April 4, 2025 • 21 mins
In this episode, JP Matychak and Mark Williams, Master Lecturer in Finance, discuss the complexities of tariffs, their implications for the US economy, and the recent changes in tariff policy announced by President Trump. They explore how tariffs function as a tax on imported goods, the burden they place on consumers, and the potential economic fallout, including inflation and recession. The conversation also delves into the long-term risks of relying on tariffs as a trade tool and suggests more constructive approaches to address trade imbalances.
Key Takeaways
- Tariffs are essentially a tax on imported goods.
- Consumers ultimately bear the cost of tariffs.
- Recent tariff changes have led to significant market declines.
- The administration's goal with tariffs is to protect local industries.
- High tariffs can lead to inflation and reduced consumer spending.
- Stagflation poses a significant risk to the economy.
- Tariffs can trigger retaliatory measures from trading partners.
- Long-term reliance on tariffs can harm global trade relationships.
- Constructive trade policies should be incremental and strategic.
- Monitoring financial markets is crucial for understanding economic trends.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mark Williams (00:00):
The tariffs are going to bring in short-term,
more funds to the Treasury, butat a cost, because of course
it's a transfer tax, soconsumers are going to pay the
difference.
We're feeling it already andthat's why the stock market has
crashed, has dropped since theFebruary high by over 10 percent
.
J.P. Matychak (00:21):
Hello everybody and welcome into the Insights at
Questrom podcast.
I'm JP Matychak.
This week we're talking tariffsyes, those often misunderstood
levers of trade policy that aremaking headlines once again, and
just two days ago PresidentTrump announced sweeping changes
to US tariff policy, increasingrates on a wide range of
(00:45):
imported goods across the globeand against various countries.
It's a move that hassignificant implications for
businesses, consumers and theglobal economy.
And to help us unpack what allof this means is Mark Williams,
master Lecturer in Finance atQuestrom School of Business and
nationally recognized expert inglobal markets and risk
management.
Mark, great to have you with us.
Williams, master Lecturer inFinance at Questrom School of
Business and nationallyrecognized expert in global
(01:06):
markets and risk management Mark, great to have you with us.
Yeah, jp nice to be here, solet's just start with the basics
.
I think these are oftenmisunderstood as to what are
tariffs, right?
So what exactly is a tariff,and what is it meant to do as a
lever that governments can pullwhen it comes to the economy?
Mark Williams (01:30):
Sure Tariffs themselves are really attacks,
and that is, they're attacks onany goods that come into a
country, and the thought ofputting a tariff is to create a
wall, that is to protect localmanufacturers or other
industries in particular, togive them the opportunity then
to build and make and producethings locally.
J.P. Matychak (01:51):
So there does seem to be some confusion around
this.
So you know who actually paysfor this tariff.
So you know a tariff getslevied, who's actually paying
for that?
Mark Williams (02:05):
Sure.
Well, the president had statedthat actually China would pay
for it, or Mexico or Canada arethree largest trading partners
but in reality consumers pay forit.
So technically what happens?
Goods arrive in the US andcustoms.
The customs agent then chargesthe tariff.
That tariff is paid to thetreasury, but the person who's
(02:29):
bringing in the goods tends topass that cost on to consumers,
and that's why we're seeing anincrease in inflation here in
the US.
J.P. Matychak (02:39):
So in other words , if I'm an auto manufacturer
and I'm here in the UnitedStates and I'm bringing in parts
that I need to manufacturethose, when those come into the
country, I'm the one that'spaying that tariff right.
Mark Williams (02:52):
Yes, ultimately.
And what's interesting aboutthese tariffs and I'm glad you
used automotive, you know, inthe US in particular, because
labor has been so high, we tendto actually Ford and GM in
particular we actually havemanufacturing plants in Canada
and then also Mexico, andbecause of cheap labor there, it
(03:12):
allows then for these cars tothen be re-imported to the US,
put in dealerships and sold toUS customers at a cheaper price.
J.P. Matychak (03:24):
So this past week President Trump did announce
new policies, if you will, thatwere a significant shift from
where I think the market reallythought that the tariffs were
going to land.
