
Chinese companies, and there are no European companies in that league.
But the American companies are all global companies. So imagine
(22:33):
you're sitting at Pappole or Google or whatever, and you're
trying to compute all of these different tariffs, and then
you're trying to compute the reaction of each country. It's
going to be a very complicated process, right, And I.
Speaker 2 (22:48):
Have some concerns about this. Another one is this may
actually add more water to the swamp. Trump's doing an
amazing job draining the swamp. And you mentioned earlier like
shrinking the administrative state. I think that's the very long
overdue goal. I think I shared that view with you.
But what he's also doing, though, is opening the door
(23:09):
for lobbyists to plead the case for their country or
their industry. That is something that you cannot get away
if you're going to negotiate with all these countries. I
believe it was the first month or two when he
imposed the first head of terraffs on Canada Mexico, the
three big automakers in the US went to visit him.
That's just the signal of what's to come and who
(23:29):
has the deepest pockets to lobby I mean, K Street
is going to be happy about this and more than anyone.
Speaker 1 (23:35):
This could be the lobbyist Richmond Act fair enough, Yes,
which would be the opposite I think of what Trump
and his supporters intended. Yeah, my guess is every country
in the world is going to be hiring somebody, and
then every major company is going to be hiring somebody.
And then imagine internally between accountants and lawyers trying to
(23:55):
sort out what this stuff means. And this is not
a binary game, is a multi partner game in which
Vietnam may make a decision which has an impact on
the Philippines, which then has an impact on Cambodia. It's
really going to be very dynamic and very complicated environment. Yeah,
for sure, You, on the other hand, will have many opportunities.
Speaker 2 (24:17):
Yeah, you mentioned this is a great opportunity for lobbyists.
It's also a great opportunity for people like me who
work at think tanks and people like you who get
to talk about stuff like this. Unfortunately, it would be
nice if you could talk about other things. But I
do think the uncertainty the international intrigue between countries. What's
going to happen to the dollar? You know, the dollar
is this dominant currency. That's something I think a lot about.
(24:40):
I'm not sure this will make a big dent in
it keep pushing down this path. I myself want to
preserve the dollar's dominance. I think it's an amazing tool.
I think it allows for an amazing amount of financial
state craft. The fact that we're able to go after
terrorists and bad players overseas and lock them out of
the dollar system it hurts them. That's something I think
(25:00):
we want to hang on to.
Speaker 1 (25:02):
Somebody once said that having the dollar is the reserve
currency is worth about five carrier battlegroups. It gives you
a level of weight in the world system that people
don't fully understand and appreciate. However, I have to say
I have a hunch, looking at the demographics in China,
that it's going to be very hard to replace the dollar.
(25:22):
There's just this underlying problem that there's no natural competitive replacement. David,
I want to thank you for joining me.
Speaker 2 (25:29):
Now.
Speaker 1 (25:29):
I'm a historian, not an economist, and therefore I'm always
excited to find somebody who actually thinks about this step
from an economic standpoint, and I want to let our
listeners know they can find out more about the work
you're doing by visiting the RCADAS Center's website at Mercadis
dot org. And thank you so much for helping us
try to understand this dramatically changing environment.
Speaker 2 (25:51):
Thank you for having me on the program.
Speaker 1 (25:56):
Thank you to my guest David Beckworth. You can learn
more about his work at the data center on our
show page at newtsworld dot com. Newtsworld is produced by
Gagwi Street sixty and iHeartMedia. Our executive producer is Guernsey Sloan.
Our researcher is Rachel Peterson. The artwork for the show
was created by Steve Penley. Special thanks to the team
at Ginwishree sixty. If you've been enjoying Newtsworld, I hope
(26:19):
you'll go to Apple Podcast and both rate us with
five stars and give us a review so others can
learn what it's all about. Right now, listeners of Newtsworld
can sign up for my three free weekly columns at
gainwistreet sixty dot com slash newsletter. I'm newt Gingrich. This
is Newtsworld
On this episode of Newsworld. On Wednesday, April second, President
Trump held a press conference in the White House Rose
Garden to unveil his new tariff strategy, which he nicknamed
Liberation Day. For decades, many countries have imposed higher trade
barriers on the United States than America does on them.
