March 19, 2025 • 21 mins
Bloomberg Economics Chief Economist Tom Orlik explores the possibility that the Trump administration is being more strategic than it seems. Orlik offers some historical perspective on Trump’s moves and whether—despite all of the damage inflicted over the past two months—this bumpy road may still take the economy to a better long-term destination.
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio News. I'm not worried about
the markets over the long term. If we put good
tax policy in place, deregulation and energy security, the markets
will do pread.
Speaker 2 (00:28):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and this is Trumpnomics, the podcast that looks at the
economic world of Donald Trump, how he's already shaped the
global economy and what on earth is going to happen next.
And there you just heard Treasury Secretary Scott Besant on
NBC's Meet the Press last week doing what Treasury sectaries
(00:48):
are supposed to do, making little of scary moves in
financial markets, insisting that everything's going according to plan. But
it has to be said, I can't remember many of
his predecessors having to do it quite so often or
so aggressively in just their first few weeks in office.
It feels an eternity ago that the smart money in
(01:08):
devors at the end of January were so cockerhoop about
the US, so bearish about everywhere else. US consumer confidence
surveys were going up, so were the US market. But
as we pointed out on this podcast a few weeks
ago that has all gone dramatically into reverse, and now
talk of Trump's session is everywhere, But it has only
(01:30):
been a few weeks. And those problems that President Donald
Trump talked about on the campaign trail or they're not
going to go away overnight or without some tough decisions. Traditionally,
political advisers to any newly elected government would tell you
best to get those tough decisions, all that bad news
in as early as you can, as long as possible
away from the next election. So this week we did
(01:52):
want to take a wider view on the White House's
economic policies, to look at the trumponomics long game. Is
it possible that all of these bumps on the road
are in fact taking us to a better long term
destination after all? Well, to focus on this I think
pretty important question. I have Tom Orlick, chief economist for
(02:15):
Bloomberg Economics, sitting in London currently but normally in Washington,
and he's particularly well placed to talk about this because
he spent eleven years in China learning to take the
long view. So Tom, thank you very much for joining us.
Speaker 3 (02:26):
Great to be here, Stephanie. I have to say before
we start, I'm a bit surprised to see you here.
When I came on Stephanomics, you were the host. Now
I have been invited on Trump Panomics. I naturally assumed,
given the name change, that the great Man himself would
be here for a discussion. But still great to see.
Speaker 2 (02:47):
Yeah, I'm sorry. I'm sorry about that disappointment. But as
we're going to talk about, he's been pretty busy. I
said in the intro. I mean, if it was anybody else,
you sort of feel like we wouldn't be very surprised
that a lot of sort of negative things and difficult
decisions were happening early in the administration rather than late
when people have a chance of remembering them more clearly
when they go to the ballot boxes. Are you surprised,
(03:10):
as our chief economist, how negativity has taken hold so quickly?
I mean I saw the BNP baiber chief economist a
note of hers that's just come in my box saying
it's been must be a record for how quickly it's
taken for the Davos Consensus to be overturned.
Speaker 3 (03:27):
Yeah, I am surprised. I think before the inauguration there
was two views about how the Trump administration was going
to go. One view was that there'd be a lot
of talk about tariffs and a lot of talk about deportations,
but actually the real energy and the real action would
be around tax cuts and regulation cuts, and so it
(03:48):
was going to be noisy and it was going to
be raucous, but in terms of the substance, it was
going to feel pretty much like a traditional Republican administration.
I think that was more or less the consensus in
the markets, the consent amongst the Davos crowd. The other possibility,
of course, and I didn't think people really took this
very seriously, was that he'd actually try and do what
(04:08):
he talked about on the campaign trail, sweeping tariffs, sweeping
cuts in government spending, the most deportations since President Dwight Eisenhower,
and eight weeks in, it seems like we're getting that
second possibility. That's why the mood has swung so quickly
from that optimism to pessimism.
Speaker 2 (04:28):
The manner of the sort of the execution, at least
on the economic policy, I think has maybe distracted people
from the kind of longer term view that we're going
to take on this podcast, because we obviously have had
changes of minds, last minute delays, or suspensions and exclusions
for the tariffs. Certainly, I think that's distracted a bit
from the extraordinarily successful kind of institutional first few weeks
(04:53):
of this administration. I can't think of one. I mean,
not so much on the economic policy. I can't think
of the first few weeks of administration which has fanned
out across the departments and agencies of government so effectively
to impose its will in such a short period. I mean,
we've obviously heard a lot about dose, but the efficiency
with which this administration has approached the executive orders and
(05:16):
the placing of people across vast swathes of government to
pursue the administration's cultural and ideological objectives and learn anything else.