I think those on Wall Streetthought that maybe we would see
(03:46):
a 10% tariff, but in effect,when he introduced reciprocal
tariffs and we could talk alittle bit, maybe about what
reciprocal tariffs are, it lookslike the effective tariff will
actually be around 25%.
So what do we know so far aboutthe tariffs that have gone into
(04:08):
place or will go into placehere soon, and how the market is
reacting to those?
Mark Williams (04:15):
Sure, and actually the run-up to these
tariffs has been a lot of PRabout it and back and forth, and
that uncertainty, of course, isrisk and that's how the
market's responding at thispoint and it's not responding
well.
The market is off over 10%.
There's been $5 trillion oflost wealth right now.
So the tariffs themselves havebeen placed on various countries
(04:38):
large trading partners that wehave against Mexico and Canada,
for example, training partnersthat we have against Mexico and
Canada, for example, Cars andauto parts are taxed at 25%, but
China in particular, which is alarge importer to the US,
they've been taxed at 34%.
And China, of course, last night, late last night, came back and
did a reciprocal saying ifyou're going to charge us 34%,
(05:01):
we're going to charge you foranything you try to sell to us.
So this back and forth isreally a game of it's a game of
thrones and that's the challengewe have with tariffs.
It's not a unilateral thing.
If you're trading withsomething with another country,
they're going to work very hardto try to actually protect their
own turf.
J.P. Matychak (05:23):
So what is the administration trying to achieve
with this move?
And I know that you know you'vetalked a little bit about the
magical economic, you knowthinking here a little bit.
So what are they really tryingto achieve when they're putting
these massive tariffs in place?
Mark Williams (05:50):
Well, publicly, the statements are tariffs are
good and tariffs will makeAmerica wealthy again.
But the reality is that we aretwo thirds of our GDP.
The US GDP is based onconsumption, and so our economy,
which is the largest in theworld, grows when we consume.
However, for any good, if itincreases in price, consumers
are going to buy less of thatproduct and, as a result, the
(06:14):
economy already is shrinking,was supposedly, we will put
tariffs and it will protect ourturf, the US, which then will
give some flexibility formanufacturers then to produce
products locally.
But that's flawed logic, becauselet's just take, for example,
(06:36):
car manufacturing.
The reason why we're doing alot of manufacturing to the
north, in Canada, and to thesouth, in Mexico, as I mentioned
earlier, is labor is a lotcheaper.
So if we bring manufacturingback to the US, we have to site
plants, we have to actuallybuild plants, we have to find
labor, we have to train laborand we also have to actually
(06:59):
then produce the product and getto full capacity.
That could take anywherebetween four and five years.
So there's a lot of financialpain for the next four or five
years if we're going to havethese tariffs and consumption is
going to decline and alreadywe're seeing cracks in the
economy and it looks like we'removing closer and closer to a
(07:19):
potential recession.
J.P. Matychak (07:23):
So you talked about, you know you brought up
recession and obviously you knowthe last several years have
been, you know, on this sort ofbubble of recession and whatnot,
and the Fed had already startedto make moves to lower interest
rates.
And now we move into territorywhere we could start to see
(07:48):
interest rates rise again, right, and at the last Fed meeting
they decided to hold interestrates steady.
So let's talk a little bitabout this.
So, as these tariffs go intoplace, it does contribute to
larger global economic factors,right?
So how will these affect thingslike inflation, interest rates,
(08:13):
supply chains, all of thosedifferent types of things?
And then there's another wordthat keeps getting talked about
out there stagflation.
Now, with a little bit slowingof the economy, slowing of job
growth, more people inunemployment, we start to throw
(08:35):
around stagflation a little bit.
So can you talk a little bitabout how these tariffs are
going to interplay with all ofthese different economic factors
?
Mark Williams (08:45):
Sure, and I think the big picture is that we are.
That is, the US is the largestbuyer consumer in the world and,
as I mentioned, two-thirds ofour GDP.