President Trump's plan intends to strike back with tariffs that
(00:27):
are reciprocal, leveling the playing field with other nations. Here
to unpack the new Trump tariff policy, I am really
pleased to welcome my guest, David Beckworth. He's a former
international economist for the OST Treasury Department and currently a
senior research fellow with the Mercada Center and hosts of
the popular podcast Macro Music The David, welcome and thank
(01:01):
you for joining me on Newsworld.
Speaker 2 (01:03):
Well, thank you speak your getting rich, steal honor to
be on your program.
Speaker 1 (01:06):
Well, before we get to the tariffs, I have to ask,
what does macro musings mean?
Speaker 2 (01:12):
You muse over macro economics because most people their eyes
roll when you say macro economics. So we try to
make it interesting. What can be sexy and fun about macroeconomics.
So we do our best and we have some fun
on the show.
Speaker 1 (01:25):
So from your perspective as a professional economist, describe for
the average person the whole notion of tariffs. You know
what they are, why they're used.
Speaker 2 (01:36):
Well, they have a long, rich history, so there's nothing
really new here, and in fact, we still have tariffs
even before Trump stepped in. We've had a long history
of it. We've also have a long history of negotiating
tariff treaties with other countries. The WTO is a good example.
World Trade Organization. But tariffs are effectively attacks on foreign
goods that come into the country, and there's a debate
(01:59):
to who actually bears the cost of that tariff. Would
the American pay for it or would the foreigner pay
for it? And I get into how we think about that,
but there's that question as well. You can think of
it as one among many policy tools a country can use,
and countries still do use for some objective.
Speaker 1 (02:17):
What do you think Trump's reasoning is behind this sudden
dramatic shift in tariff policy.
Speaker 2 (02:23):
Well, I think there's several things. I just think he
instinctually has for a long time disliked trade deficits. I mean,
going back to the eighties, everything we've seen like Japan.
We ran big deficits with Japan back when you were
in office, and then today it's China. And I think
probably the biggest items or the table centers is China
today and then probably Japan in the eighties. I think
(02:46):
he just has this visceral instinct that trade deficits are wrong.
I think what specifically now is happening, he feels like
as a mandate and he's willing to push things forward.
And I would say maybe a third thing maybe to
add to that, is there is something amiss that's happened,
something underlying the US economy that does need to be addressed.
(03:06):
I think it's something that can be better addressed other ways.
But I do think he's put his finger on some unease.
And people elected him for her reason, right, So I
do think there's some unease out there that he's trying
to solve, and I think there's other ways to do it.
Speaker 1 (03:21):
Two pieces of data that I suspect affect him are that,
according to the UN US manufacturing as a share of
total manufacturing output worldwide, who was seventeen point four percent
in twenty twenty three, down from a peak in two
thousand and one. Of twenty eight point four percent. That's
a pretty big drop. And from nineteen ninety seven to
twenty twenty four, the estimate is that we lost around
(03:44):
five million manufacturing jobs and experienced one of the largest
drops in manufacturing employment in American history. Doesn't that sort
of require some kind of response.
Speaker 2 (03:54):
Not necessarily. I mean, if you look at a country
for example, like let's pick Germany, Okay, Germany, I think
is a good country to compare ourselves to. Germany actually
runs trade surpluses. It's also a manufacturing powerhouse, as we
need no many be probably by many things from Germany
that's manufactured, but there if you look at the number
of manufacturing jobs in Germany, it also has been declining
(04:16):
over time. So in terms of employment, I think it's
the story of automation. Point you raised about total manufacturing output, right,
that share has gone down, and I would say that
is a result of us shifting what we do from
some manufacturing to things we do in Silicon Valley, Wall Street.
