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This is Bloomberg business Week, Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy, plus global business finance and tech news as it happens. The Bloomberg Business Weekdaily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Hi, everyone, Welcome to the weekend edition of Bloomberg Business Week. This week a holiday and shortened trading week due to Good Friday. Even so a super super busy week thanks to earnings from a few more big Wall Street banks, Golden City and ba A. Also Netflix out with Results United too. All of the earnings news can be found at Bloomberg dot com and on the Bloomberg.
We also had a steady flow of tariff headlines. It's President Trump's trade war showed no signs of letting up, leaving investors risk averse, and so with that in mind, we take a look at how Mara a Lago membership fees help explain Donald Trump's tariff obsession.
Plus tariff's, a weaker US dollar and investors turning their back on US dollar denominated assets could be the beginning of the end of US economic choke points, and the US is top place in the geopolitical power world order.
Including when it comes to so called rare earth minerals. What you need to know on that coming up a little later this hour.
First up, tariff, tariff, tariff.
I am a tariff man.
To me, the most beautiful word in the dictionary is tariff. Build your plant in the United States and you don't have any tariffs. We will establish a minimum baseline tariff of ten percent. You notice that on the chart, and that'll be on other countries to help rebuild our economy and to prevent cheating. The tariffs give us great power to negotiate, always have, and I really think we're helped a lot by the tariff situation that's going on, which is a good situation, not a bit.
It's great. It's going to be legendary.
You watch well, and I gotta say, hey, if you talk to our Bloomberg News team who visited mar A Lago last summer to talk to then candidate Donald Trump, tariffs definitely came up in their conversation and interview with him as well, or at least somebody who also liked Tariff's writing about Trump's fascination with them and the marri A Lago connection. Let's head to Washington, d C. And
Bloomberg business Week National correspondent Josh Green. Josh, we all do remember the cover story a Business Week head of the presidential elections, a picture of Donald Trump. You had a group a Bloomberg editorial, really our finest went to mar A Lago to talk with him, interview him. Take us back there and some of the things that you guys covered and what really struck you the most, maybe surprised you the most.
Yeah, you know.
So last July we went down to mar A Lago to interview Trump. A team of us did from Business. We had a couple of days before his first and what turned out to be infamous debate with Joe Biden. Trump had wrapped up the Republican nomination, and so we were down there to talk about what Trump's plans for
the economy WO looked like in a second term. And so we covered what we thought were all the major issues, you know, tax cuts, deregulation, climate, the Federal Reserve, what his plans were for Jerome Powell.
But Trump kept.
Bringing up William McKinley unprompted the twenty fifth president, and as we were leaving the interview, me and my college kind of looked at each other and thought, you know, that was a lo odd I haven't heard Trump bring up William McKinley before, and I thought about it that on Liberation Day April second, when Trump instituted this global
regime of tariffs that temporarily crashed the stock market. Have a lot of banks and analysts worry about recession calls, and so in the new issue of BusinessWeek, I kind of went back over that interview because I think, in hindsight, it offered a lot of insight into kind of the way Trump's mind works, especially around tariffs, and kind of what he might be thinking and what might be driving the obsession that you guys so ably illustrated there on
the intro that has Trump so on ratcheting up tariffs even as starf markets are falling around the world and a lot of people are worrying more and more about recessions.
I mean, you can go back and read that story the cover of BusinessWeek. It was the August issue, and a lot has certainly changed since then. I mean, even back then he was running against Joe Biden. But Josh, I still think tariff's caught a lot of people off guard. Even if you go back, as you write to members of his inner circle, his administration, even back then, they didn't necessarily think that he would do what he did on April. Second, why did it catch everyone off guard?
I think caught everybody off guard for a couple of reasons. Number one, obviously, Trump cared and instituted tariffs during his first term, but he did it at a level that wasn't so extreme that markets sort of plunged right away. A lot of people thought that, of course Trump is going to do something on tariffs. He'll probably do something on tariffs in China, you know, maybe some other sectoral tariffs around the margins, but he's not going to do
any thing extreme. I think that was the belief because most economists on the right and the left agree that tariffs are inflationary, including his own Treasury Secretary Scott Besson,
who I mentioned in the piece. I think the other reason, though, is that a lot of folks believe that Trump's rhetoric around tariffs was really a negotiating ploy, and there was a kind of comfort, I think, in hindsight, false comfort, in the conventional wisdom that while Trump talked a big game on tariffs, what he really cared about was the stock market, and he views that as kind of like an imprimature of his own success. At the stock market's high,
Trump gets on social media and brags about it. I think the belief was that had dropped too low, Trump would stop whatever he was doing to drive it down and do whatever he could to talk it back up. And that really hasn't happened much this time around. So
I think people just misread and misunderstood. I would certainly include myself in this camp the degree to which Trump was intent upon raising up these tariffs, and so my piece explores why that might be and what we might have missed the first time around.
Yeah, I got to tell you, you know this idea, and you say this that to take the president, at least the first time around, you know, take them seriously, but not literally. And now we realize, wait, no, no, no, he really wants us to take them literally. That was all wrong. And so since our read on President Trump was not necessarily on the money or the guardrails were there during the first term, and it's different this time around. We don't really know, Josh, what comes next?
Do we no?
And when I say we, that includes Trump's inner circle, because you know, we talked to a lot of them, and a lot of them were blindsided. I actually moderated a panel discussion on Liberation Day with one of his former top advisors, Steve Bannon, and I asked Bannon on stage, do you know what's coming? What countries are going to get hit? And he said, well, this is all still up in the air. It's still being litigated. So even Trump's closest to allies didn't really know what was coming then,
and I'm pretty confident don't know what's coming next. Because Trump is an impulsive guy. He reacts to what other countries do, and so really anything could happen looking forward. So what I tried to do was kind of go back to what I think of his first principles when it comes to Trump and tariff, and explore a little bit what his motivation might be and what he might be thinking.
So let's talk a little bit about that and kind of go more with what Bannon told you then and what you've learned from Steve Benn and we should know. You're also the author of Devil's Bargain, a book that really goes deep on Steve Bannon, among other books that you've written. Josh, So you've spent many years reporting on him, writing about him, you know him really Well, what did we learn about his goals? President Trump's goals through Steve Bannon?
Well, you know, I think I've spent the last couple of weeks going around to people in Trump's orbit, people on Wall Street, people on politics, and saying, what do you think is what do you think is driving Trump's obsession with tariff's, How does he view them and why is he moving in a direction that seems to run counter to the economic interests of the United States and his own administration, Or at least that's the argument that a lot of people have been making. I thought one
of the best answers came from Steve Bannon. Bannon said that, you know, Trump looks at the United States, which in the same way that he looks like mar A Lago's private club as this prime piece of real estate, and that foreign countries should have to pay more, essentially a VIP rate to have access to America's market, and that made me recall like an odd thing that had happened
during this Business Week Trump interview last July. In the middle of the interview, the club manager for mar A Lago wandered in, and Trump stopped the interview, called him over, and had him sort of boast to us, the Bloomberg reporters about how Trump was raising club dues at mar A Lago from seven hundred thousand dollars to a million dollars. And you know, in hindsight, I really do think that that shed some light on the way that Trump's mind works when it comes to tariffs. He was making clear
to us at the time. You know, Trump felt vindicated. He'd been ostracized from politics briefly after January sixth, but he'd managed to kind of return, climb back and win the GOP nomination in a route people now wanted to be close to him, important people, business leaders, And so he was raising the price of admissions to his club. And I think the same view kind of prevails for Trump when it comes to the United States trading with foreign countries. That Trump views the US market as a
prime piece of real estate. He's gotten into office, and now what he's going to do is sort of raise the membership fees for countries who want to do business with the United States. That's really what these tariffs are. Never mind the economic effects, the side effects, and the ripple effects that this has had on international trade patterns, on equities markets around the world, on the uncertainty it's caused for US and foreign businesses, that's what seems to
be driving Trump. And I found that a pretty compelling answer from Bannon and a pretty compelling insight into the way that Trump's mind works when he thinks about these big issues.