Our economy is based onconsumption and a lot of what we
buy is manufactured elsewhere,and the top five trade partners
are Mexico and Canada, china,japan and Germany, and we buy
(09:09):
lots of products from them andwe also sell some products to
those countries as well.
So the fact that we're buyingmore than we're producing in
these tariffs, in reciprocaltariffs from countries like, for
example, canada and in Chinayou mentioned earlier that's
going to increase our costs herein the US and so that's going
(09:32):
to increase push inflation upsignificantly.
Already.
The Atlanta Fed came out with arecent estimate and it was
looking specifically at GDPgrowth and it looks like GDP
growth is going to drop tonegative 2.8% for the first
quarter.
So that's an ominous sign.
So really, the logic is thisthat as inflation increases,
(09:55):
people consume less.
As we consume less, the economyshrinks.
If the economy shrinks for twoconsecutive quarters, of course,
then that becomes a recessionand that could happen
potentially as soon as June.
So that's of concern.
And you mentioned the Fed, whichis really a very important
lever here in our economy.
(10:16):
The Fed hasn't reduced interestrates since December and it was
hoping to reduce rates by threeor four more cuts this year.
Right, right, but inflation hasreared its head through these
tariff policies and it lookslike inflation could be at three
or four percent at year end.
So the Fed has two mandates.
One, of course, is to fightinflation, and they do that, of
(10:39):
course, by managing interestrates.
Higher rates help break theback of inflation, but in this
economy, which is now incrediblyfragile, if the Fed were to
increase interest rates, fightinflation it could actually kill
jobs.
And now the challenge is, ofcourse, the word that you
mentioned stagflation is reallycreeping into the daily
(11:01):
conversation and for yourlisteners, stagflation is the
worst of both worlds it's highinflation and lots of
unemployment.
So if stagflation comes andthat's a very significant
challenge for economists and forthe Fed, because how do you
eradicate inflation in aneconomy you do it through high
(11:25):
rates, and that doesn't spureconomic growth and new job
creation.
So, really, in summary, thesetariffs, the way in which, the
haphazard way they were put up,and the size of these tariffs
and the reciprocal tariffs thatare now coming from our trading
partners, which President Trumpnow calls our trading enemies,
(11:48):
has really created potentially aglobal financial crisis.
In particular, we're seeing,for example, about 80% of
products that Mexico sells, itsells to the US.
That is those products theyproduce.
Canada about 75% of theproducts they produce they sell
to the US.
That is those products theyproduce.
Canada about 75% of theproducts they produce they sell
(12:09):
to the US.
So if we slow down on ourconsumption, we could actually
throw very quickly Canada andMexico into recession, which
could trigger a global recessionand could potentially pull us
into recession as well.
J.P. Matychak (12:24):
You know, the estimates are that the tariffs
will bring in quite a bit ofrevenue to the US government,
which, if you're only looking atthat, could be a wonderful
thing.
But it truly does play agreater impact on the global
economy when we are the largesteconomy and, as you said, two
(12:44):
thirds of our own GDP is basedon consumption.
Mark Williams (12:48):
Right.
So the challenge here and I'mglad you brought up that point
the tariffs are going to bring,in short term, more funds to the
Treasury, but at a cost,because, of course, it's a
transfer tax, so consumers aregoing to pay the difference.
That's right and we're feelingit already, and that's why the
stock market has crashed, hasdropped since the February high
(13:11):
by over 10% and again lost $5trillion.
Now the challenge we have isthe US economy is massive it's
$30 trillion.
The second largest economy isChina, which is under $20
trillion, and Japan and Germanyare roughly $4 trillion each,
and then India, which is $3.6trillion.
(13:33):
So we are the center of theglobal economy, and so these
actions that we're taking haveripple effects throughout the
globe, and I think they've beenvery irresponsibly implemented,
which is really frustratingbecause we have a lot of
economic history.
(13:54):
We can go back to 1930, in themiddle of the Great Depression.
The Smoot-Hawley tax tariffswere put in, and they proved to
be disastrous.
Not only with these hightariffs, but they extended the
length of the Great Depression.