I think if you were just a sort of change consultant,
you'd have to be sort of tipping your hat at
how effective that's been, regardless of where we end up
or what gets broken along the way. Anyway, all of
(05:37):
that probably deserves a podcast episode in its own right.
But on the core economics on which he was elected
I think people might take your point, but they would say, look,
you know, the main thing. Certainly a lot of voters
have been saying the main thing we were focused on
was inflation, and if anything on inflation, you seem to
be pushing things the other way. So just lay out
for us the case for thinking this administration's being a
(06:00):
bit more strategic than it looks.
Speaker 3 (06:02):
So I think the first thing to say, Stephanie is
that the Trump administration and Trump himself, has made a
compelling case for what the problems are. Sometimes in analysis
and commentary you see a comparison between Trump and Reagan,
and the implicit point is, well, Reagan was a great
Republican president. He was courtly, he was gentlemanly, he was optimistic.
(06:25):
Trump wants to be a great Republican president. Why is
he so bleak? Why is he so crude? And I
think the answer to that question really lies in the
very different economies which they inherited. Reagan inherited a US
economy which was on the rise, a US economy where
debt was just twenty five percent of GDP, A US
(06:47):
economy which still had a trade surplus. Fast forward to
twenty twenty five, and Trump's inherited a US economy which
is shrinking as a share of the global total, A
US economy where debt is one hundred percent of GDP
and rising fast and a US economy which in twenty
twenty four had a trade deficit approaching nine hundred billion dollars.
(07:07):
So Reagan was optimistic and that resonated with voters. Trump
is bleak and pessimistic, and that resonated with voters. And
when you look at the shift in the US economy,
I think you can see the reason for that transition.
So I think top marks on identifying the problems, on
delivering the solutions, well, I think the Trump administration can
(07:27):
point to some early and significant wins. They can point
to TSMC, the giant Taiwanese semiconductor company, which has said
it will invest one hundred billion dollars in the United States.
They can point to Germany, which has said it's going
to spend five hundred billion dollars on infrastructure and probably
hundreds of billions more on defense. A long term objective
(07:50):
of the US has been to have its allies pay
more for the cost of their defense. They haven't achieved it,
but Trump seems to be delivering. So they can point
to some early and I think significant wins. But certainly
you're right, the early days of the administration have been
characterized by confusion, by missteps, by abrupt about faces. Think
(08:13):
about the twenty five percent tariffs on Canada and Mexico
which were abruptly removed. That's one of the reasons why
the mood has swung from optimism to pessimism, and that,
as you point out, is also one of the reasons
why concern about inflation is rising again, with the University
of Michigan survey showing households are really quite concerned that
(08:34):
tariffs are going to be driving inflation higher.
Speaker 2 (08:37):
Again, the manner of the imposition of the tariffs has
not been efficient. But what can we say about the
architecture of what he's been seeking out to do. I mean,
does it have a genuine chance of addressing that sort
of long term trade gap that the US has had
for so long, because that's one of the things that
(08:57):
he's identified as a problem. But I guess the question
would be whether tariffs is the solution.
Speaker 3 (09:03):
So if we go to the economic textbooks, tariffs are
absolutely not the solution. The economics textbooks tell us that
trade balances are not determined by whether you've got tariffs
or you haven't got tariffs. Trade balances are determined by
the relationship between saving an investment, and tariffs don't affect
that relationship. So when you impose tariffs, what happens is
(09:27):
currencies move to maintain a trade balance, which is consistent
with that fundamental relationship between saving an investment. If you
look at the economic textbooks, Trump is absolutely following the
wrong approach. I think if we did have Donald Trump
on this podcast, what he would probably say is, well,
textbooks be damned, look at the results I'm delivering. TSMC
(09:49):
are investing one hundred billion dollars in the United States.