Josh, I'm curious and all your reporting, and I mean this with no disrespect in terms of the president, not you, but I mean thanks Carol no no, no, no, no, no yeah, or you know our door, but I mean sorry, they came out wrong. That's one of those days. What I mean is, you know, I was thinking about his fascination with McKinley, right, and if you really go back and read history books and so on and so forth, you realize how that just turned out so badly. Does the
president read history? Does he read you know? I am curious. I know there's a lot that probably crosses his desks, and he relies on advisors as a lot of presidents do right for some reason, so on and so forth. But a lot of past presidents have also been incredible readers right and trying to understand situations. What do we know about President Trump in terms of how he assesses a situation?
You know, I have wondered this myself. Trump definitely does read, but what he tends to read are paper printouts of like computer screens. Like I was in his office once interviewing him, and he had a folder of like paper printouts from the Drudge Report. So I don't think he's
reading history books about the McKinley era yet. At the same time, and you can go back and actually read the unredacted transcript of our interview Trump from July, he makes several specific citations to things like the McKinley Tariff Act of eighteen ninety, So clearly he had been either reading or well briefed on a lot of what he was talking about, this kind of late nineteenth century American
history and McKinley and tariffs. So it's kind of a mystery to me, and one I've wondered a lot about who exactly imparted this information to him, How he absorbed it, but clearly it's something that he's really keyed on and continues to key on. It shaped and effected his worldview, and it's obviously affecting US policy like right now in the moment. So it's something I hope to keep kind of doing more reporting on. But I have to be honest, it's a little baffling to me to understand quite how
he became so obsessed with McKinley. I suspect it was somebody around him, an advisor, whether Peter Navarro or a Steve Bannon someone like that who really is pro tariffs, had kind of filled his head with this stuff. But Trump was pretty bought in then and still seems pretty brought in now.
So, Josh, based on the reporting that you've done, the time you've spent with the president in recent years, the time you've spent with Steve benn and other close advisors to the president, what do you think our audience needs to understand about the longevity of tariffs and how they will be present in our lives during this administration.
I think the main thing is is, like tariffs are a core Donald Trump belief going back as long as he has commented on public policy. So I think he means this. He isn't doing these things or taking these positions opportunistically. This is core to his being and how he sees the world.
As I right in the BusinessWeek.
You know, generally, when presidents have a big idea, all presidents, they tend to cling to it come hell or high water, whether things are going well or whether they're not going well. And so I would expect Trump, you know, while he may relent on the margins, while he may adjust things on the tariff front, to stick with these is a key policy tool throughout his administration. So I think it's something people are going to have to watch and continue to grapple with.
That was Bloomberg Business Week National correspondent Josh Green.
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We are certainly living in uncertain times. CEOs are commenting about it as earning season got underway this past week, United CEO went so far as to offer not one, but two possible earning scenarios, saying its twenty twenty five outlook remains achievable, but also warning that a recession could nearly have its profit forecast.
This uncertainty is the result of the trade war and tariff tit for tat. The longer it goes on, the harder it is to ignore the nagging feeling that the global economic order is being redone.
So we wanted to once again check in with Edward Fishman, his senior research scholar professor at Columbia University School of International and Public Affairs. We recently talked with him about his new book Points, American Power in the Age of Economic Warfare, and he is back here in our studio. It is good to have you here because as this continues to go on, the longer it goes on, we continue to think about what are the economic repercussions that could be the future of the US. How are you
thinking about that? How is it kind of evolving the longer this goes on.
So look, a big theme of my book, Chow Points, is that there are these choke points in the global economy, areas where one country has a dominant position and there are few, if any substitutes, and these choke points have been what have been primarily used for economic warfare. The dollar and the US financial system is the most important choke point in the global economy. It's the one that America has relied on for sanctions against Iran Russia. And the thing that has been.
Because by everything being dollar denominated, that means in order to transact, right, it's got to go through dollars, and basically we have control over our dollar denominated assets and those points throughout the financial system.
That's right, I mean, I think if you just look at it from a numbers basis, I mean, America is something like ten percent of global trade, and ninety percent of foreign exchange transactions involves a dollar, So the dollars being used in transactions that have nothing to do with
US goods being traded from one country to another. So I think the thing that has been most concerning to me, frankly, over the last week or two of when Trump has really escalated the use of tariffs is we have seen, I think, for the first time, at least in my professional life, real concerns that the dollar may be losing
some of its safe haven status. And this obviously is concerning from the perspective that we all understand in terms of the dollar's role as the world's reserve currency is necessary for the way that we run our political economy,
the way that we fund budget depth sits. But I think also from a geopolitical perspective, there are concerns that if we were to undermine the dollar's role in the international financial system, it would significantly constrain the ability of the US government to impose impactful sanctions on foreign countries.
The impactful sanctions is certainly one part of this, but the other part of this is the global economic world order, or the economic world order, I should say, and just the fact that the US and the dollar have really stood at the intersection of so much. When you talk about that being at risk, what exactly do you mean, what in your view could happen?
Right?
So, what would it mean for the dollar to lose its position as the world's reserve currency. I think, at the very baseline level of it, the dollar by virtue of basically there being limitless demand for American treasuries. We have not had to balance our budget in decades, right, so I think we're the dollar actually to just be another currency, and US treasuries just to be another form
of sovereign debt. We'd actually have to worry about things like what does our fiscal situation look like in the United States.
Explain that, carry that out for people who and be like, I'm not making the connection because I think so much of what's happening in the last week and a half. We have to understand how this all connects, right, because I think people I don't know just walk it through for us.
Sure.
Yeah, so right now, we run deficits of budget deficits every year. It's something like seven percent of goal of GDP, which is significantly higher than it has been historically. What that means is we take in less revenue than we spend as a federal government.
Right.
The way that we plug that deficit, the way that we finance the spending that doesn't come from American taxpayers is through issuing debt that then is in the form.
Of US treasuries.
Right.
Part of the reason that there's effectively limitless demand for US treasuries is because of the dollar's role as a world's reserve currency, because it's considered this safe asset that in any time of need, basically you can always turn it into cash. At a relatively stable level. But what we've seen in the last week is something that's quite unusual, where treasure yields have gone up as the dollar's value
has actually weakened. As normally you'd expect as treasure yields to go up, that the dollar would strengthen because there'd be more demand for American assets. What this suggests is that there's something going on that there might be this new risk premium being built in to American assets that hasn't existed before.