So many economists shake theirheads.
(14:15):
We have plenty of evidence thatwhat Donald Trump was doing and
has been done would harm theeconomy in the way it's actually
played out has been done wouldharm the economy in the way it's
actually played out.
J.P. Matychak (14:32):
So let's talk a little bit about that then.
So what are some of thelong-term risks of relying
heavily on tariffs as a policyand a trade?
What I'd say is a tool tocombat trade imbalances?
Mark Williams (14:46):
Sure, well, I think everyone could agree that
tariffs themselves, if managedappropriately, could help
balance trade between twotrading partners.
But what happens is when youhave a unilateral approach and
you say that you hold all thecards and you make all the
decisions, your counterpartiesactually get very upset and
(15:11):
actually respond to that and docountermeasures, and that's what
we're seeing.
That's why I mentioned earlierthe Game of Thrones.
So everyone loses in thatenvironment.
The economies themselves aroundthe globe shrink because of the
fact that Pricing has increased, consumers are spending less
and the economy is slowing down,and then, of course, that kills
(15:32):
jobs and then that moves usinto potential recession.
So there is tariff policy, whichis useful especially to police,
you know, breaking of rules andactually, as President Trump
likes to call it, cheating inthe trading environment.
But the reality is that we needMexico.
(15:53):
Roughly 30% of our vegetablesand goods that we rely on in the
US are actually those goods areimported from Mexico.
So by increasing those tariffs,I mean I don't think we're
going to be making or growingmore lettuce.
Maybe in regard to fruits likeavocados, for example, maybe
(16:20):
we'll be eating less, right inregard to bananas, we don't have
the climate to produce bananasor mangoes.
So we're going to be challengedspecifically on how to fill.
We're either going to consumeless and less variety of
products or we're going to paymore for them.
J.P. Matychak (16:46):
So are there more constructive ways?
Mark Williams (16:46):
to address trade imbalances or protect our
domestic industries andcompanies.
Yes, strategically, and that'svarious governments, whether
(17:08):
it's the Biden administration,stock markets, bond markets,
don't like uncertainty, and whenyou have sudden moves in
uncertainty then that actuallycauses these erratic movements
and stock collapses.
So I think probably now it'ssort of that the toothpaste is
out of the tube, that thetoothpaste is out of the tube.
(17:29):
But ideally if we could rollback to, let's say, december,
after Trump was elected, and ifhe would have implemented,
saying we're going to haveacross the board a 5% or 10% or
we're going to strategicallytarget those trading partners
that we would like to have amore balanced import-export
relationship with, then I thinkthe markets would have been much
(17:52):
more favorable to such anapproach.
But what was done was a mannerin which isn't how trading works
.
It was someone coming to thetable saying we control, you
know all the chips and we candecide how much to tariff, and
the reality is that you know,just like trade, it finds new
(18:20):
markets and so these tariffsactually, in the long run, could
hurt the economics of the US ofthe U?
J.P. Matychak (18:39):
S as our main suppliers of goods, to find new
buyers and maybe won't come backVery, very interesting.
So I want to wrap up with withone final question that I like
to to to do with anytime we havethe show.
Is you know whether it's a, abusiness leader listening, or a
student, or even the everydayconsumer?
What, in your mind, is the onething that listeners should be
(19:00):
watching as this tariff storyunfolds over the next weeks,
months, years to come?
Mark Williams (19:08):
Well, it's very important to look at the
financial markets.
Stocks are leading indicators.
The fact that stocks arecorrecting dropping is an
indicator of perceived risk inthe market.
We also have a bond curve.
The yields now are starting toget inverted.
That means that the short endis higher as a percentage than
(19:28):
the long end and inverted yieldcurves is higher as a percentage
than the long end, and invertedyield curves nine out of 10
times reflect that we're movingtowards recession.
So these are the things tothink about, and if we are
moving to a slowing economy anda recession, then it's important
to rethink your budgets andactually, cash is king in these
environments.
J.P. Matychak (19:50):
Excellent.
