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News on the calendar this week is what President Trump is calling Liberation Day Wednesday, April second. That's when the President says we can expect the biggest salvo yet in his widening trade war.
April second is going to be liberation Day for America. We've been ripped off by every country and the world, friend and foe.
The President raised the stakes this weekend by saying he plans to start his reciprocal tariffs push with all countries, no country spared, at least for now. But we still don't know how high these tariffs will be. There's less uncertainty about the tariff's significance about what they represent. Shawn Donnan covers economic policy for Bloomberg.
Look, I think we're at a point where we are moving towards and I think this is the key point. To remember, one of the biggest acts of American protectionism that we've seen in almost a century, and possibly even bigger than the nineteen thirty Smoot Holly tariffs, which have for decades been this kind of emblematic example of a huge protectionist mistake.
The Smoot Holly terrifact, signed into law by President Herbert Hoover in nineteen thirty, not long after the stock market crash, smoot Holly raised duties on all kinds of imported goods brought to the US from all over the world. The government's goal was to protect American producers, mostly farmers, from international competition. Douglas Irwin teaches economics at Dartmouth, and he says smoot Hally led to almost instant reprisals.
Other countries were talied. They started keeping out US automobiles, US farm goods, US manufacturers by raising terrists themselves, particularly Canada.
This happened on the eve of the Great Depression, and for decades the consensus has been smoot Holly was an economic disaster, a mistake. It's been a cautionary tale about the dangers of protectionism. Now, the parallels aren't perfect. The US economy is in better shape today than it was in nineteen thirty. But also back then, the US wasn't anywhere near his reliant on global trade as it is today.
But Erwin says President Trump is talking about imposing a tariff's policy that would dwarf smoot Holly.
Well, I think it's really a historic moment. It's a historic turning point in the world economy and certainly the US trade policy.
I'm David Gura, and this is the big take from Bloomberg News today on the show, what President Trump is trying to do with trade policy and what history tells us about what broad based tariffs could mean. We also have a new Bloomberg analysis of the economic impacts of the tariffs the President says he's planning to put in place this weekend. President Trump said the rollout of these
reciprocal tariffs will affect all countries. There had previously been speculation that the tariffs he said he'll unveil on April second could be more limited, but Bloomberg Shaan Donnan says a lot is still unknown.
All the details are still being worked out. Even people in the White House don't really know what the exact tariffs are going to be that are rolled out on
April second. But what's been very clear, and it's been clear since the campaign last year, it's been clear since January when he started rolling out these different tariffs, is the direction that Donald Trump is going in, and that is that he's erecting a tariff wall around the United States, which is the world's largest economy, and that that is going to have consequences for the US economy and for the global economy.
Sean.
He keeps using a term reciprocal tariffs. What does it mean by definition? And how does he think of that term.
It's a term that he is using to capture all of the perceived barriers that other countries have to US exports around the world, and an effort by this administration to synthesize all of them into a single number, a single tariff, a tariff that is a reciprocal reaction to all of these tariff and other barriers like taxes and regulations and even currency movements that this administration sees to US exports around the world.
Sean, You've been listening to the President, You've been listening to the Commerce secretary of the Treasury secretary. How would you characterize what the overarching goal of these tariffs is.
So there's been different goals that they have laid out for these tariffs. One is to rebalance the global trading system, to try and get rid of the trade deficit and these broader economic imbalances between the US and China, the US and Europe, and somehow restore fairness in their mind to the system. The second one is simply to raise revenues. Right.
The President has talked a lot about how tariffs raise a lot of revenues for the government and that you can use that to offset income tax cuts, which most economists will tell you is kind of curious because tariffs are attacks on imports that are usually paid by American
importers and consumers. The third is to try and get to some kind of deal, possibly as part of this rebalancing trade, but also to use tariffs as leverage to force people to the negotiating table to try and make concessions to the United States that somehow will help the
United States export more and buy less from overseas. The fourth one is bringing manufacturing back to America, and that is really transforming the US economy from one that is consumption led to one that has a greater role in it for production as it did in the past, and so on.
We're kind of looking ahead to April second, but there have been a series of these tier of announcements since President Trump was inaugurated. Back in jail. We're the most recent, which was the twenty five percent tariff on autoimports into the US. What was the reaction to those tariffs by other countries but by investors as well.
So I mean those have hit the markets is a big surprise. We have seen stocks and car makers and we should say that includes US carmakers who have most of their production in the United States or in North America, take a big hit as a result of these new twenty five percent tariffs. We've also seen a scramble in Europe to figure out how to respond to scramble in Japan.
We're seeing Canada where there's now an election campaign going on talking about fundamental reordering of the economic and security relationship with the United States. And this is just the beginning. We're going to get more of that after April second. We will also get more clarity on some of the other sectoral tariffs pharmaceuticals, lumber, copper, and so on.
Just actually, lastly, before we move on to maybe the economic impact of this, how do all of these policies fit together. Is they're kind of a coherent directionals sense of what this administration wants to do, not just with April second and the reciprocal tariffs, but with all the policies they've put in place.
So look, I think there's a lot of noise, and it's sometimes it's hard to detect a coherent message. But I think there's certainly a coherent direction in which they're going, and that is that they want to have these tariffs be a more permanent fixture of the US economy, and that they believe that that's a solution to many of the ills that have affected the US or the perceived ills that have affected the US economy in recent decades.
After the break, what these tariffs could do to the American economy, as Bloomberg Shan Donnan says, we likely won't find out until April second how far the Trump administration is planning to go with these reciprocal tariffs. Our colleagues at Bloomberg Economics have tried to replicate the calcul relations the White House has been doing to model what their impacts could be.
They've kind of come up with a few different scenarios. The maximum list one calls for an increase of the average tariff rate that the US charges on the world, up near forty percent, and that would take you to the highest level since the eighteen hundreds. It would be even bigger than the increase that we saw in nineteen thirty when the smooth holly tariffs were introduced in the Torrious smooth holly tarffs were introduced, and that would have
a huge impact on the US economy. It would take something like, according to Bloomberg Economics calculations, take something like four percent of gross domestic product out of the US economy over two to three years. That's an enormous impact. Even to four percent doesn't sound like much to the average person. It would also lead to higher prices for products and would mean more inflation, which would probably lead
to at least persistent higher interest rates. And the worry is that you would have the US economy essentially enter a period of low growth and high inflation or what we call stagflation.
So that's the maximalist approach. How about the less maximalist approach. They have a sense of what that might mean.
Basically, you take it back from there, right, and so if what we get is a nineteen or twenty percent increase in tariff rates, then you're probably only going to take two percent of GDP off out of the equation over the next two to three years. And we have a slightly more minor increase in prices and consumer prices. We should point out that even that would be a bigger impact than the smooth Holly tariffs of nineteen thirty.
And it would also hit at a time when the US imports just a lot more stuff than it did in nineteen thirty. In nineteen thirty, imports or something like five percent of GDP. Today they're around fourteen percent of GDP.
And this is only actoring in the direct effects of these tariffs. It doesn't include any tariffs other countries might levy on the US in retaliation, or the cost of uncertainty caused by these tariffs, how companies might hold off on hiring or big investments that could help them grow.
I was talking to economists the other day, he said, and yeah, and you know my frustration is I also can't calculate this even bigger thing, which is what the Trump administration is doing here is ripping apart the global trade rules that have governed the world economy since the Second World War. What happens if the world's last remaining superpower rips up that system that it once led in the building of, and we are just left with a kind of perpetual uncertainty and all of this, this whole
framework goes away. How do you model the economic impact of that? And the answer from this economist was I don't know.
Stephen Myrad, one of the asins closest economic advisors, was on Bloomberg TV and he was talking about the impact as he sees that these turffs will have.
US consumers are flexible, We have options. We can produce stuff at home, we have a variety of countries, we can import stuff, we can substitt into home production. Whereas countries that sell to the United States are inflexible. They've only got the United States to sell to. There's no alternative, so they're the ones who will bear the burden of this.
What did you make of what he had to say, and how does that sort of reflect or encapsulate that the argument the administration more broadly makes.
The argument that the administration makes is that there will be a negligible impact on prices, that all of these fears about slower growth are overdone. There may be a small impact at one point, but that the economy will very quickly digest that and move on, and more importantly, that there's a bigger project a foot here. Which is to draw lots of investment back into the US economy to restore manufacturing, and that in the long run, even if you get a short amount of pain, it will
be worth it. One of the things that the administration also latches onto is, you know, this idea of who pays the cost of tariff's. Now, most economists, most businesses will tell you that when it comes to actually, you know, handing over the cash for terroffs, it's the importers who pay that, and then they decide whether they're going to pass that on to consumers. And economic study after economic study has shown that a large portion, if not all,
of that cost is passed on to consumers. The administration makes an argument that actually the real economic cost of tariffs,
and the Stephen Myron in particular makes this argument. Else Scott bess At, the Treasury Secretary has made it als well, is measured in currencies that, for example, when you put a tariff on goods from China, the Chinese currency will depreciate, the US dollar will appreciate almost the same level of the tariffs, and that as a result, the real cost in terms of reduced purchasing power in the world is born by the Chinese, or the Germans or the Mexicans,
who now have a weaker currency that reflects a weaker economy at home. One of the really interesting things we've seen in the last few weeks is that as concerns have grown over the impact on US growth of these tariffs, the dollar has actually weakened, which means that this argument that the administration makes about who bears the actual economic cost is being flipped on its head even as they continue to make it.
What are we going to see the effects of the tariffs that the administration puts in place? Will it be immediate? Is going to take a few days, a few weeks? How soon will we know the effect that they're having.
Well, the answer is we're seeing it already. The Federal Reserve in March downgraded its expectations for growth in the US a big whack down to one point seven percent growth I think it is for this year, and that is largely on the back of what has been announced already, but it's also because we are already seeing businesses hit the brakes in terms of investment. So we're already seeing the impact in terms of the actual numbers in terms
of growth and so on. It'll probably take a few quarters to work itself into the actual GDP data, into the CPI data. I think we're going to be back in a place like we were during the pandemic. We're going to be trying to look for a lot more kind of odd, faster return data like do you remember when we were measuring restaurant reservations or traffic through airports or things like that to try and get a sense
of what was happening in economy. And I think in the short term we're going to be back in that space again, and then eventually it'll all become clear.
So Sean, on the one hand, you've got economic historians mainstream economists saying, take heed of what we learned from Smooth Holly. This is going to backfire and have huge deleterious effects on the US and global economy. On the other hand, you have this group within the Trump administration and the President himself saying it's going to be great for the US. It's going to bring in a lot of revenue. How long is it going to take to know who's won that fight.
I'm pretty convinced that neither side is going to concede defeat in this fight at any point in the short term or perhaps even in the long term. I mean, there are still people in America today who believe that Smoot Holly in the tariffs that we're introduced then were a fantastic bit of economic policy making, and who write books making that case. They're in the minority. There are people who are economists who are convinced that the lessons
of twenty nineteen were very clear. Manufacturing employment went down in twenty nineteen, industrial production went down in twenty nineteen, the economy slowed in twenty nineteen as a result of the tariffs, and they think that tells you that we're going to see the same thing all over again. You know, one of the things that happened after Smooth Holly was America in the world kind of learned a lesson, a broader lesson, and that's where we get this kind of
consensus view and the majority of view about tariffs. And you're already starting to see some signs of that. We're seeing Democrats start to make that same argument that this is a tax on the middle class and it's buying power. So the real kind of lesson or the conclusion or the aha moment may not necessarily come in the economic data. It may come at the ballot box, either in the
midterm elections or in the next presidential election. Those are likely to become elections in which trade and economic policy become kind of central central things. Americans will have to decide whether they want to be an open economy that engages with the outside world, that benefits from imports and travel and flux of foreign capital and investment in the United States, or a more closed economy and one that
is growing slower in which prices are higher. But perhaps the trade off is that there's a new factory down the road making things that we once imported from other parts of the world. Sean, thank you very much, Thanks so much for having me.
This is the Big Take from Bloomberg News. I'm David Gura. This episode is produced by Alex tie. It was edited by Tracy Samuelson and Greg White. It was fact checked by our editorial team and mixed and sound design by Alex Sagura. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our executive producer is Nicole beemster boor Sage Bauman is
Bloomberg's head of podcasts. If you'd like this episode, make sure to subscribe and review The Big Take Wherever you listen to podcasts. It helps people find the show. Thanks for listening, We'll be back tomorrow