The new risk premium. Notwithstanding, what would you say to somebody who's listening right now or watching right now and says, wait a second, this would be could be a good thing for the United States to start only spending the money that it has every year. It's a fair point.
At the same time, it would require a massive change in how all of our lives work, right, because the lion's share of American federal outlays every year are in things like Medicare, Social Security entitlement programs that Americans rely on.
Yeah, I think Elon Musk has brought that to attention many times over the last couple of months when talking doge Right, although that has not been a focus of dose.
Right, it is anything you've seen expansion in things like Medicare advantage payments, right, that has been covered innother Bloomberg media recently. So, look, I think that we would have to have a substantial cut in government spending and, by the way, a concomitant rise in taxes. But I think there's a broader point that's more near term, because there are people in the Trump administration orbit who actually view the dollar's role as the world's reserve currency as bad
for the US economy. Not an exorbitant privilege, but something that undermines our export competitiveness. Because just to spell this out and sort of playing.
Specially, it's more expensive exactly, right, But what.
We're seeing is that, yes, if the dollar is valued at a lower level, then there will be specific sectors of the American economy that may be more competitive on global markets.
Right.
But everyone is hurt by a weeker dollar because also all of us in the United States are paid in dollars. So if our dollars are less valuable, we have lower purchasing power and we are poor, right, we are paychecks go less, they don't buy as much for us.
Isn't it also important to talk about trade deficits. Everybody thinks bad, bad, trade deficit. But that also has implications as well in terms of demand for dollars, right, And it also we want to be buying things because that gives people dollars and they in turn can buy US based assets. Right, there's like this relationship as well.
That's right.
Yeah.
I mean the flip side of a trade deficit is that we have you know, financial asset financing that's coming into the United States.
Right.
We have other countries who are investing in American assets. Right, So that is you know why you need you know, the current account and the capital account have to balance, so current. A current account deficit will mean a capital account surplus, right.
So that's right.
I think if you truly were able to balance American trade, you would, by definition have less capital coming into the United States.
Can I also ask you we have don't we have a service surplus?
We do? Yes?
And is that a good or bad thing?
I think it's a great thing.
I mean, look, I think there's been this, you know, you know memes now about should Americans be you know, screwing in screws in iPhones or something like that. I think most Americans frankly would rather work a services job for the same pay than working in a factory.
Well, that was the whole idea with globalization in the nineteen nineties, if you go back, and that was sort of the promise that we were told by politicians, let's move the jobs to other countries, and what we'll do is we'll retrain the workforce here so they can do more vis oriented jobs and jobs that are in a different part of the economy. That didn't end up happening.
Well, I mean, to be fair, up until recently, we've been at full employment, you know, so we haven't had massive unemployment in the United States.
True, But I mean if you go back even to the first Trump administration and the analysis of why he won States and why Democrats lost in a lot of these areas, there was a lot of criticism that these were areas that had been hollowed out with the loss of jobs moving abroad. And that seems to be still what the president is speaking to at this point, to go back to an era where those manufacturing jobs come back.
Yes.
Look, I think that clearly there have been regional effects that have not been distributed equally, and they are parts of for instance, my home state of Pennsylvania, that have been really hit hard by this process, right, And so I do think that the federal government has not done a particularly good job at figuring out how to you know, continue to provide a decent standard of living for people
in these regions of the United States. But I would say, though, and if we're going to take Trump's arguments about manufacturing seriously, I think the best argument isn't so much about unemployment, because as we've discussed, we have been at full employment. There is a lot of sector service sector employment in the United States.
Right.
The best argument is really the national security argument, where there are potentially some aspects of manufacturing where you would want domestic sources.
Right.
And by the way, even Joe Biden, going back to his presidency, imposed one hundred percent tariffs on Chinese electric vehicles because there was a view that we didn't want buid to eat Tesla's lunch. Right, We didn't want Chinese evs that were better, more efficient, cheaper than you know, the evs made by Tesla and GM to come in and swamp the American market because it's a security concern if we're dependent on Chinese cars right. So I think
there are specific sectors where this is. This is a relevant point for national security, the harder I mean, we.
Have defense manufacturers forts exactly.
I agree, And I've written an essay in the Boston Globe a month ago in association with my book Choke Points about the pharmaceutical supply chain. This is something that certainly the United States needs, not only more domestic sources of manufacturing, but what I would call trusted supply chains.
Right.
You don't want to be reliant on China for you know, pharmaceutical additives, right. Do we want to do everything domestically? Do we want autarchy? I don't think so. But do we want to be less reliant on adversaries like China? I think that's a very worthy national security goal.
So, going back to your book, book Choke Points, I'm thinking about China and how they are wielding kind of their choke points. I thought about the tariffs and the kind of salvel that they lobbied back at the United States when it comes to rare earth minerals like that is very targeted and many would say very very smart because of their incredible control over It's not that we don't have it, but they are set up in a much more productive system, right in terms of refining and
so on and so forth. Walk us through that and how they are fighting back.
Yes, thank you for bringing this up, Carol, because I think one of the things I've been most frustrated about of the coverage of the US China situation in the last week is this discussion of a trade war. Right, We're not seeing a trade war. We're seeing something much broader. We're seeing a multi domain economic war in which tariffs are just one weapon that's being used, and in fact, they're not even the most powerful weapon. Yeah, you look
at how China's retaliating. Right, Yes, they have tariffs that they put on American imports. But if you're just going tariff for tariff, America has more to tariff than China has to tariff, because we're importing a lot more from China than they're importing from US. But what China has been doing since twenty eighteen, since the first salvo of tariffs came into place, They've been preparing things like export controls on critical minerals that America relies on, from everything
from batteries to ammunition. Right, they've been sanctioning US companies, so PVH got sanctioned. Recently, a Skidio, the biggest drone manufacturer in Silicon value, was sanctioned, and now they've got a ration batteries. Each customer now only gets one battery per drone, right, which is pretty absurd when you think about it. Yeah, Ilumina, the big DNA sequencing company, got
sanctioned by China. You're also seeing things like anti monopoly investigations into Nvidia and Alphabet right, So China is not retaliating in sort of a symmetric manner, only they're also fighting asymmetrically.
That was Edward Fishman, senior research scholar and professor at Columbia University School of International and Public Affairs. We recently talked with him on his new book, Choke Points American power in the Age of Economic Warfare.
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We got news this past week that President Trump has launched a probe into the need for tariffs on critical minerals, the latest action in an expanding trade war that has targeted key sectors of the global economy.
The order covers a range of minerals, including rare earth elements that the US government considers quote building blocks of our defense industrial base and crucial to building jet engines, missile guidance systems, advanced computers, as well as radar, optics and communications equipment.
So we wanted to go deep on rare earths to understand how they fit into the trade war, if there are alternatives, how much leverage they give to China, and more.
To do this, we caught up with Graceland Baskern, director of the Critical Mineral Security Program at the Center for Strategic and International Studies, and we were also joined by Bloomberg News Metals and Mining reporter Joe Doe. Joe, rare earths on the surface sounds like they're rare, but I'm learning that they're not actually that rare, right, They're not rare. They come from the earth. Though they come from the earth, that part is true.