Well, Mark, thank you so muchfor joining us and bringing some
insight to this important topic.
I really appreciate you takingthe time.
Mark Williams (20:02):
Sure.
Well, thanks for having me.
J.P. Matychak (20:08):
Well, that's going to wrap things up for this
episode of the Insights atQuestrom podcast.
I'd like to thank my guestagain, mark Williams, master
Lecturer of Finance at BostonUniversity, questrom School of
Business.
For more on this episode'stopic, previous episodes and
additional insights from ourQuestrom experts, visit us after
the show at insightsbuedu.
So long,
The tariffs are going to bring in short-term,
more funds to the Treasury, butat a cost, because of course
it's a transfer tax, soconsumers are going to pay the
difference.
We're feeling it already andthat's why the stock market has
crashed, has dropped since theFebruary high by over 10 percent
.
J.P. Matychak (00:21):
Hello everybody and welcome into the Insights at
Questrom podcast.
I'm JP Matychak.
This week we're talking tariffsyes, those often misunderstood
levers of trade policy that aremaking headlines once again, and
just two days ago PresidentTrump announced sweeping changes
to US tariff policy, increasingrates on a wide range of
(00:45):
imported goods across the globeand against various countries.
It's a move that hassignificant implications for
businesses, consumers and theglobal economy.
And to help us unpack what allof this means is Mark Williams,
master Lecturer in Finance atQuestrom School of Business and
nationally recognized expert inglobal markets and risk
management.
Mark, great to have you with us.
Williams, master Lecturer inFinance at Questrom School of
Business and nationallyrecognized expert in global
(01:06):
markets and risk management Mark, great to have you with us.
Yeah, jp nice to be here, solet's just start with the basics
.
I think these are oftenmisunderstood as to what are
tariffs, right?
So what exactly is a tariff,and what is it meant to do as a
lever that governments can pullwhen it comes to the economy?
Mark Williams (01:30):
Sure Tariffs themselves are really attacks,
and that is, they're attacks onany goods that come into a
country, and the thought ofputting a tariff is to create a
wall, that is to protect localmanufacturers or other
industries in particular, togive them the opportunity then
to build and make and producethings locally.
J.P. Matychak (01:51):
So there does seem to be some confusion around
this.
So you know who actually paysfor this tariff.
So you know a tariff getslevied, who's actually paying
for that?
Mark Williams (02:05):
Sure.
Well, the president had statedthat actually China would pay
for it, or Mexico or Canada arethree largest trading partners
but in reality consumers pay forit.
So technically what happens?
Goods arrive in the US andcustoms.
The customs agent then chargesthe tariff.
That tariff is paid to thetreasury, but the person who's
(02:29):
bringing in the goods tends topass that cost on to consumers,
and that's why we're seeing anincrease in inflation here in
the US.
J.P. Matychak (02:39):
So in other words , if I'm an auto manufacturer
and I'm here in the UnitedStates and I'm bringing in parts
that I need to manufacturethose, when those come into the
country, I'm the one that'spaying that tariff right.
Mark Williams (02:52):
Yes, ultimately.
And what's interesting aboutthese tariffs and I'm glad you
used automotive, you know, inthe US in particular, because
labor has been so high, we tendto actually Ford and GM in
particular we actually havemanufacturing plants in Canada
and then also Mexico, andbecause of cheap labor there, it
(03:12):
allows then for these cars tothen be re-imported to the US,
put in dealerships and sold toUS customers at a cheaper price.
J.P. Matychak (03:24):
So this past week President Trump did announce
new policies, if you will, thatwere a significant shift from
where I think the market reallythought that the tariffs were
going to land.
I think those on Wall Streetthought that maybe we would see
(03:46):
a 10% tariff, but in effect,when he introduced reciprocal
tariffs and we could talk alittle bit, maybe about what
reciprocal tariffs are, it lookslike the effective tariff will
actually be around 25%.
So what do we know so far aboutthe tariffs that have gone into
(04:08):
place or will go into placehere soon, and how the market is
reacting to those?