Apple have agreed to invest hundreds of billions of dollars
in the United States. Other companies faced with the threat
of tariffs also thinking about moving their supply chains back
to the US. For decades, the United States has lectured
China about the importance of relying less on exports and
(10:11):
boosting its own consumption, and China's officials have listened politely
and sip their tea and basically ignored them. What's happened
since Trump came into power. Well, Premier Lee Chang at
the National People's Congress in Beijing a few weeks ago,
said the ego ren Wu. The first task is to
Dali Chi Jung chal Fe vigorously increase consumption, and he's
(10:35):
put some money behind that. The Chinese are targeting a
discal deficit in twenty twenty five of eight percent of GDP,
a lot more than six percent which was their target
in twenty twenty four, and Li Chang's telling us that
money is going towards consumption spending. So the textbooks tell
us it won't work. Trump thinks it will. Some of
(10:57):
the early evidence is lining up behind his case.
Speaker 2 (11:00):
You see, this is a difference between our economics podcasts
and anybody else's economics podcast Other people, including the Rory
Stewart and Alastair Campbell on their politics show last week,
can talk a little bit about the Chinese economy, but
only here would you get some of the key quotes
in Mandarin. So I think we can chalk up some
points on that one. I think when it comes to
the rest of the world, the rest of the world
(11:22):
might differ on this, but I think if you're looking
at the world through a Trumpian lens, I think you
would have to say there's been movement in his direction
quite dramatically, so in Europe, maybe not for the reasons
that you might want, but there's certainly been a structural change,
most dramatically in Germany. It's approached to defense spending, even
(11:44):
at the cost of overturning or ignoring for those purposes.
It's long standing limit on debt, and as you identify,
also a quite significant change of trajectory in China at
home in the US. And he also point to any wins.
I mean, some of the other things he's identified, the
(12:04):
cost of government borrowing, Oil prices, low oil has been
a theme of Donald Trump's pretty much all of his
political and business career, the high level of the dollar.
How's he doing on those things?
Speaker 3 (12:17):
So I think it's a mixed picture, Stephanie. Think about
the stock market. Trump, in the past, when the market
has been going up, has viewed the stock market as
kind of a daily report card on his performance. Well,
since Trump came into power, the S and P five hundred,
the NASDAC, they haven't created, but they are markedly down.
(12:38):
And that's the market saying, you know what, all of
this uncertainty isn't going to be good for growth. All
of these tariffs aren't going to be good for company profits.
We're not optimistic. If we look at the dollar. Well,
Trump's views on the dollar are a little bit You'll
be hugely surprised to hear me say this, Stephanie. Trump's
views on the dollar are a little bit internally inconsistent.
(12:59):
On the one hand, he would like a weaker dollar
to support export competitiveness and reduce that trade deficit. On
the other hand, he would like the dollar to retain
its status as a global reserve currency so that US
borrowing costs stay low. And those things point in different directions.
What happened since the election, Well, he's got the weaker dollar,
(13:20):
probably not for reasons that he would like. The dollar
is weak, not because the markets are acquiescing in his
desire to boost export competitiveness, but because they're more pessimistic
about the outlook for the US. And on oil prices, well,
Trump wants cheaper oil prices. I think we want all
want cheaper oil prices. Certainly the US households want cheaper
(13:42):
oil prices. He thinks that drill baby drill, slashing regulations
on oil producers in the United States is going to
be a driver of increased supply, and that's what's going
to bring prices down. Oil producers, Well, they're not so
certain they'd certainly take the cut in regulations, but whether
they're going to increase production that's a different question. So far,
(14:02):
though oil prices have come down from around eighty dollars
a barrel when he was elected to around seventy dollars
a barrel as we're recording today, So again a move
in the right direction, though not necessarily a reflection of
early success for Trump's policies.
Speaker 2 (14:17):
Does it matter that these things are happening for the
wrong reason, especially if it's early in the term. Famously,
the good economic news that was in the economic statistics
last year was not being felt by American households, and
apparently was not felt in the results of the election either. Now,
if there's some underlying bad news which is altering markets,
(14:41):
pushing down the long term cost at borrowing cost mortgage rates,
is it possible that people will actually notice those things
and not the negativity in parts of the real economy
that's leading to them, and he will end up with
the kind of positive trajectory from here that many governments
would like to have. You get your bad news in
the first six months, nine months, and then everything seems
(15:05):
to be getting better as you approach the next selection.