It's hard to find them in density, right. So the rare earths are like literally in your backyard, you just like dug up some dirt. You could be like, oh, there are rare earths in this, but you know, we live in New York, right, But it's the same as like, oh, well I take zinc as you know, a vitamin or
you know whatever. It might be, right, but in terms of industrial scale, right, because you need rare earth to create things like permanent magnets, and permanent magnets allow for wind turbines to keep moving and for electric motors to keep moving. I mean that's really all like the main thing regular people should know. To find the density is quite difficult. It's not like they're just in.
Your backyard, like a huge pile graceland. Come on in, your background is pretty incredible. A mining economist, critical minerals in trade. You began your career in South Africa's platinum belt, spent five years at the World Bank in South Africa. So tell us a little bit about like what don't we really know about rare earth minerals, and then we want to kind of roll into this how the US China trade war plays into all of this. But come on in and welcome, Welcome.
Thanks so much for having me. So you know, as Joe said, rare earths aren't rare, They're everywhere. But why we're really vulnerable for them is that once you dig them out of the ground, you have to separate them, and that those separation facilities are primarily in China. So for heavy rare earths, they actually separate over ninety percent of the world's heavy raarers and about eighty percent of
light rarers. Now the problem is is that that means once they go to China, China can apply any sort of export restriction to them, and they actually started doing this about fifteen years ago when China first cut off Japan from rare earth exports because they got into an argument about a fishing trawler. So we have seen minerals and even rare earths at the very beginning be weaponized
over time. For US, it's a national security challenge because rare earths go into almost every form of defense technology, from fighter jets and warships to missiles and tanks.
Gracelin, can we build the facilities here in the US that could process those rare earth so then the United States gains control over some of the.
Share absolutely and we are building them. The problem is that none of these facilities come online overnight.
So over the last five years.
The Department of Defense, through something called the Defense Production Act, has given out over three hundred million dollars to build these facilities in Texas, in Canada, and for some rare ers, it'll be the first major facility outside of China.
Canada that maybe five years ago that worked. We're not going to talk about that right now, but that made my ears perk up because of what's going on between the US and Canada right now.
But can we produce enough and jo come on back in here enough in terms of to meet the demand that we need here in the US for things.
Not right now? Yeah, I mean this is you know where Gracelin's getting at here is very similar to the story of steel and copper and like all these other things anything manufacturing right like this is the approach of the Trump administration is bring all manufacturing back to the United States of America. To maybe take a phrase from our president, sounds great, it doesn't work right like, you can do it, but as Grayson says, it's going to take you a while. I mean, MP materials is like
the big critical minerals company in the United States. Yeah, and they're still shipping a significant amount of their rare earth pulled out of the ground to China to be processed. Yes, they're currently working on integrating everything and having their own processing, But you talk to anybody in the market and they're like that, even when they get fully scaled up to what they say they want to do, it's just not enough on.
Their own graycelon. So it sounds like China has a great weapon in this trade war to get the US to maybe bend a little bit. Is that fair?
Absolutely, So let's talk about the export restrictions that just came out this week. So they're not actually a ban. If you think about restrictions, you start with something that we call non automatic licensing, which means you have to apply to get a permit to be able to export the minerals. Then you have tariffs, you have quotas, those are your mid tier, and then you have a ban. What China did this week was the lightest form of restriction, for lack of a better word, is they put in
the non automatic licensing. But if the trade war continues to accelerate, they can continue to tighten those restrictions and ultimately, because there are so few facilities that can give us the rarers that we need outside of China. That's going to undermine our national security. It's in things like semiconductors, so it's going to affect our economic security, and it's going to affect our energy security, given that they are in many forms of energy technology.
So as your read on what China did by taking the easiest member measure and or the least punitive measure a strong diplomatic sign to the US that we're open to negotiating.
I think it's a sign to both China and the US, Like, ultimately, these companies are all Chinese and cutting off exports altogether would be economically consequential to them. So it's a sign there that, look that there is room that we need to get ready, we need to buffer, you know, be ready for potential changes. But it is also assigned to the US that they didn't go all the way to the very end and ban exports immediately.
Joe, how long in your view do you think the US will have to rely on China for processing?
A long time?
I mean I want to talk in one hand, counting.
Or not anywhere in the New Yar term, and to jump off what Graceland just said, they didn't put an export ban or an export control on everything, Like the two most common rare earths are untouched by this.
Right.
So the way I've heard the subscribe from Graceland and from other people in the rare earth's space, right the critical mineral space is like Chinese policymakers are incredibly sharp. They know the score, they know what impacts what. And when this came out, initially people in the market were saying, oh, whoa, okay, they're going to restrict these you know, seven or so
rare earth critical minerals. But then what they started realizing was, oh my gosh, this includes like actual magnets, this also includes actual products that are shipped to the United Sts dates. And that's when, especially in the defense community, people were calling up and saying, whoa hold on? This is an interesting shot across the bout because you might remember gallium and Germanium had export controls put on back in the fall, and that was like a follow up to prior year
where China had said they were looking at it. I mean, we had reporting a year ago that said when the gallium Germanium shot came from China. That was the panic button that went off across the DOE, the DoD and all the other departments. So we had one very high senior White House official who told us that was the moment when everybody finally got it and understood how serious this was. And that was under the Biden administration. So
this isn't new right like China. It is my point of they know the score, which is they'll roll out something here, they'll roll out something there, and it's it's a warning sign, right. It's like, hey, we're doing this, and we're making the people that matter most realize it first.
And contextualize this for us because in the negotiations between the US and China, which do not exist right now, but we'll ostensibly have to exist when it comes to resolving this trade war. That's the whole idea here. How important is the card of rare earth.
Rare earth will be important, minerals will be important. If we take a step back, and you know, with Joe Is said as how this is escalated. Even from the previous administration of germanium gallium antimony was banned in the fall, we saw tungsten came at the start of this year, is that we.
Are actually vulnerable.
You know, we kind of sometimes throw all minerals into rare earths or rares into minerals, but when I go beyond rare earth, we're getting increasing restrictions coming out and all of these commodities that we're being hit by or ones that we often don't have alternate supply of, but we may have limited stockpiles of and that we need
for our fundamental security. So expect to see minerals, I think, feature very strongly in the conversation, including raarers, because of the fact that we are dependent on China for close to two dozen critical minerals.
All right, So final thoughts here, just got about a minute, minute and a half here left. So Joe, I don't know. I guess to watch the negotiations between US and China, right and what they say specifically in this area. This is a really really important sign in terms of what's happening.
Yeah, we've all focused on tariffs for the past week, and for the past two or three days, we've really focused on the China terraffs because everything else apparently is
on pause. One hundred and twenty five percent or whatever the latest number is, right, and what we've seen from China in this context, the rare earth of what they've done is they have different tools to respond to punitive terriffs from the President of the United States, because on some level, when you're just saying one hundred and twenty five percent tariff on all imports coming from your country, it's like the market's like, well, what does that actually mean?
Right in China's response, they come back in very specific ways, and this is one of them.
Very just I get it, target it right.
So like, great, you hit us with a big, big tariff, guess what we're going to do this this one very specifically here, and maybe initially nobody in the market notices it, but people like Graceland and others are like, whoa, hey, let's take a look at this.
That's Bloomberg News Medals and Mining reporter Joe Doe and Graceland Baskrin, director of the Critical Minerals Security Program at the Center for Strategic and International Studies.