We export a number of items. Manufacturing is just one
(04:39):
among many. I would really stress though, the employment in
manufacturing itself is a symptom more of automation than I
would say jobs being export overseas. Now, it's true there
was China Shock, and I think you could argue to
China shock exacerbated that trend. But if you go back
and look at manufacturing employment as a percent of total
(05:02):
employment in the US, it's been declining since nineteen fifty
and the best story is automation.
Speaker 1 (05:08):
I mean, the world has been reacting pretty negatively. Should
we be worried about that?
Speaker 2 (05:14):
I think we should because we still have a robust
manufacturing sector, and I think the terriffs, the trade war
may actually hurt what we do have already. Again, just
to be clear, we still manufacture a lot of things,
but a lot of what we manufacture depends on imports
from other countries. So, as you well know, there's no
such thing as a truly probably American made car anymore.
(05:36):
There's cars made in America, but they have pieces that
come from other parts of the world. Those things have
pieces that are produce other states, other parts of the world.
So when we impose these tariffs, we're going to actually
affect our manufacturing base in the US. Now, I think
Trump's plan is in the long run, well let's make
those inputs in the US. But that takes time. It's
(05:58):
not easy to rebuild a COMPLI cadd manufacturing process here
versus overseas. I do worry that when they retaliate, it's
going to affect our manufacturing base, and of course the
obvious maybe first effect we would worry about. And especially
I think politically, I really worry about the twenty twenty
six Mitrum elections because I think if we have big
price shocks for consumers, I think they're going to vote
(06:20):
with their feet. So Trump benefited from the fact that
Biden really blew it on inflation, right, they had the
high inflation from the pandemic. That was great for Trump.
I just hope this doesn't come to bite him in
their rear if the terrorist lead to higher prices here,
at least temporarily.
Speaker 1 (06:35):
I mean, it's intriguing to me that Trump makes this
big announcement and then the stock market just crashes. I
don't think there's any other way to describe what happened
in the next twenty four hours.
Speaker 2 (06:48):
Oh no, it's awful.
Speaker 1 (06:50):
I think the broad market in the next drop five percent,
The Doal Jones dropped sixteen hundred points, the nasdeck fell
six percent. Somebody said it's several trillion dollars in value
disappeared overnight. Was that a surprise or do you think
that was almost inevitable given the scale of the change.
Speaker 2 (07:07):
I do think it was surprising that it's been this
strong and this persistent, because this happened on Wednesday, and
we're two days later and it's still happening, and it's
in the stock market. That is literally wealth that has evaporated,
which is going to affect spending down the road, which,
as you probably know knew that probably means a recession
at some point this year. If things continue, they may
(07:28):
turn around. But stocks are down, interest rates on tenure
treasury bonds are down, which usually means concerns about the economy,
copper oil, all these things that are very cyclical or
down which really don't look well for the future. It
was surprising that foul that much. But I think what
was also surprising they maybe explains to steep dropping the market,
is the fact that the tariff rates were so high,
(07:49):
these reciprocal rates. There was the ten percent universal rate,
and then China got thirty four, Vietnam got forty six,
EU got twenty. I just think people were surprised how
big the numbers were, and that probably hit them hard.
In fact, it's interesting if you go back to that
day when it's announced, the market actually improved the first
few minutes when he started talking, because all they heard
(08:10):
was ten percent universal tariffs. You remember he pulled out
that big board that had all the rates on it.
Then the market is like, oh my goodness, and then
it started tanking. So I think the scale of the
tariffs probably has some part of the story to it.
Speaker 1 (08:23):
I thought the chart or big board as you put in,
was a very useful communications device. But the more I've
looked at it, I don't quite understand how they got
at the numbers. Can you explain how they buy country
produce these numbers.
Speaker 2 (08:38):
Yeah, it's not the most shining part of the presentation.
Those numbers were constructed it to be blunt. They literally
took the trade deficit between that country and the US
and divided it by imports. So there really isn't any
connection to like trade tariffs they're imposing. There's no connection
to other trade restrictions. Sometimes country can impose trade restrictions
(09:01):
on our goods without having an actual tariff. They do
some regulatory trick. So when economists think about these trade restrictions.