I mean, in the previous Trump administration, and we've talked
about it in the past with your chief US economist
Dana Wong and others, you had a different ordering where
the sugar rush of the tax cuts was all really
quite early on in the administration, and some of the
negativity caused by the tariffs, as Anna has pointed out,
(15:29):
well that was delayed because of the legacy of the
tax cuts sugar rush, But actually some of the bad
news was coming in even before COVID. You know, in
the latter part of the administration, you were actually starting
to have the bad news, which is exactly what you
don't want. So this could be another way in which
the administration has learned from the limitations they hit in
(15:50):
the first administration. Do you think that's a stretch They've
got their timing better this time.
Speaker 3 (15:55):
I think there's certainly something in the idea that getting
the bad news out of the way ahead of the
midterms is a good political thinking from the Trump administration.
I guess the nuance I would introduce is, I don't
think we've had anything like all the bad news yet.
Right If we think about the drop in the stock market,
the fall in the dollar, the dash into US treasuries,
(16:18):
it's all because of noise, uncertainty, sudden about faces. We
haven't actually had the big policy shock yet. April the
second is when we're getting the major tariff announcement potentially
a significant increase in tariffs on all of the major
US trade partners, including Europe, and on public spending. Well,
(16:42):
Elon Musk in his Department of Government Efficiency have certainly
put the fear of God into all of the federal
employees in Washington, d C. And they've certainly captured a
lot of headlines. But even based on their own estimate,
which many analysts are skeptical about, they've only saved a
little bit more than hundred billion dollars. And that's really
(17:02):
pretty insignificant relative to the size of the cuts in
government spending which Trump is going to need to deliver
if he wants to get the fiscal deficit from six
point four percent of GDP, which is where it was
last year ninety three percent of GDP, which is where
Scott Besson says it has to be so tactically politically,
getting the bad news out of the way first is
(17:24):
a good idea, but the caveat would introduces. If you
think that bad news we've had so far is all
the bad news, well I've got some bad news for you.
Speaker 2 (17:33):
To return to where we started. He has identified some
pretty fundamental problems with the US economy, with the US
economic model, and he has started to address them one
way or another. If he's made significant progress on those
in two or three years time, or even or four
years time, you know, just as the Chinese do, judge
(17:55):
the results of their policies over many years, sometimes decades,
rather than a few weeks and months, all of this
will be forgotten.
Speaker 3 (18:03):
Right, Yeah, I think that's true, Stephanie. Do you mind
if I come at you and Trumponomic's listeners with another
historical analogy.
Speaker 2 (18:12):
We live for historical analogies.
Speaker 3 (18:14):
Okay, great, So look Paul Vulka. He was the son
of a lowly county clerk or city official. He was
a cigar chomper, He devoted his life to public service.
So at first sight, there's not much to suggest a
analogy between him and Donald Trump. The son of a
(18:34):
millionaire teetotaler, and on the evidence so far, not someone
who has a huge amount of respect for people who
devote their lives to public service. But I think there
is an analogy which is worth thinking about. Vulka came
into office as Chair of the Federal Reserve and he
faced a huge problem. Inflation was way too high. And
he said, you know what, I'm going to get this
(18:57):
under control. And there's going to be a huge cost
to do doing so, but it's going to be a
price worth paying. And he jacked up interest rates to
twenty percent, an unemployment sared to eleven percent, more than
one in ten US workers were out of a job.
But it did the job, and inflation came back down,
and Volka had laid the groundwork for decades of increasing
(19:19):
US prosperity. And when people look back at that period now,
they don't remember the missteps and the pain and the
uncertainty of those initial moves to jack up interest rates.
What they remember is the vision and the determination and
ultimately the success. Right now, with Donald Trump, the focus
is very much on the missteps and the uncertainty and
(19:42):
the transition costs. But if, and this is a really
big if, at the end of his four years in power,
he can point to debt coming under control, deficits coming
under control, and a world which is more secure because
US allies have stopped free riding, and they're paying their
share for the cost of that security. That's what his
legacy is going to.
Speaker 2 (20:02):
Be, a straight line from Paul Volka to Donald Trump. Well,
if there's a test for a good podcast, it's surely
to take people to a destination that they find unexpected
and could never have predicted. And that's surely we've done
it on this occasion. Tom Rlick, thank you so much
(20:23):
for joining us.
Speaker 3 (20:24):
Great to be here, Donald, Sorry, Stephanie.
Speaker 2 (20:33):
Thanks as ever for listening to Trumpnomics from Bloomberg. It
was hosted by me, Stephanie Flanders, and I was joined
by our chief economist, Tom Orlick. Trump Andomics is produced
by Samasadi and Moses and Am, with help from Chris
Martin Lou and Amy Keene and sound design by Blake Maples.