I think it's really interesting everybody's once again talking about where earth minerals although as do you like to say, not so over here? Yeah, But the point is that, right that we heard from our conversation that they're found in kind of small batches, and that's why it makes it a little bit complicated and so much in terms of I guess the refining is happening over in China, but there could be some very significant implications.
Yeah, there could. I mean, as Graceland told us in our conversation with her, Japan was kind of ready for this because of this territorial dispute that they had like twenty eleven ish, So they now have this one year stockpile of what they consider critical.
Right.
We don't have that here. Companies here don't have that. And in fact, Graceland and her organization on Monday came out with this new report and it answers the question about filling a gap in a shortfall, and she basically says no, there's no separation of rare earth happening right now.
In the United States, you're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We continue to focus on news out of Washington, DC, the explosion and changing of tariff terms have led to a lot of volatility in global financial markets and questions about the global outlook.
It also risks adding to the inflation concerns here in the United States. Bottom line, it's a tough environment. As we heard this past week from Golden and Sachs CEO David Solomon on his earnings call with analysts.
This uncertainty around the path forward and fears over the potentially escalating effects of the trade war have created material risks to the US and global economy. We are encouraged by the administration's recent actions to pursue a more gradual policy process that allows for considered negotiations with many countries, but how policies will evolve is still unknown.
Of course, that was Goldbn's CEO David Solomon. Unknowns uncertainties not easy, any of it for the Fed to determine monetary policy going forward. And as Bloomberg's Christine Harper writes in a Bloomberg opinion piece looking back at former Fetchair, Paul Volker's career could provide lessons for President Trump and his administration. Christine, by the way, is Bloomberg News editorial board member co author with Paul Volker, of the book about his life. It's entitled Keeping at It, The Quest
for Sound Money and Good Government. Christine joins us here in studio. I said, when you walked in, we've been thinking about you a lot, because we've talked about Paul Volker before with you in kind of stressful times and certainly these higher infleetionary times. Paul Volker, you write about two episodes during his life that are important. One takes us back to the administration of Richard Nixon in nineteen seventy one. Go there with us.
Yeah, So he was part of he was a younger member of the Nixon administration. He was Under Secretary of Monetary Affairs, which he actually remembers as being one of the greatest job in the world.
He loved it.
But at that time, the US had this unsustainable requirement that it honored this thirty five dollars per ounce price for gold. And at that point, after decades of overseas spending of dollars on the Marshall Plan and various investments overseas countries abroad had so many dollars that everybody kind of knew there wasn't really enough gold to back at all.
And so it was up to the Nixon administration to sort of admit that and come out with an announcement, and it was a unilateral declaration on a Sunday night in August in nineteen seventy one. Vulgar was very involved in a whole weekend of talks about it at Camp David. In the lead up. Everybody was surprised. It was known as the Nixon Shock, and they they recognized that suddenly taking the value of gold off of any kind of anchor meant that there could be just chaos and the
value of the dollar could plummet. So they put on all these wage and price controls at the same time, they created tariffs. They tried to do all these things to manage the fallout, and also Vulker was immediately sent overseas to start talking to the financial leaders of every country major country.
An extensive plan.
There was an extensive plan to be sure. They weren't perfect. They did some crazy things, and they had this Treasury secretary at the time, John Connolly, who only lasted for eighteen months under Nixon, who was a sort of Texas character, and he he was a little nuts. But then George Schultz came along and they had a much more focused sort of way of dealing with it. So it wasn't perfect, but it was compared to what we're seeing with Trump and these tariffs. It was there was a rationale to
it that everybody could understand. There was real economic thinking behind it.
So that was nineteen seventy one. Fast forward to nineteen seventy nine when Vulker becomes Jimmy Carter's fed chair. Fed chair.
Yeah, because the result of having no anchor to the dollar was that there was inflation. I mean, there were other reasons for the inflation and for the problems, but you know, the value of the dollar was thinking inflation was incredibly high. It was it was destroying the American economy, and so Jimmy Carter brought in Paul Vulker, even though Vulker told him before he when he sort of was talked to for the job, I'm going to do whatever
it takes to kill inflation. That might mean to higher interest rates, it could be really bad for the economy,
and Jimmy Carter chose him anyway. So it pretty much was one of the factors that say Jimmy Carter's reelection because the economy got really it was really tough, but it was successful bringing down inflation, and the sort of vulgar commitment to price stability right was so powerful, and so you know, the integrity he had in pursuing that aim was so completely believable that from then on, instead of the gold standard, the dollar was known as being on the vulgar standard.
It's pretty wild. I mean, are we in the process of kind of losing that concept and idea.
So that was sort of the point I was making in my piece was that, you know, really what the vulgar standard amounts to is this belief that there are public servants in America, whether they're you know, appointed or political or civil servants, but who are going to do what's right for America and make sure there's price stability and make sure there's sort of economic rationale behind things.
Of course, it's not always been perfect. There have been mistakes, but when there are crises, you see over and over again these political figures will sort of retreat to the background and let experts like you know, when George Bush was dealing with the financial crisis, it was really Hank Paulson and Bernanki who were handling it for America but Butch wasn't kind of you know, back then there wasn't so much tweeting, but he wasn't like getting in the
middle of it so much. And and you know, even when Bill Clinton was dealing with, you know, the bond market turmoil at the beginning of his you know, he recognized that Bob Rubin had more expertise. And so we've had presidents that listened to economic experts. This feels different because really a lot of anybody who looks at what the administration put out has immediately mocked the you.
Know confidence certainly in the United States, right and.
The yeah, and I mean when they saw the the formula that was used to justify the tariffs, I mean, none of it makes sense. The various explanations coming out from the administrations contradict each other. So even if you think that the general idea of being presenting a new trade order in the world makes sense, the way they're going about it is so haphazard that, you know, as David Solomon was saying, like nobody knows what's happening, and it's very hard to make any sort of forward planning.
As Carol mentioned, we're seeing this hit consumer confidence. Yeah, you know, going into this term, a question that we asked a lot of our guests, Christine, was do we see maybe the markets, the bond market or the equity market or both become checks to what the president is doing, at least when it comes to his economic agenda. In your view, did we see that happen last week?
Well, I'm not an expert on what's making the administration do anything, but.
I don't think anybody is except for the president.
I've just seen the reporting saying that Trump said, you know that the bond market was getting a little queasy or whatever words he used about guardrails here. Yeah, I mean the borrowing costs of the United States government is a huge guardrail. I mean, none of the administration policies are going to succeed if suddenly we're paying a huge amount more in interest every year. So you know, you can cut as many federal jobs as you want, you
can cut all the services from the federal government. But if we're if all that you know, savings is you know, overtaken by having to pay more on interest on our debt. I don't know where where that's getting us.
What do you think the president could do in terms of you know, or he and his key economic advisors to maintain the confidence in the US by citizens of the US and also the global world. Well, based on what well.
I think, you know, it does seem that a more consistent approach would be helpful. If that's what you hear from business leaders, that's what you hear from foreign leaders. They want to understand what the aims are here. They want to clear path forward and you know, not a daily change in the in the tariff regime and plans and you know, not sort of terroriffts by tweet that doesn't.