There's both tariffs, there's other tools they use, and it
looks like none of that was considered. It literally was
let's take the deficit, and I think again, because Trump
dislikes these bilateral trade deficits, divide by the imports. It
is very ad hoc. I mean, Israel got pretty higher.
(09:23):
I forget the exact number, and Israel has no tariffs
on US at all, and yet we applied to this
reciprocal tarifle on Israel even though Israel has nothing. So
it literally was just let's take deficits, divide by imports.
Speaker 1 (09:36):
If you're a really smart country and you've done really,
really well, you're now going to get punished.
Speaker 2 (09:41):
Yeah, more or less. You know you mentioned earlier. Is
this something we should worry about? I do think it affects,
you know, long term relationships between the US and other countries.
I think what Trump has right is his focus on China,
and we need allies to fight China. You know, this
contest we're going to have with China, the economy, security,
(10:03):
all these things. We need allies at our side. And
I worry that this elevated trade war is really going
to push them away. Why would they want to come
to the table with us now if we've burned them
on trade.
Speaker 1 (10:32):
You've recently wrote an article which I thought was interesting
called from Liberation Day to Stagflation Return For the average person.
Could you explain what stagflation is?
Speaker 2 (10:42):
Stagflation is when you have both high inflation and high unemployment,
or another way of saying that is you have both
like a recession, the economy's weak and inflation goes up.
Usually they don't do that, so usually you have high inflation,
economy is running hot, and as you know, you're story
in New nineteen seventies classic case of this was an
(11:03):
awful time, a lot of malais. You can probably describe
better than I can. That's stackflation.
Speaker 1 (11:09):
Do you expect, with this combined impact of raising prices
on imports and slowing the economy, that you could in
fact end up having inflation because prices go up at
the same time that you're having more unemployment.
Speaker 2 (11:25):
Absolutely, And that's my big concern again, and this feeds
into the point made earlier. If we get some little
taste of stackflation, I really think it could hurt the
Chiopis prospects in twenty twenty six. But here's why I'm
concerned about this. So just off the bat, these are
really high teriff rates, and that means higher prices for
US consumers. And that's something that President Trump and his
(11:46):
team is acknowledged. They're like, look, there's gonna be some
pain and they hope will be long term gain. So
let's acknowledge you things are going to get more expensive,
number one. Number two, though US consumers are already scarred
from the high ENDLA in the pandemic. If you look
at any number of measures, they're very sensitive. In fact,
they're more sensitive now than they were in twenty eighteen
(12:08):
twenty twenty, the last time Trump imposed a trade war.
Of course, there was much smaller scale back then, but
he could afford to have more room to play because
people's inflation expectations were better grounded. But if you look
anything like survey measures, if you look at Google searches
for inflation, they're at a higher level now than they
were pre twenty twenty. You're kind of playing with fire here.
(12:29):
You're going to increase prices. People are looking for price
increases to panic and to react. And then on top
of that, we're running big budget deficits and they look
like they're only going to get larger, and I mean,
how do you pay for these deficits. Well, at some
point we got to print money. We've got to monetize
the debt. You create this atmosphere's man that looks like
there's going to be inflation and become self fulfilling, and
(12:50):
then the FED might become more politicized. So there's all
these pieces that are potentially put in place that could
lead to stag plation. I'm not saying it's going to happen.
If Trump were to pull back on the trade war,
if Congress were to step up and say no, we
don't want to do this, we could avoid it. I'm
just worried that kind of a perfect storm is brewing
(13:13):
and all the good that President Trump could do might
be undermined by it.
Speaker 1 (13:17):
You made a point in some of your writing that
there's a potentially real threat to the Fed's independence. Why
does that matter.
Speaker 2 (13:26):
We want a central bank, our Federal Reserve, to set
monetary conditions, so that's controlling interesting rates. Back in the
day that was controlling the money supply. We want to
do that in a manner so that they hit low inflation.