Mark Williams (04:15):
Sure, and actually the run-up to these
tariffs has been a lot of PRabout it and back and forth, and
that uncertainty, of course, isrisk and that's how the
market's responding at thispoint and it's not responding
well.
The market is off over 10%.
There's been $5 trillion oflost wealth right now.
So the tariffs themselves havebeen placed on various countries
(04:38):
large trading partners that wehave against Mexico and Canada,
for example, training partnersthat we have against Mexico and
Canada, for example, Cars andauto parts are taxed at 25%, but
China in particular, which is alarge importer to the US,
they've been taxed at 34%.
And China, of course, last night, late last night, came back and
did a reciprocal saying ifyou're going to charge us 34%,
(05:01):
we're going to charge you foranything you try to sell to us.
So this back and forth isreally a game of it's a game of
thrones and that's the challengewe have with tariffs.
It's not a unilateral thing.
If you're trading withsomething with another country,
they're going to work very hardto try to actually protect their
own turf.
J.P. Matychak (05:23):
So what is the administration trying to achieve
with this move?
And I know that you know you'vetalked a little bit about the
magical economic, you knowthinking here a little bit.
So what are they really tryingto achieve when they're putting
these massive tariffs in place?
Mark Williams (05:50):
Well, publicly, the statements are tariffs are
good and tariffs will makeAmerica wealthy again.
But the reality is that we aretwo thirds of our GDP.
The US GDP is based onconsumption, and so our economy,
which is the largest in theworld, grows when we consume.
However, for any good, if itincreases in price, consumers
are going to buy less of thatproduct and, as a result, the
(06:14):
economy already is shrinking,was supposedly, we will put
tariffs and it will protect ourturf, the US, which then will
give some flexibility formanufacturers then to produce
products locally.
But that's flawed logic, becauselet's just take, for example,
(06:36):
car manufacturing.
The reason why we're doing alot of manufacturing to the
north, in Canada, and to thesouth, in Mexico, as I mentioned
earlier, is labor is a lotcheaper.
So if we bring manufacturingback to the US, we have to site
plants, we have to actuallybuild plants, we have to find
labor, we have to train laborand we also have to actually
(06:59):
then produce the product and getto full capacity.
That could take anywherebetween four and five years.
So there's a lot of financialpain for the next four or five
years if we're going to havethese tariffs and consumption is
going to decline and alreadywe're seeing cracks in the
economy and it looks like we'removing closer and closer to a
(07:19):
potential recession.
J.P. Matychak (07:23):
So you talked about, you know you brought up
recession and obviously you knowthe last several years have
been, you know, on this sort ofbubble of recession and whatnot,
and the Fed had already startedto make moves to lower interest
rates.
And now we move into territorywhere we could start to see
(07:48):
interest rates rise again, right, and at the last Fed meeting
they decided to hold interestrates steady.
So let's talk a little bitabout this.
So, as these tariffs go intoplace, it does contribute to
larger global economic factors,right?
So how will these affect thingslike inflation, interest rates,
(08:13):
supply chains, all of thosedifferent types of things?
And then there's another wordthat keeps getting talked about
out there stagflation.
Now, with a little bit slowingof the economy, slowing of job
growth, more people inunemployment, we start to throw
(08:35):
around stagflation a little bit.
So can you talk a little bitabout how these tariffs are
going to interplay with all ofthese different economic factors
?
Mark Williams (08:45):
Sure, and I think the big picture is that we are.
That is, the US is the largestbuyer consumer in the world and,
as I mentioned, two-thirds ofour GDP.
Our economy is based onconsumption and a lot of what we
buy is manufactured elsewhere,and the top five trade partners
are Mexico and Canada, china,japan and Germany, and we buy
(09:09):
lots of products from them andwe also sell some products to
those countries as well.
So the fact that we're buyingmore than we're producing in
these tariffs, in reciprocaltariffs from countries like, for
example, canada and in Chinayou mentioned earlier that's
going to increase our costs herein the US and so that's going
(09:32):
to increase push inflation upsignificantly.
Already.