Whether I want to ask you what if you think what if that's his aim is to just constantly upset people and keep them kind of on edge, whether it's global leaders, whether he definitely has shown a difference to the equity market, it's certainly the bond market that caught
his attention. But what if that is his strategy? What could be as you think about you've covered so much in terms of crises and just made off crypto like just so many things your purview, How do you like, how how are we thinking about kind of the US as an economic and financial.
Might Yeah, I mean the US is sort of based on this idea that you can your money is safe lending to the US government. And if we have a policy that nobody understands or trusts and seems all to be designed to satisfy the whims of one person, it's going to be harder and harder for us to maintain that,
and that would be really damaging for Americans. So ideally, what would be good to see you, to say, back to your question, is for you know, the president to start listening to some of his I mean, it does sound like Treasury Secretary of Scott Pisens taking sort of the on the lead on this. The markets certainly trust him a bit more. He's talked a lot more about it, kind of a gradual approach, and so, you know, I
think there's hope. That's why markets seem to be a little quieter today that you know, maybe some reason will prevail. It's but I mean, the president is very impulsive and so it's it's very hard to know what will really happen.
Yeah, what are potential long term risks in your view if during this administration the US moves away from this vulgar standard, right, does that have ramifications beyond the selection?
Well?
Sure, I mean, I think what you see is that the borrowing costs of the US go up because you know, people whether it's American citizens or people overseas, just start putting their money, the money that they want to make sure is there no matter what, They're not necessarily going to put it in treasuries or or all of it in treasuries. They might start finding other places. That's good for you know, other countries and their debt or other markets,
but it's bad for the US borrowing. And you know, you just see inflation cause because you'll have higher costs for Americans having to try to buy things overseas. I think there's just all these privileges Americans have gotten used to knowing that the dollar was sort of needed by everybody in the world and sought sought after, and the same with you know, US treasuries is at risk, I think, I mean, it's not going to go away immediately, but we've taken it for granted for a long time.
Phil like J. Powell could find himself in a really complicated right in terms of if tavis make things more expensive and there's more inflation pressures in what could be potentially a slow in growth environment. Yeah, that's tricky.
Yeah, I mean you saw that in the seventies after the Nixon chaka you So basically these bouts of stagflation and it was really hard. I mean the FED at
the time wasn't able to deal with the inflation. They were too concerned about the slow growth and they you know, basically Arthur Burns, that FED German at the time, was a close political ally of Richard Dixon, and many people believe he just let inflation, you know, happen because he wanted to make sure Nixon could get re elected and that turned out to be a really big problem for the US economy.
Twenty five seconds. If Paul Volker was here, what would you want to ask him about this environment? Just quickly? Well, I know he would.
I mean, at the big point he wanted to make in the book was the importance of competent government. It was a true public servit right, Yeah, And so he realized sort of like the big takeaway at the end of his life was we need to have good, well trained people staffing the US government. So I think he would be really upset at all the ways we're treating federal workers.
Christine Harper is Bloomberg News editorial board member and the co author with Paul Vulker, of the book about his life. It's called Keeping at It, The Quest for Sound Money and Good Government.
This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa played Bloomberg eleven.
Thirty following our list of fifty companies to watch. We talked about that back in January. Here are ten names you should know for better or worse. Specifically for the second quarter, Bloomberg Intelligence Alice have dug into their scenarios to identify the most interesting companies. Tim from a larger group of high confidence focus ideas.
Biscuits, handbags, chatbots. I'm just going to say to share the names that made the grade with us. As Tim Craighead, he's Bloomberg Intelligence Senior European Strategists's director of Research Content. He joins us from London. Check out this story at Bloomberg dot com Slash business Week, also, of course, on the Bloomberg terminal. First up before we get to the handbags, the biscuits and the chatbots. Remind us how you continue to come up with the lists of stocks and companies
to watch. How do you get there? What's the process?
Now? Great to be on with you. It's all about our focus ideas. These are high conviction, fundamental calls that we think are different from what the market is thinking discounting. And there's catalyst a head that we think will turn the market's mindset towards ours. And in this instance, the catalyst the triggers that we're thinking about are all coming up in the second quarter. So that's how the list comes together.
And what I have to say, we always look forward to it, Tim, because you guys really do do the homework and the research. But it's not just buy this company or not that you're saying by or sell. But it's not like, okay, this is just all good news. You also are like, here's some concerns and here's why this one there might be some clouds over it.
Absolutely, and these are solid fundamental calls. Investors are going to make up their own mind of buying or selling. What we're looking for is where there's a disconnect in terms of what the market is thinking about relative to what we think is going on. And you're right with this list of ten and there's three of them, so thirty percent where we've got concerns.
Indeed, so not a lot has changed, but quite a bit has changed, I'll say, in the past couple of months since you first came up with that list of fifty, what.
Like, we've talked about tariffs or some TARIFFSIPC, those sorts of things.
So how did you take those things into account when coming up with this list or even when doing the analysis that brought us these names.
Well, certainly there are some that have nothing to do with those those key headlines, and we can get to those. But certainly those issues of tariffs, US policies that are being put into place, as well as deep seek and how that's changing the tenor of AI have fed into certain elements here. So to take the tariff issue, either one of you, certainly listeners have shopped on Timu in
the States and beyond ultra low priced e commerce platform. Well, that's owned by a company called PDD and it's Chinese. It's one of the big Chinese tech companies, and they're going to be impacted by whatever constraints continue to coalesce around tariffs. At the same time, they're also looking to expand TIMU beyond the US, and that's a lot of money that's being spent. We think that there's margin erosion that's going to happen here and different, but sticking in
the low priced retail front. But brick and mortar, Doalarrama is a Canadian dollar store.
Okay, this is one we never heard of. Full disclosure.
Yeah, fair enough. Well you're not very well. You know, you're one of the Americans who's not saying you're a Canadian at this point. I suppose. So you've got Dollar Rama that it's estimates, it's earnings expectations if held up. But Dollar Tree, dollar stores, others have seen some cuts and we think be it with slowing wage growth, inflation picking up issues from the standpoint of trade policies, that you're going to see estimate erosion with Dollarrama. You mentioned
it in just a moment ago. Tesla doing relatively well versus the other auto companies. It's arguably one of the best placed companies when it comes to getting through navigating the tariff issues. But beyond that, there's a new model. Why that's starting to ramp up and you'll see sales we think, start to accelerate through the second quarter. And nobody's paying an attention to the battery storage business that they've got, which is a really big business. We think
that's going to grow into the utility space. Those all sort of revolve around the Tarif issue and not to keep going here, but AI Deep Seek all of that's a big focus. We have a lot of companies on the fifty to watch for the year, but teleperformance is a new idea for us. And this is a call center. This is old school you know who do you get the phone call from? Related to whatever?
Alright, hang up on wait, no, no.
No, no. This is actually one of the world's largest call centers. It's based in France. We've got you know, operations everywhere. But we think they're going to get efficiencies from AI. Think about being a call center person and how much better you're going to be with the information that AI is going to be able to generate for you as you're making your next phone call or you know,
the phone calls coming in. From a customer service perspective, we think it's an opportunity be it every bud he's thinking if you look at the stock and the earnings estimates, that this company isn't a bad shape.