Now we can argue over what's appropriate low inflation, but
they target two percent, and we want them to have
full flexibility in getting to two percent. If the President
(13:48):
comes in and says, Nope, you need to cut interest
rates right now, because look, my trade war is causing
pain and Americans need relief, and that's something that I
could easily see happening. And if they don't want to
because inflation hasn't come down, they're going to be under
political pressure. And so if they cave, what happens then
is they cut rates, they feel more inflation, and we
(14:08):
get back to the stagflationary environment. Now I'm not saying
that's going to happen, but it could happen, and that
definitely happened in the nineteen seventies. Arthur Burns Lyndon Johnson.
There were a number of stories from the seventies where
the FED got politicized and contributed to that kind of environment.
Speaker 1 (14:25):
Because Trump has been a businessman his whole career and
has scene recessions and has scene recoveries, what do you
think is in his head? Does he just see him
writing this out because economies go up and go down,
He's got to have some sense that the twenty six
election matters. There a certain amount of rolling the dice here.
Speaker 2 (14:43):
That's a great question. I wish I could read his mind.
I know what's happening. He really thinks bilateral trade deficits
are an indication of weakness, and I'm happy to discuss
why I think that's wrong. But I think it's a principle.
You could say Trump is driven by principle maybe at
some level here, because he wants to fix I mean,
notice that those tariffs that were introduced. If you think
(15:04):
about it, it's a statement about a bunch of bilateral
trade deficits. It's not really a focus on the overall
trade balance of the US all these countries. I think
he just has this firm conviction. I do wonder what
he's thinking, because his advisors himself, they have to be aware.
He came out today and said, look, we're going to
(15:24):
stick this out. In fact, China announced they're going to
match the thirty four percent tariffs we're playing on them.
They're going to match it on us. And Trump says,
I'm in this for the long game. I mean, so
maybe there's a little ego when they're as well. But
I think maybe Trump's driven by principle and is willing
to kind of suck it up.
Speaker 1 (15:40):
I was struck. I saw on YouTube an interview with
Trump I think in the eighties, and he's making the
same case. It's clear that he really does believe that
we've been taking advantage of and then we need to
reshape our international economic poss and this goes back forty years.
Speaker 2 (15:58):
Yeah, for sure, I'm sympathetic to concerns about China national security.
There is a place to make sure we're producing our weapons,
not somebody else. You know, we want to be leading
the game in AI technology, whatever the cutting edges, there's
a case for that. I do think some of the
concerns about bilateral trade deficits are a bit misguided, and
(16:19):
they may lead us to a path that may ultimately
cause problems. We all run bilateral trade deficits in our lives.
I run a trade deficit at my grocery store. I
bring groceries home. I don't give them goods, my clothes, households, firms, countries.
Bilateral trade deficits aren't necessarily a bad thing. You can
argue maybe the US's overall trade deficit is a symptom
(16:41):
of where capital flows come and go from. But an
individual bilateral trade deficit, I think is a harder case
to make.
Speaker 1 (16:48):
What is his legal authority to just arbitrarily raise in
lower tariffs? I mean, is that written into law that
the president can do that?
Speaker 2 (16:57):
I think it's this emergency authority that and was given
to the president, this trade authority. I mean, you probably
know the answer that question better than I do. But constitutionally,
I think this is the point. Maybe you're getting that Constitutionally,
Congress should be the final arbitrar. The reason the president
can is because Congress has given some of that back
to the president, even though in the Constitution is supposed
(17:18):
to be with Congress.
Speaker 1 (17:19):
So in a sense they've delegated it to him.
Speaker 2 (17:21):
They have in most cases that makes sense because some
of these treaties are very complicated, right If you're doing
a massive free trade agreement with the European Union, lots
of countries involved, it's cumbresome to have Congress with a
bunch of people try to nitpick over. It's better to
have the executive brand to do it. But when you
have the scale as big as this, when it's a
massive trade war, and then maybe it's time for Congress
(17:43):
to set back in and say, Okay, is this what
we want? Maybe they do want to support Trump, but
let's talk about it. Look, Rand Paul is uneasy with it.