The Atlanta Fed came out with arecent estimate and it was
looking specifically at GDPgrowth and it looks like GDP
growth is going to drop tonegative 2.8% for the first
quarter.
So that's an ominous sign.
So really, the logic is thisthat as inflation increases,
(09:55):
people consume less.
As we consume less, the economyshrinks.
If the economy shrinks for twoconsecutive quarters, of course,
then that becomes a recessionand that could happen
potentially as soon as June.
So that's of concern.
And you mentioned the Fed, whichis really a very important
lever here in our economy.
(10:16):
The Fed hasn't reduced interestrates since December and it was
hoping to reduce rates by threeor four more cuts this year.
Right, right, but inflation hasreared its head through these
tariff policies and it lookslike inflation could be at three
or four percent at year end.
So the Fed has two mandates.
One, of course, is to fightinflation, and they do that, of
(10:39):
course, by managing interestrates.
Higher rates help break theback of inflation, but in this
economy, which is now incrediblyfragile, if the Fed were to
increase interest rates, fightinflation it could actually kill
jobs.
And now the challenge is, ofcourse, the word that you
mentioned stagflation is reallycreeping into the daily
(11:01):
conversation and for yourlisteners, stagflation is the
worst of both worlds it's highinflation and lots of
unemployment.
So if stagflation comes andthat's a very significant
challenge for economists and forthe Fed, because how do you
eradicate inflation in aneconomy you do it through high
(11:25):
rates, and that doesn't spureconomic growth and new job
creation.
So, really, in summary, thesetariffs, the way in which, the
haphazard way they were put up,and the size of these tariffs
and the reciprocal tariffs thatare now coming from our trading
partners, which President Trumpnow calls our trading enemies,
(11:48):
has really created potentially aglobal financial crisis.
In particular, we're seeing,for example, about 80% of
products that Mexico sells, itsells to the US.
That is those products theyproduce.
Canada about 75% of theproducts they produce they sell
to the US.
That is those products theyproduce.
Canada about 75% of theproducts they produce they sell
(12:09):
to the US.
So if we slow down on ourconsumption, we could actually
throw very quickly Canada andMexico into recession, which
could trigger a global recessionand could potentially pull us
into recession as well.
J.P. Matychak (12:24):
You know, the estimates are that the tariffs
will bring in quite a bit ofrevenue to the US government,
which, if you're only looking atthat, could be a wonderful
thing.
But it truly does play agreater impact on the global
economy when we are the largesteconomy and, as you said, two
(12:44):
thirds of our own GDP is basedon consumption.
Mark Williams (12:48):
Right.
So the challenge here and I'mglad you brought up that point
the tariffs are going to bring,in short term, more funds to the
Treasury, but at a cost,because, of course, it's a
transfer tax, so consumers aregoing to pay the difference.
That's right and we're feelingit already, and that's why the
stock market has crashed, hasdropped since the February high
(13:11):
by over 10% and again lost $5trillion.
Now the challenge we have isthe US economy is massive it's
$30 trillion.
The second largest economy isChina, which is under $20
trillion, and Japan and Germanyare roughly $4 trillion each,
and then India, which is $3.6trillion.
(13:33):
So we are the center of theglobal economy, and so these
actions that we're taking haveripple effects throughout the
globe, and I think they've beenvery irresponsibly implemented,
which is really frustratingbecause we have a lot of
economic history.
(13:54):
We can go back to 1930, in themiddle of the Great Depression.
The Smoot-Hawley tax tariffswere put in, and they proved to
be disastrous.
Not only with these hightariffs, but they extended the
length of the Great Depression.
So many economists shake theirheads.
(14:15):
We have plenty of evidence thatwhat Donald Trump was doing and
has been done would harm theeconomy in the way it's actually
played out has been done wouldharm the economy in the way it's
actually played out.
J.P. Matychak (14:32):
So let's talk a little bit about that then.
So what are some of thelong-term risks of relying
heavily on tariffs as a policyand a trade?
What I'd say is a tool tocombat trade imbalances?
Mark Williams (14:46):
Sure, well, I think everyone could agree that
tariffs themselves, if managedappropriately, could help
balance trade between twotrading partners.