Brendan Francis Newnham is our executive producer. The Lam
Bloomberg Audio Studios, podcasts, radio News. I'm not worried about
the markets over the long term. If we put good
tax policy in place, deregulation and energy security, the markets
will do pread.
Speaker 2 (00:28):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and this is Trumpnomics, the podcast that looks at the
economic world of Donald Trump, how he's already shaped the
global economy and what on earth is going to happen next.
And there you just heard Treasury Secretary Scott Besant on
NBC's Meet the Press last week doing what Treasury sectaries
(00:48):
are supposed to do, making little of scary moves in
financial markets, insisting that everything's going according to plan. But
it has to be said, I can't remember many of
his predecessors having to do it quite so often or
so aggressively in just their first few weeks in office.
It feels an eternity ago that the smart money in
(01:08):
devors at the end of January were so cockerhoop about
the US, so bearish about everywhere else. US consumer confidence
surveys were going up, so were the US market. But
as we pointed out on this podcast a few weeks
ago that has all gone dramatically into reverse, and now
talk of Trump's session is everywhere, But it has only
(01:30):
been a few weeks. And those problems that President Donald
Trump talked about on the campaign trail or they're not
going to go away overnight or without some tough decisions. Traditionally,
political advisers to any newly elected government would tell you
best to get those tough decisions, all that bad news
in as early as you can, as long as possible
away from the next election. So this week we did
(01:52):
want to take a wider view on the White House's
economic policies, to look at the trumponomics long game. Is
it possible that all of these bumps on the road
are in fact taking us to a better long term
destination after all? Well, to focus on this I think
pretty important question. I have Tom Orlick, chief economist for
(02:15):
Bloomberg Economics, sitting in London currently but normally in Washington,
and he's particularly well placed to talk about this because
he spent eleven years in China learning to take the
long view. So Tom, thank you very much for joining us.
Speaker 3 (02:26):
Great to be here, Stephanie. I have to say before
we start, I'm a bit surprised to see you here.
When I came on Stephanomics, you were the host. Now
I have been invited on Trump Panomics. I naturally assumed,
given the name change, that the great Man himself would
be here for a discussion. But still great to see.
Speaker 2 (02:47):
Yeah, I'm sorry. I'm sorry about that disappointment. But as
we're going to talk about, he's been pretty busy. I
said in the intro. I mean, if it was anybody else,
you sort of feel like we wouldn't be very surprised
that a lot of sort of negative things and difficult
decisions were happening early in the administration rather than late
when people have a chance of remembering them more clearly
when they go to the ballot boxes. Are you surprised,
(03:10):
as our chief economist, how negativity has taken hold so quickly?
I mean I saw the BNP baiber chief economist a
note of hers that's just come in my box saying
it's been must be a record for how quickly it's
taken for the Davos Consensus to be overturned.
Speaker 3 (03:27):
Yeah, I am surprised. I think before the inauguration there
was two views about how the Trump administration was going
to go. One view was that there'd be a lot
of talk about tariffs and a lot of talk about deportations,
but actually the real energy and the real action would
be around tax cuts and regulation cuts, and so it
(03:48):
was going to be noisy and it was going to
be raucous, but in terms of the substance, it was
going to feel pretty much like a traditional Republican administration.
I think that was more or less the consensus in
the markets, the consent amongst the Davos crowd. The other possibility,
of course, and I didn't think people really took this
very seriously, was that he'd actually try and do what
(04:08):
he talked about on the campaign trail, sweeping tariffs, sweeping
cuts in government spending, the most deportations since President Dwight Eisenhower,
and eight weeks in, it seems like we're getting that
second possibility. That's why the mood has swung so quickly
from that optimism to pessimism.
Speaker 2 (04:28):
The manner of the sort of the execution, at least
on the economic policy, I think has maybe distracted people
from the kind of longer term view that we're going
to take on this podcast, because we obviously have had
changes of minds, last minute delays, or suspensions and exclusions
for the tariffs. Certainly, I think that's distracted a bit
from the extraordinarily successful kind of institutional first few weeks
(04:53):
of this administration. I can't think of one. I mean,
not so much on the economic policy. I can't think
of the first few weeks of administration which has fanned
out across the departments and agencies of government so effectively
to impose its will in such a short period. I mean,
we've obviously heard a lot about dose, but the efficiency
with which this administration has approached the executive orders and
(05:16):
the placing of people across vast swathes of government to
pursue the administration's cultural and ideological objectives and learn anything else.