It was interesting today Ted Cruz came out. Now he
didn't stop Trump, but he's like, look, I'm concerned about
prices affecting my constituents. So maybe we're getting to see
some kind of groundswell. We'll see some people raise questions,
(18:04):
or maybe they're just covering their rears too. I don't know.
Speaker 1 (18:23):
You go from a broad, general sweeping idea to a
specific series of actions, and then you be in to
have people who are affected by those actions point out
exactly what they mean in the real world, and all
of a sudden, it's a totally different conversation. I personally
would expect both the House and Senate to have hearings
and bring in the Trump team and say, tell us
(18:44):
how you got to this, walk us through this. It
just seems to me that it's a very large, dramatic
change carried out in one press conference. In that sense,
Franklin Roosevelt would be very proud of Trump.
Speaker 2 (18:58):
Right right. This goes back to the point you made earlier.
Why was the market so surprised right economists. Market people
say the market is a powerful institution because it brings
together all the wisdom, all the insights of people who
have skin in the game. They get paid to follow
Congress closely, they get paid to follow the president and
the executive decisions closely. And if they were this surprised
(19:21):
by it, as evidenced by the crash of the markets,
it truly was something historical. I mean, and that's what
I've told my family is, guys, we are living through
in an historical moment. I mean, never thought I would
be living through a time like this. I thought this
is something for the textbooks, But I guess I'm living
in history.
Speaker 1 (19:35):
I tell people all the time that this is the
fifth grade transformation in American history if you count Jefferson Jackson, Lincoln,
and Franklin Roosevelt. Whether or not Trump can pull it off,
we'll find out over time. But he clearly has an
sense of his own destiny of profoundly ending the Rooseveltian
era and the centralized bureaucratic structure that was the primary
(20:00):
a weapon of that era. And this is what people
do not under said. This is not just about the
United States. This is about every country. In the world.
Speaker 2 (20:07):
Yeah. Absolutely, the international order is definitely being shocked long
and hard by this. I think it'll be some time
before we can all make sense of it. I believe
it's next week. They're having the Spring meetings at the
IMF and World Bank in Washington, d C. It happens
in the spring and the falls, you know, And what
happens is all the foreign finance ministers come into town,
(20:28):
all the central bankers come into town, they have meetings. Well,
I'm willing to bet money that these next meetings, all
these foreign finance ministers are going to bring an elevator
pitch to President Trump why their country should be exempt.
And this is maybe the final maybe critique I'll mention
of the terrace. I suspect Trump will be open to negotiation,
and that's who he is. That was one of the
(20:49):
critiques earlier is on off, on off, And if he
does that, there's going to be more uncertainty. The more
you change your mind, the harder it is for businesses
to plan and build plans and to hire people. So,
whatever your view is on terras the global trading systems,
if you could just like nail it down and then
let businesses plan and move ahead.
Speaker 1 (21:11):
You've caught one of the great challenges of a Trumpean presidency,
which is he loves to negotiate. He has this very
deep belief that because we're the biggest economy, we have
far and away the greatest leverage, and so in a sense,
if he can get all these countries into bilaterals, he
has a feeling like he will almost always win because
(21:31):
our market is just so much more desirable. But I
think the downside of that is, do you create a
lot of uncertainty and make it almost impossible for businesses
to do any serious planning.
Speaker 2 (21:45):
Yeah, we see evidence of that already, still plans auto factories,
There's even been some layoffs. But the PMI is a
measure of business plans, and a number of surveys have
shown that businesses are putting cash on the sideline and waiting.
And the question is how long they wait, because if
things change month to month, if nothing else, that uncertainty
may be a dragon economic growth, even beyond the actual
(22:08):
price shocks we get from tariffs.
Speaker 1 (22:10):
I saw a study the other day. Overwhelmingly the companies
that are worth a trillion dollars are American, with the
exception of Saudi Arabian Oil and my Ramco and two
Chinese companies, and there are no European companies in that league.