But what happens is when youhave a unilateral approach and
you say that you hold all thecards and you make all the
decisions, your counterpartiesactually get very upset and
(15:11):
actually respond to that and docountermeasures, and that's what
we're seeing.
That's why I mentioned earlierthe Game of Thrones.
So everyone loses in thatenvironment.
The economies themselves aroundthe globe shrink because of the
fact that Pricing has increased, consumers are spending less
and the economy is slowing down,and then, of course, that kills
(15:32):
jobs and then that moves usinto potential recession.
So there is tariff policy, whichis useful especially to police,
you know, breaking of rules andactually, as President Trump
likes to call it, cheating inthe trading environment.
But the reality is that we needMexico.
(15:53):
Roughly 30% of our vegetablesand goods that we rely on in the
US are actually those goods areimported from Mexico.
So by increasing those tariffs,I mean I don't think we're
going to be making or growingmore lettuce.
Maybe in regard to fruits likeavocados, for example, maybe
(16:20):
we'll be eating less, right inregard to bananas, we don't have
the climate to produce bananasor mangoes.
So we're going to be challengedspecifically on how to fill.
We're either going to consumeless and less variety of
products or we're going to paymore for them.
J.P. Matychak (16:46):
So are there more constructive ways?
Mark Williams (16:46):
to address trade imbalances or protect our
domestic industries andcompanies.
Yes, strategically, and that'svarious governments, whether
(17:08):
it's the Biden administration,stock markets, bond markets,
don't like uncertainty, and whenyou have sudden moves in
uncertainty then that actuallycauses these erratic movements
and stock collapses.
So I think probably now it'ssort of that the toothpaste is
out of the tube, that thetoothpaste is out of the tube.
(17:29):
But ideally if we could rollback to, let's say, december,
after Trump was elected, and ifhe would have implemented,
saying we're going to haveacross the board a 5% or 10% or
we're going to strategicallytarget those trading partners
that we would like to have amore balanced import-export
relationship with, then I thinkthe markets would have been much
(17:52):
more favorable to such anapproach.
But what was done was a mannerin which isn't how trading works
.
It was someone coming to thetable saying we control, you
know all the chips and we candecide how much to tariff, and
the reality is that you know,just like trade, it finds new
(18:20):
markets and so these tariffsactually, in the long run, could
hurt the economics of the US ofthe U?
J.P. Matychak (18:39):
S as our main suppliers of goods, to find new
buyers and maybe won't come backVery, very interesting.
So I want to wrap up with withone final question that I like
to to to do with anytime we havethe show.
Is you know whether it's a, abusiness leader listening, or a
student, or even the everydayconsumer?
What, in your mind, is the onething that listeners should be
(19:00):
watching as this tariff storyunfolds over the next weeks,
months, years to come?
Mark Williams (19:08):
Well, it's very important to look at the
financial markets.
Stocks are leading indicators.
The fact that stocks arecorrecting dropping is an
indicator of perceived risk inthe market.
We also have a bond curve.
The yields now are starting toget inverted.
That means that the short endis higher as a percentage than
(19:28):
the long end and inverted yieldcurves is higher as a percentage
than the long end, and invertedyield curves nine out of 10
times reflect that we're movingtowards recession.
So these are the things tothink about, and if we are
moving to a slowing economy anda recession, then it's important
to rethink your budgets andactually, cash is king in these
environments.
J.P. Matychak (19:50):
Excellent.
Well, Mark, thank you so muchfor joining us and bringing some
insight to this important topic.
I really appreciate you takingthe time.
Mark Williams (20:02):
Sure.
Well, thanks for having me.
J.P. Matychak (20:08):
Well, that's going to wrap things up for this
episode of the Insights atQuestrom podcast.
I'd like to thank my guestagain, mark Williams, master
Lecturer of Finance at BostonUniversity, questrom School of
Business.
For more on this episode'stopic, previous episodes and
additional insights from ourQuestrom experts, visit us after
the show at insightsbuedu.
So long,
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