I think if you were just a sort of change consultant,
you'd have to be sort of tipping your hat at
how effective that's been, regardless of where we end up
or what gets broken along the way. Anyway, all of
(05:37):
that probably deserves a podcast episode in its own right.
But on the core economics on which he was elected
I think people might take your point, but they would say, look,
you know, the main thing. Certainly a lot of voters
have been saying the main thing we were focused on
was inflation, and if anything on inflation, you seem to
be pushing things the other way. So just lay out
for us the case for thinking this administration's being a
(06:00):
bit more strategic than it looks.
Speaker 3 (06:02):
So I think the first thing to say, Stephanie is
that the Trump administration and Trump himself, has made a
compelling case for what the problems are. Sometimes in analysis
and commentary you see a comparison between Trump and Reagan,
and the implicit point is, well, Reagan was a great
Republican president. He was courtly, he was gentlemanly, he was optimistic.
(06:25):
Trump wants to be a great Republican president. Why is
he so bleak? Why is he so crude? And I
think the answer to that question really lies in the
very different economies which they inherited. Reagan inherited a US
economy which was on the rise, a US economy where
debt was just twenty five percent of GDP, A US
(06:47):
economy which still had a trade surplus. Fast forward to
twenty twenty five, and Trump's inherited a US economy which
is shrinking as a share of the global total, A
US economy where debt is one hundred percent of GDP
and rising fast and a US economy which in twenty
twenty four had a trade deficit approaching nine hundred billion dollars.
(07:07):
So Reagan was optimistic and that resonated with voters. Trump
is bleak and pessimistic, and that resonated with voters. And
when you look at the shift in the US economy,
I think you can see the reason for that transition.
So I think top marks on identifying the problems, on
delivering the solutions, well, I think the Trump administration can
(07:27):
point to some early and significant wins. They can point
to TSMC, the giant Taiwanese semiconductor company, which has said
it will invest one hundred billion dollars in the United States.
They can point to Germany, which has said it's going
to spend five hundred billion dollars on infrastructure and probably
hundreds of billions more on defense. A long term objective
(07:50):
of the US has been to have its allies pay
more for the cost of their defense. They haven't achieved it,
but Trump seems to be delivering. So they can point
to some early and I think significant wins. But certainly
you're right, the early days of the administration have been
characterized by confusion, by missteps, by abrupt about faces. Think
(08:13):
about the twenty five percent tariffs on Canada and Mexico
which were abruptly removed. That's one of the reasons why
the mood has swung from optimism to pessimism, and that,
as you point out, is also one of the reasons
why concern about inflation is rising again, with the University
of Michigan survey showing households are really quite concerned that
(08:34):
tariffs are going to be driving inflation higher.
Speaker 2 (08:37):
Again, the manner of the imposition of the tariffs has
not been efficient. But what can we say about the
architecture of what he's been seeking out to do. I mean,
does it have a genuine chance of addressing that sort
of long term trade gap that the US has had
for so long, because that's one of the things that
(08:57):
he's identified as a problem. But I guess the question
would be whether tariffs is the solution.
Speaker 3 (09:03):
So if we go to the economic textbooks, tariffs are
absolutely not the solution. The economics textbooks tell us that
trade balances are not determined by whether you've got tariffs
or you haven't got tariffs. Trade balances are determined by
the relationship between saving an investment, and tariffs don't affect
that relationship. So when you impose tariffs, what happens is
(09:27):
currencies move to maintain a trade balance, which is consistent
with that fundamental relationship between saving an investment. If you
look at the economic textbooks, Trump is absolutely following the
wrong approach. I think if we did have Donald Trump
on this podcast, what he would probably say is, well,
textbooks be damned, look at the results I'm delivering. TSMC
(09:49):
are investing one hundred billion dollars in the United States.
Apple have agreed to invest hundreds of billions of dollars
in the United States. Other companies faced with the threat
of tariffs also thinking about moving their supply chains back
to the US. For decades, the United States has lectured
China about the importance of relying less on exports and
(10:11):
boosting its own consumption, and China's officials have listened politely
and sip their tea and basically ignored them. What's happened
since Trump came into power. Well, Premier Lee Chang at
the National People's Congress in Beijing a few weeks ago,
said the ego ren Wu. The first task is to
Dali Chi Jung chal Fe vigorously increase consumption, and he's
(10:35):
put some money behind that. The Chinese are targeting a
discal deficit in twenty twenty five of eight percent of GDP,
a lot more than six percent which was their target
in twenty twenty four, and Li Chang's telling us that
money is going towards consumption spending. So the textbooks tell
us it won't work. Trump thinks it will. Some of
(10:57):
the early evidence is lining up behind his case.