But the American companies are all global companies. So imagine
(22:33):
you're sitting at Pappole or Google or whatever, and you're
trying to compute all of these different tariffs, and then
you're trying to compute the reaction of each country. It's
going to be a very complicated process, right, And I.
Speaker 2 (22:48):
Have some concerns about this. Another one is this may
actually add more water to the swamp. Trump's doing an
amazing job draining the swamp. And you mentioned earlier like
shrinking the administrative state. I think that's the very long
overdue goal. I think I shared that view with you.
But what he's also doing, though, is opening the door
(23:09):
for lobbyists to plead the case for their country or
their industry. That is something that you cannot get away
if you're going to negotiate with all these countries. I
believe it was the first month or two when he
imposed the first head of terraffs on Canada Mexico, the
three big automakers in the US went to visit him.
That's just the signal of what's to come and who
(23:29):
has the deepest pockets to lobby I mean, K Street
is going to be happy about this and more than anyone.
Speaker 1 (23:35):
This could be the lobbyist Richmond Act fair enough, Yes,
which would be the opposite I think of what Trump
and his supporters intended. Yeah, my guess is every country
in the world is going to be hiring somebody, and
then every major company is going to be hiring somebody.
And then imagine internally between accountants and lawyers trying to
(23:55):
sort out what this stuff means. And this is not
a binary game, is a multi partner game in which
Vietnam may make a decision which has an impact on
the Philippines, which then has an impact on Cambodia. It's
really going to be very dynamic and very complicated environment. Yeah,
for sure, You, on the other hand, will have many opportunities.
Speaker 2 (24:17):
Yeah, you mentioned this is a great opportunity for lobbyists.
It's also a great opportunity for people like me who
work at think tanks and people like you who get
to talk about stuff like this. Unfortunately, it would be
nice if you could talk about other things. But I
do think the uncertainty the international intrigue between countries. What's
going to happen to the dollar? You know, the dollar
is this dominant currency. That's something I think a lot about.
(24:40):
I'm not sure this will make a big dent in
it keep pushing down this path. I myself want to
preserve the dollar's dominance. I think it's an amazing tool.
I think it allows for an amazing amount of financial
state craft. The fact that we're able to go after
terrorists and bad players overseas and lock them out of
the dollar system it hurts them. That's something I think
(25:00):
we want to hang on to.
Speaker 1 (25:02):
Somebody once said that having the dollar is the reserve
currency is worth about five carrier battlegroups. It gives you
a level of weight in the world system that people
don't fully understand and appreciate. However, I have to say
I have a hunch, looking at the demographics in China,
that it's going to be very hard to replace the dollar.
(25:22):
There's just this underlying problem that there's no natural competitive replacement. David,
I want to thank you for joining me.
Speaker 2 (25:29):
Now.
Speaker 1 (25:29):
I'm a historian, not an economist, and therefore I'm always
excited to find somebody who actually thinks about this step
from an economic standpoint, and I want to let our
listeners know they can find out more about the work
you're doing by visiting the RCADAS Center's website at Mercadis
dot org. And thank you so much for helping us
try to understand this dramatically changing environment.
Speaker 2 (25:51):
Thank you for having me on the program.
Speaker 1 (25:56):
Thank you to my guest David Beckworth. You can learn
more about his work at the data center on our
show page at newtsworld dot com. Newtsworld is produced by
Gagwi Street sixty and iHeartMedia. Our executive producer is Guernsey Sloan.
Our researcher is Rachel Peterson. The artwork for the show
was created by Steve Penley. Special thanks to the team
at Ginwishree sixty. If you've been enjoying Newtsworld, I hope
(26:19):
you'll go to Apple Podcast and both rate us with
five stars and give us a review so others can
learn what it's all about. Right now, listeners of Newtsworld
can sign up for my three free weekly columns at
gainwistreet sixty dot com slash newsletter. I'm newt Gingrich. This
is Newtsworld
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