Tim When you do these lists, you guys also get into often management change and restructuring opportunities, and you have a couple of companies along those lines as well.
We do think along the lines of driving on your vacation as you start to think about the summer and you're on the highway going south and you take a break and you go to a cracker barrel. Have either one of you all done that?
Not many, many years? I have many.
I think I have family tips like it's.
So regional in the US though, yeah it is.
But they've suffered three years of earnings expectation cuts. There's not many positive opinions on Wall Street. But we see a wholesale change here, menu revamp, services, and the way that they're dealing with their employees has been revamp. We see a revival and earnings changing. And the same thing at a very different scale could be said about Caring.
This is a luxury goods company. You know, the biggest brand that they have is Gucci, and again they've suffered three years of earnings estimate cuts and we think that with a new CEO at Gucci, a new head of design, that there's rejuvenation at the brand that's gonna start to show through. And second quarter is gonna be quite critical.
All right.
So along with Europe, China is another stock market that's garnering a lot of attention right now. We have talked so much about Europe and opportunities versus the United States, but let's talk to China. What's geared to Beijing's stimulus measures and who might benefit as a result.
We think that this is a big deal. It's interesting. I was in our Hong Kong office back about six months ago and there was a lot of discussion about ABC anything but China. That's now shifted. I was back about three or four weeks ago, and it's now it's the ABC. But it's like all of word China, and
Beijing is indeed putting through more stimulus measures. They're trying to be proactive about how to deal with the tariffs, but they know they have to deal with their own problems about demographics and the policies and the property crisis, and with a lot of stimulus measures, this is now starting to show evidence of the turnaround, and with that, you've got more interested in the stock market. And the way that global investors are getting into Chinese stocks is
through the Hong Kong Stock Exchange. With a number of overseas programs. IPOs are starting to come back to life. We think Hong Kong Stock Exchange is going to see
positive estomer revisions. At the same time, Beijing is lowering interest rates, and with lower interest rates, that can pressure earnings estimates for banks because you've got lower interest coming through, and we think that there's a net interest margin or profit margin erosion that's going to hit companies like the Agricultural Bank of China ag Bank, along with a couple
of the other big state owned enterprise banking companies. So that's that's a negative, notwithstanding the positive view we have on China turning things around.
Well on that and these are not two names that are on this list, but Tesla's and you spoke about that a little bit by d M. Shall me. I don't know if Americans fully understand and grasps the innovations being made in the vehicles coming from those companies.
It is amazing. We did a report and if you've got a terminal. You can find these own a bi space Deep Deep Deep Ive reports. One on Made in China twenty twenty five and what this looked at was some in depth analysis on the industrial policy that Beijing and put in in twenty fifteen to drive innovation across a whole host of industries. One of those industries was autos with a focus on moving towards electrification and BYD
is the poster child. And if you don't know, BYD actually stands for build your Dream and the technology that they are now putting into their cars is second to none, and the price points are quite compelling. They just announced a charging device that are charging infrastructure that allows you to get a full charge in five minutes.
That's quick.
That's quicker than a that's quicker than a gas than they pumping gas in your car. It's pretty cool.
Listen, always always love going through these lists with you and love when you guys have an update or new list. We should point out too, there's a couple of healthcare companies where innovation is the theme, and so we highly recommend everybody check out the complete story and the complete list of companies. You can read it on the Bloomberg and at Bloomberg dot com slash BusinessWeek.
That's Tim craighead of Bloomberg Intelligence, on the companies that you need to watch.
Yeah, I think it's kind of interesting. We should point out. We reminded everybody that we talked to Tim a few weeks ago. It is in the current issue at Bloomberg BusinessWeek magazine that you can catch on the terminal at Bloomberg dot com slash business Week and of course on newstands. But you know, these are things that they lay out.
They look at fundamentals, and he was standing by, you know, certainly this list, and I think about Tesla on it because you know, slumping below fifty percent share of California electric car market. I feel like every day there are some headlines talking about the challenges at Tesla.
Tim, you want to talk about Tesla, I want to talk about cracker Barrel. That's good.
You're always hungry, it is.
Actually, don't I don't. I think I went once in college and I don't think i've been since.
You kind of go when you have to always, I always going like out a road trip.
Well, yeah, exactly when we were talking to Tim, I was looking up on the map. I was like, where are these things? Anyway? There actually are some in New Jersey, Carrol.
Anyway, check out the list, folks, it's really interesting. If you want to get the complete one, as we said, you can find it on Bloomberg and at Bloomberg dot Com.
You're listening to the Bloomberg Business Weekdaily podcast. Catch US live weekday afternoons from two to five pm Eastern. Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch US live on YouTube.
President Trump escalated his administration's fight with Harvard University by threatening its tax exempt status after the school defied the government's demands to change its policies in exchange for billions of dollars of federal funding. And we should point out Harvard is fighting back.
And you'll recall that a bit less than a month ago, President Trump said that the Education Department's one point six trillion dollars student loan portfolio would be handled by the Small Business Administration. The move coming amid worries that his efforts to overhaul the federal government could reduce programs and services.
Well, we've got a great pair of voices to talk higher. Ed Janet Lauren is higher education finance reporter for Bloomberg News, and Gillian Berman is Assistant Managing editor News and Enterprise over at MarketWatch. She's also the author of a new book, Sunk Cost, Who's to Blame for the Nation's broken student loan system? And How to Fix It?
Janet, do you want to start with you and Harvard? Because I think it's fair to say shots fired.
Yes, for sure. Harvard released a letter that was sent to it last Friday by the government by a multitask force, multi agency task force, sort of stepping up their demands if they want to continue their flow of billions of dollars in federal research funding. They released that letter along with one from two law firms, saying they were not going to accept their demands and said there were certain lines that they could not cross in terms of academic freedom.
They had a whole list of things such as the government wanted to curbs on doing things and admissions and governance and hiring in lots of things. And they said no. And a couple of hours later, the federal government said we're freezing two point two billion dollars in loans.
I'm sorry, in grants.
It's a big deal. And it's a lot of money. And you say, well, but they have a fifty three billion dollar endowment, why can't they spend it? Well, seventy percent of it is restricted and it isn't a bank account. But certainly you know they have some liquidity. You know, they have a one point five billion dollar line of credit. We saw last week they issued bonds of seven hundred
and fifty million dollars. But it is a lot of money because eleven percent of their entire budget comes from the federal government in these research grants.
I got to say, when we tak higher education, there's just a lot of money either way you look at and now someone like Harvard has a huge endowment, which gives it an incredible cushion. Having said that, I want to pull out a little bit and talk about the money that is in higher education. We all remember, is it ten fifteen years ago that headline that came across that said college debt was higher than credit card debt, And we all stopped and be like, how did we
get here? Jillian, come on in on that starry story. This is what you get into because I think we spend so much time, how did we get to this point? How did we.
Yeah, so, you know, there there are several different factors, but that headline you talked talked about really came in the wake of the Great Recession, and that was a huge moment for the explosion in student debt. We saw states pull back from funding their public colleges, which means students and families had to take on more of that funding. Obviously, families didn't have as much money to tap themselves or
equity in their homes. And then also because of the you know, the sort of loose labor market, students who graduated with this debt had trouble finding jobs that could help them repay it.
So the Great.