Speaker 2 (11:00):
You see, this is a difference between our economics podcasts
and anybody else's economics podcast Other people, including the Rory
Stewart and Alastair Campbell on their politics show last week,
can talk a little bit about the Chinese economy, but
only here would you get some of the key quotes
in Mandarin. So I think we can chalk up some
points on that one. I think when it comes to
the rest of the world, the rest of the world
(11:22):
might differ on this, but I think if you're looking
at the world through a Trumpian lens, I think you
would have to say there's been movement in his direction
quite dramatically, so in Europe, maybe not for the reasons
that you might want, but there's certainly been a structural change,
most dramatically in Germany. It's approached to defense spending, even
(11:44):
at the cost of overturning or ignoring for those purposes.
It's long standing limit on debt, and as you identify,
also a quite significant change of trajectory in China at
home in the US. And he also point to any wins.
I mean, some of the other things he's identified, the
(12:04):
cost of government borrowing, Oil prices, low oil has been
a theme of Donald Trump's pretty much all of his
political and business career, the high level of the dollar.
How's he doing on those things?
Speaker 3 (12:17):
So I think it's a mixed picture, Stephanie. Think about
the stock market. Trump, in the past, when the market
has been going up, has viewed the stock market as
kind of a daily report card on his performance. Well,
since Trump came into power, the S and P five hundred,
the NASDAC, they haven't created, but they are markedly down.
(12:38):
And that's the market saying, you know what, all of
this uncertainty isn't going to be good for growth. All
of these tariffs aren't going to be good for company profits.
We're not optimistic. If we look at the dollar. Well,
Trump's views on the dollar are a little bit You'll
be hugely surprised to hear me say this, Stephanie. Trump's
views on the dollar are a little bit internally inconsistent.
(12:59):
On the one hand, he would like a weaker dollar
to support export competitiveness and reduce that trade deficit. On
the other hand, he would like the dollar to retain
its status as a global reserve currency so that US
borrowing costs stay low. And those things point in different directions.
What happened since the election, Well, he's got the weaker dollar,
(13:20):
probably not for reasons that he would like. The dollar
is weak, not because the markets are acquiescing in his
desire to boost export competitiveness, but because they're more pessimistic
about the outlook for the US. And on oil prices, well,
Trump wants cheaper oil prices. I think we want all
want cheaper oil prices. Certainly the US households want cheaper
(13:42):
oil prices. He thinks that drill baby drill, slashing regulations
on oil producers in the United States is going to
be a driver of increased supply, and that's what's going
to bring prices down. Oil producers, Well, they're not so
certain they'd certainly take the cut in regulations, but whether
they're going to increase production that's a different question. So far,
(14:02):
though oil prices have come down from around eighty dollars
a barrel when he was elected to around seventy dollars
a barrel as we're recording today, So again a move
in the right direction, though not necessarily a reflection of
early success for Trump's policies.
Speaker 2 (14:17):
Does it matter that these things are happening for the
wrong reason, especially if it's early in the term. Famously,
the good economic news that was in the economic statistics
last year was not being felt by American households, and
apparently was not felt in the results of the election either. Now,
if there's some underlying bad news which is altering markets,
(14:41):
pushing down the long term cost at borrowing cost mortgage rates,
is it possible that people will actually notice those things
and not the negativity in parts of the real economy
that's leading to them, and he will end up with
the kind of positive trajectory from here that many governments
would like to have. You get your bad news in
the first six months, nine months, and then everything seems
(15:05):
to be getting better as you approach the next selection.
I mean, in the previous Trump administration, and we've talked
about it in the past with your chief US economist
Dana Wong and others, you had a different ordering where
the sugar rush of the tax cuts was all really
quite early on in the administration, and some of the
negativity caused by the tariffs, as Anna has pointed out,
(15:29):
well that was delayed because of the legacy of the
tax cuts sugar rush, But actually some of the bad
news was coming in even before COVID. You know, in
the latter part of the administration, you were actually starting
to have the bad news, which is exactly what you
don't want. So this could be another way in which
the administration has learned from the limitations they hit in
(15:50):
the first administration. Do you think that's a stretch They've
got their timing better this time.
Speaker 3 (15:55):
I think there's certainly something in the idea that getting
the bad news out of the way ahead of the
midterms is a good political thinking from the Trump administration.
I guess the nuance I would introduce is, I don't
think we've had anything like all the bad news yet.
Right If we think about the drop in the stock market,
the fall in the dollar, the dash into US treasuries,
(16:18):
it's all because of noise, uncertainty, sudden about faces. We
haven't actually had the big policy shock yet. April the
second is when we're getting the major tariff announcement potentially
a significant increase in tariffs on all of the major
US trade partners, including Europe, and on public spending. Well,
(16:42):
Elon Musk in his Department of Government Efficiency have certainly
put the fear of God into all of the federal
employees in Washington, d C. And they've certainly captured a
lot of headlines. But even based on their own estimate,
which many analysts are skeptical about, they've only saved a
little bit more than hundred billion dollars. And that's really
(17:02):
pretty insignificant relative to the size of the cuts in
government spending which Trump is going to need to deliver
if he wants to get the fiscal deficit from six
point four percent of GDP, which is where it was
last year ninety three percent of GDP, which is where
Scott Besson says it has to be so tactically politically,
getting the bad news out of the way first is
(17:24):
a good idea, but the caveat would introduces. If you
think that bad news we've had so far is all
the bad news, well I've got some bad news for you.
Speaker 2 (17:33):
To return to where we started. He has identified some
pretty fundamental problems with the US economy, with the US
economic model, and he has started to address them one
way or another. If he's made significant progress on those
in two or three years time, or even or four
years time, you know, just as the Chinese do, judge
(17:55):
the results of their policies over many years, sometimes decades,
rather than a few weeks and months, all of this
will be forgotten.
Speaker 3 (18:03):
Right, Yeah, I think that's true, Stephanie. Do you mind
if I come at you and Trumponomic's listeners with another
historical analogy.
Speaker 2 (18:12):
We live for historical analogies.
Speaker 3 (18:14):
Okay, great, So look Paul Vulka. He was the son
of a lowly county clerk or city official. He was
a cigar chomper, He devoted his life to public service.
So at first sight, there's not much to suggest a
analogy between him and Donald Trump. The son of a
(18:34):
millionaire teetotaler, and on the evidence so far, not someone
who has a huge amount of respect for people who
devote their lives to public service. But I think there
is an analogy which is worth thinking about. Vulka came
into office as Chair of the Federal Reserve and he
faced a huge problem. Inflation was way too high. And
he said, you know what, I'm going to get this
(18:57):
under control. And there's going to be a huge cost
to do doing so, but it's going to be a
price worth paying. And he jacked up interest rates to
twenty percent, an unemployment sared to eleven percent, more than
one in ten US workers were out of a job.
But it did the job, and inflation came back down,
and Volka had laid the groundwork for decades of increasing
(19:19):
US prosperity. And when people look back at that period now,
they don't remember the missteps and the pain and the
uncertainty of those initial moves to jack up interest rates.
What they remember is the vision and the determination and
ultimately the success. Right now, with Donald Trump, the focus
is very much on the missteps and the uncertainty and
(19:42):
the transition costs. But if, and this is a really
big if, at the end of his four years in power,
he can point to debt coming under control, deficits coming
under control, and a world which is more secure because
US allies have stopped free riding, and they're paying their
share for the cost of that security. That's what his
legacy is going to.
Speaker 2 (20:02):
Be, a straight line from Paul Volka to Donald Trump. Well,
if there's a test for a good podcast, it's surely
to take people to a destination that they find unexpected
and could never have predicted. And that's surely we've done
it on this occasion. Tom Rlick, thank you so much
(20:23):
for joining us.
Speaker 3 (20:24):
Great to be here, Donald, Sorry, Stephanie.
Speaker 2 (20:33):
Thanks as ever for listening to Trumpnomics from Bloomberg. It
was hosted by me, Stephanie Flanders, and I was joined
by our chief economist, Tom Orlick. Trump Andomics is produced
by Samasadi and Moses and Am, with help from Chris
Martin Lou and Amy Keene and sound design by Blake Maples.
Brendan Francis Newnham is our executive producer. The Lam
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