Recession was, you know, sort of a really big moment for student debts.
It's a unique problem to the US, though, and this is something that doesn't have than in other countries. But at the same time, we also have the best one could say, we have among the best universities in the world, not every one of them, but certainly these are institutions that are recognized internationally. What is so different about the US system that allows something like this to happen.
Yeah, So the way that we fund colleges in the US is largely through students, so you know, it's sort of like a voucher. The student decides where they want to take that government money. And a lot of other countries where you know, we think about having little student debt, the government is doing more direct funding of the schools themselves. And you know that design of the system here in
the US that was on purpose. We like to have, you know, what we call like diversity of institutions and you know, sort of the ability for the market to play out.
So in the Trump administration has said they're interested in, of course, shutting down the Education Department, which after two thousand and nine began just for single loans and now we're at a huge amount. I think it would be the fifth largest US bank in America. Is moving it away from the Education Department to another agency Trump a Small Business SBA. Would that be reasonable?
It depends who you ask. I think, you know, the way there hasn't been much detail, first of all about that plan, but I think the way that they envision it is, you know, maybe moving some of the staff at the Department of Education that handles this stuff over to SBA. Even still, I think people who work on these things are are worried that it could cause a lot of disruption. We already have some evidence that the staff cuts have caused disruption for borrowers and for students
as they try to access those funds. So I think it could post some challenges.
You know, I kind of approach this differently now that I have kids, because now I need to save for college.
I's going to cost you a million dollars a year?
Well, that's just wondering. I mean, everybody's sitting around here does have to think about it.
Funny but not funny.
I know you're not done yet.
No, I'm not done yet, because there's you know, it's we're also an environment where it's like okay, now go get the masters.
You know, where I was in college, it was like okay, twenty in the twenties to thirty thousand dollars per year. Now we're at what carroll.
Sixty seventy eighty d everything all in total cost of attendance.
Yeah, you know, I was thinking that it couldn't get any more expensive, Jillian, but that obviously wasn't the case. The system has to break at some point.
No, yeah, I mean people keep saying that, and we'll see. I think that some of the disruption, you know, caused by the cuts at the Department of Education, may you know, push some things in another direction. Also, you know a lot of people have done some reporting on how gen Z is really less interested in college and so you know that could put some enrollment pressure on these schools and force them to bring down the cost.
How much fault do you put at universities and colleges where the price just seems to go up and up and up, and they're like, we've got to pay because it's for teachers, it's for facilities.
XYZ deans and food college.
That it has outpaced inflation many times over.
Yeah, I mean, I think the argument that I take in the book is that in a lot of cases, the colleges are sort of like responding to incentives created by the system. So, I mean, one big example is if you talk about graduate school. In the mid two thousands, the government allowed for people to start borrowing up to the cost of attendance for graduate school, and then kind of shortly after that, the number of master's degree programs exploded at universities.
And there's a financial like pipeline right exactly.
Yeah, and at the time, like even Republican lawmakers, you know, didn't really think that much about the consequences of that decision, you know, and if you were to ask them now that that would be a no go.
What about loan limits? Are those those that have been talked about. Certainly they're in place for undergraduates, but for for graduates students instead of up to the cost of attendance. What do you think would happen there?
So that I think, you know, some congressional Republicans are interested in doing something like that. You know, I think in a lot of ways it makes sense. And then you know, of course there's other people who will tell you, well, if that happens, then you're going to be sending people to the private market where you know, often they're fear protection. So it's like a tricky, tricky balance.
Or not as many will go to school, right or not as many we'll go to school, which which some have argued. You know, we all laugh about it, but it's not funny. But you know, you need a plumber, an electrician or somebody in the construction industry. There's like you're fighting for these people, and they all talk about it that there's nobody there to do these things and whether or not we go back to trades people. You know, that's another argument.
Right right, exactly.
Yeah, So, Jillian, we talk about this in the context of what's happening in Washington right now, and a lot has changed in this administration, and I we're at a point where I think it's fair to say that the Trump administration is in a combative stance with colleges and universities right now. How do you look at what's happening in Washington is really reshaping higher education in the US?
Yeah, I mean, I think, you know, part of the reason that there's been some political will for the kind of stuff that the trum administration is doing is because of questions around the value of higher ed. You know, if people thought that they were getting their money's worth, it would be harder to attack these institutions. So, you know, I think it will raise some questions about you know, about that going forward.
In your view, Janet, is it realistic to think that in an institution like Harvard, for example, could lose its tax exempt status.
It's hard to predict anything these days, but what it do do an institution like Harvard, So Harvard doesn't pay property taxes? I mean, unless it's a business expense, like if they run a parking garage, they would pay taxes. They're able to issue tax exempt bonds. They do pay an endownment tex As of twenty seventeen. Their donors get a tax break. If you give money to Harvard, you get a tax break. So there's a lot of things,
and especially going to the bond market. They just had taxable debt, but they do have the ability to have non tax exempt debt.
So, Jillian, where do you see this going right, because it just feels like the velocity continues, the debt continues to grow, it continues to be a story we you know, talk about it, and it really is difficult on a younger generation who want to buy homes perhaps and have families, but they're stuck paying off their college loans and that has an economic impact.
Unfortunately. You know, it seems like we may be stuck in the pattern that we're in for a while. You know, there's there's not a lot of political will to change the system that the people who have the power to do it really are Congress, and you know, part of the reason why we've had so many changes in policy and borrowers experience so much whiplash is because the executive branch has tried to do it, but you know, they only have so much power, so it just gets reversed the next time.
Do you anticipate that more kids might go outside the United States for college and that that could at some point have an impact?
Oh?
Interesting, I you know, I don't know. That's definitely often abdicated as a as a cheaper option, So we'll see.
Yeah, you know, it's talking though, as somebody recently, and even the schools outside the US are been that much less expensive.
I was going to say, then you've got to pay for them to get overseas a plane ticket.
Yeah, sounds like you've been thinking about this. Janet, Hey Jillian before we let you go. You know, if we're talking in five years, do you think this problem will have gotten better gotten worse?
Will there be some cost? Part two?
I think maybe unfortunately the way it's looking not better.
Necessarily classes not half full in any way.
Classes, I mean, I guess you know, you know what, there have been some states that have you know, really tried to invest more in helping their residents go to college. And we actually have seen evidence that the cost of public college on average is going down a little bit. So it's unclear if that trend's going to continue, but maybe it will.
I remember was it Bloomberg who did the survey and they said or was it Jared Dillion? I don't know it was either, Like, unless it's Harvard or an ivy league that state schools increasing year.
That's that's Jared's view.
Basically, you get more bang for your back in terms of but I thought we did some.
Research to Yeah, I think you guys, Yeah, had had a great piece about right, sort of the value of a lot of different public.
Life, why the return on investment? Right, and in terms of like so maybe you know, people start to think more closely. Yeah, it's fascinating. I can't tell you how many times it comes up. And whenever we have anybody right from a college is like, why does it cost so much?
They don't always have a great answer.
Janet Lauren is higher education finance reporter for Bloomberg News, and Jillian Berman is Assistant Managing editor News and Enterprise at MarketWatch. She's also the author of a new book, Sunk Costs, Who's to Blame for the Nation's broken student loan system? And how to fix it.
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal