Surveillance Special: Trump's Trade Tariffs

daily economic reports. What you don't know is Mr Hyman knows the Newtonian mechanics out of engineering at Texas and wandered by the Manstachusetts Institute of Technology a few years ago. He joins us this morning, and of course I should mention ed you're a board member of the China Institute. You are an inter nationalists. Let me show you the President's tweet of ten minutes ago. Bring it up if

you would. And this is absolutely extraordinary. When a country is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good and easy to win. Example, when we are down one of your billion with a certain country, they get cute don't trade anymore. We win big. It's easy you and I read Jacob Weiner a million years ago. This is not easy, is it. I'm good to see you. We do a great job on this show, but I didn't

expect this, and I find it really scary. How will adjust your view on the American economy? I gotta see how it plays out. But the problem is not what we do, it's what they do. Is what retaliation comes back with. And once you go down this road, uh, it gets uh problematic because you can go tip for tat. So uh, I just have to sort of go through these next few days and see what the tip for

tat is. But uh, it's it's pretty bad. Within the news full last night, the wonderful news that the vice Chairman of Economics and Monetary Theory, maybe Richard Clarida of Columbia University, all of us can agree that as an intelligent appointment for the Fed, how does the federal respond if we implement these trade uh, these trade tariffs against these nations. The only thing I can go back to is a ninety nine Smoot Hawley and then the depression. That was sort of my forming views on this topic.

And so I've always assumed that, you know, trade wars were really bad, and then we're talking about Milton Freeman a minute ago. Uh, well, Nixon's trade we showed it in the last hour, Nixon's speech on terrorists of one. But you know after when you when you were in nine the equivalent of the Fed funds rate was six six was pretty high, and the ol CORB inverted and then you had a depression. So I would think that if we start to get a trade war, uh, that it will put pressure on the Fed to be more

cautious on raising rates. It'll be difficult because you could get inflation picking up from higher prices. Although if it's just steel, it's not that big of a piece of the Economy's not that big a deal. But then there's any number of ways to go here. I've got a Paul Krugman comment on this from weeks ago. You assume maybe strong dollar for a bit, and then does this devolve into lower economic growth and a week dollar policy that the president doesn't see. I don't know, it's too

early to tell. I can't tell whether it's uh, you know, more posturing on the administration's part or not. But I didn't expect this and it's unsettling. Uh, and introduces a new uncertainty that we didn't have, and then puts the FED into play that wasn't there before. Here's what I want to do. I want to go out with this warning. Must reader. We got so much going on today. The new slow is extraordinary. What do you have for me? Riley? Bring up one of the essays that our team has

worked one. This is Navarro knows is Paul Kruegman. Excuse me, We've got Paul Kruegman up. Let's stay with that. This is a really wonderful essay. How does the country make its eventual transition from trade deficit to trade surplus? Trump tariff that people expect to see rescinded by a future saying president would drive the dollar up temporarily, but the

prospect of future depreciation would inhibit investments. This is so important, ed Hyman, that Professor Krugman says this is a one off that if this president goes through with this, later presidents will reverse these tariffs as proposed. Do you have faith in that? No. First, I'm living in the present and I'll deal with markets and investors, and uh, maybe the next president will do it. But I gotta get through this this year and next year. And uh, it's

it's a it's a difficult situation. I will say that the U. S. Economy is doing exceedingly well. I saw your chart this morning. It looks exceedingly bad. But no, but you mentioned disposable income doing really quite well income and uh the unemplumber claims this week extraordinary. Okay, well, let's come back Edeyman with us with just just as I said, folks, amazing newsflow. Massive shout out from me and Francy to our team. It's blown everything up in

the last eighteen hours. This is what gives us goose pumps here at Bloomberg Surveillance. When don't we have guests of esteem and always of controversy who really make an effort to join us on historic days like today. Jeffrey Sachs is at Columbia University. He has been way out front on the dumbing down of America. He has been way out front on any debate of climate change, whether you agree or disagree with him, But far more is

his foundation of international economics. He is again at Columbia University and joins us from Bogata Columbia UH this morning. Professor Sex, thank you so much for the effort to join us UM this morning. Twenty years ago you wrote two essays for Foreign Policy. One was a brief history of Panic and the other was Unlocking the Mysteries of globalization. Is President Trump's trade action his effort and a good

effort against the new globalization. This is one of the most reckless policies tom one can imagine, and he is going to have major adverse reverberations. As it is around the world. We probably shed maybe it is a trillion dollars of stock market capitalization in the last twenty four hours. That is a pretty good sign of UH market sentiment and the few of what Trump has done. He's smashing

the global trade rules and it's very, very dangerous. We have done a little bit of the history, Professor Sachs, the history that you're expert in this morning, going back to the courage of Sir Robert Peel in the corn Laws of eighteen forty two. Call it Nixon's effort in nineteen seventy one on a ten percent import text. Let's go to Nixon. What did Jeff Sacks learn in studying the Nixon tariffs of the early seventies. Well, when Nixon uh not only raised the tariffs but broke the Bretton

Woods exchange rate system unilaterally. It led to a decade of chaos. Uh. And I would go back to nineteen thirty in fact, Tom uh and you know the history well of the Holly Smokes tariff of July. That was another uni ladder US actions uh, smash in the face of world trade, and it had devastating consequences for pushing US deeper into what became depression, prolonging the Great Depression,

intensifying it. And I'm not saying that that's the inevitable consequence of this dumb move of the of the Trump, But this is a dumb, dangerous, reckless move, and it's based on it's based on a level of economic illiteracy that is absolutely shopping and that is shown by his morning tweets. Uh. He really believes that if you are running a trade deficit, it means that you're being swindled by the surplus countries. It's a kind of it's a

kind of illiteracy. Don't even imagine. Uh. That is now a few held by this confused man who happens to be president of the United States, and then he tweets this morning that the trade war is the simplest thing in the world to win, because he also views everything is winners and losers, whereas trade is about win win and closing trade is about lose loose. So I'm I'm astounded, Tom that we don't have uh any institutional break right now.

I would expect and I would uh, well, we'll see, I would expect people like Gary Collen to leave the White House because he really wanted to do, and that with this kind of shocking behavior. On that note, let me bring in my colleague Pimples. Yeah, Professor Sex, just

to play devil's advocate here. Is it possible that this is part and parcel of a negotiating tactic, and that what tariffs can be imposed, tariffs can be removed, and that there will be further negotiations that we don't know about, but that this is a new tactic in the way that the administration is indeed dealing with what it perceives to be unfair trade practices against the United States. Well, I know what it perceives that the unfair trade practices.

Donald Trump thinks, as he even wrote this morning says we're running a trade deficit against nearly everybody. We must be being cheated by nearly everybody. But it's the kind of duh. Why are we running a trade definite against everybody? Well, that's because we don't save in our country. We have a saving investment deficits we borrow from the rest of

the world. And done is very way opposing. The question exposes the silliness of it is if every country that we run a bilateral trade does it is somehow doing us wrong. He just doesn't get it. Uh. Maybe it won't spiral out of control, though, And China has been extremely mature in its response, which is just to say we hope the US does not undermine the international trade rules.

European Union was far more direct, saying that there will of course have to be retaliation, uh, and that this is how we just Many others have noted that it is a complete break of post World War two practice to invoke national security to slam against the international trade rules. So the answer Kim is yes, maybe it won't be so bad in the end because some grown up someplace will turn this off. But not because there's any being clever in this. Just because this is an idiotic move

that is very dangerous. And and and Mayet tamped down because most of his advisers are telling him that this is a dangerous that this is a dangerous move. Jeffrey Sachs with us from Boga to Columbia. We are honored,

Professor Sachs at your effort to be with us. And there is a rumor once at Columbia that Sachs was so angry teaching trade economics to a graduate class that he took a copy of Dougger wins Against the Tide and threw it by some guy's ear, hit the wall, and he said, shut up and read this this weekend, jeff Sacks. As you know, Douglas, Irwin and Dartmouth wrote a classic decades ago Against the Tide. You and I can dip into that with President Trump and learn about trade.

Let's begin with the English mercantilis literature. Jacob Winer wrote the classic what the essay on this is America now? Is mercantilist? With President Trump is they were in England many years ago. Well, yes, Trump has some uh strange idea. First of all, that again, if you're running a trade deficit, you're im cheated. So this is his first point. Second point, and this is also part of this is the terrible worldview that the United States is both in a position

to and should act to rush China. The China is the big trend, so we have to somehow now stop our cooperation and trade with China. That's of course the subtext of all of this as well. He's are incredibly naive US, but worse than nine, they're they're dangerous. And I think the markets are signaling basically immediately two percent off the global activities yesterday and today. That's a about a trillion dollars of the par boss. But this is just a stupid idea, which I think is by now.

Right now, let's move forward to this conversation with Professor Sax And I want to make clear I'm going to send out across my social media against the tide. In Intellectual History of Trade by the good professor from Dartmouth. I read it years ago and it's it's one of those books, pim Fox. It was written years ago, dugger, when I think it was like twenty two years old,

and and it's an extraordinary book. Pen Fox. Why don't you jump in with Professor sax Well, I just want to understand Professor sax maybe the history of these tariffs and the tariff reductions that took place because of the World Trade Organization, and whether the consequences of lowering industrial tariffs was something that was not foreseen, because it seemed as though the plan to reduce agriculture trade restrictions were

not really fully understood either. Well. I think the reductions of the trade barriers expanded trade and expanded the world economy. What they also did was shift labor markets and income distribution within the United States. They were especially good for capital, especially good for high tech, and if we were a fair society, we would be sharing the benefits of this expanded US and world economy more fairly. But there's nothing untoward about what's happened with trade. Trade expanded the world

economy just as as it should. And if you try to close down trade, well we'll close an important part of world economic growth. That's why the markets are down so sharply right now, because this is bad news for the world economy. Jeff, how should Democrats respond? There's gonna be a roaring battle over this, But what is the intelligent free trade response? Of Democrats, is they are so

fractious this two thousand and eighteen. Well, Democrats have also had this protectionist street, of course, and some Democrats in the Midwest have already said this is good, it will protect our steel industry. This is a very naive of politics.

A smart approach for both parties would be open trade and fairness in our society, making sure we have good education, good skills, help for those who are uh A are hurt by international trade, and those are real grouts, but can so many are benefited, the winners can help the losers. That's the first principle of international trade, going back to David Ricardo uh and the two centuries ago and pauls

In a century ago. So the basic point should be for both Democrats and Republicans, the international trading system has been good for the world. It's been good for peace, has been good for the US economy, it's been good for the global economy. But of course all functioning marget economies need to ensure fats need to ensure investments in skills and infrastructure, and so we need that kind of balance.

We don't have any balance right now. We have a president railing against the world and positively hurdering who wanted the reaction which would be extremely dangerous for everybody. Uh and is quite possibly going to happen. Well, we have the protectionists who aimed for you know, very narrow games. Uh. And people should remember economic protectionism has Jeff, unilateralism has been a disaster. Okay, Jeff Sex, thank you so much.

We really appreciate it. From Bogata, Colombia this morning, what is sporting is futures as we speak, new lows for the day, three days down in a row. That was a great band. Three days down, um and Uh, futures negative, twenty two down, futures negative to five Right now, John Ferrell, would you suggest that the break we saw this morning was off the tweet you're gonna read right now. Yeah, we were soft and then we got a whole lot softer when this one came out on Twitter from the

President of the United States. When a country is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good and easy to win. Trade wars are the one thing people are concerned about this morning. And when the President says they're good and they're easy eats of win. Well, it's gonna hot and concern, and you saw that reflected in the

market very quickly. Our team working on getting in a great set of guests, many of them waking up into this as it was happening last evening right now, Mark Chandler, where this thrill down? Whether this with the Brown Brothers Harriman easy to win John Mark, Mark Chandler. How do

you win or lose a trade board? You need our tillery And as I think, here's how I would read this is that I sort of take a chump seriously at his art of the deal, and I think about, like, I want to gonna buy my tis not a car for HEAs in college doing good, doing well. I was gonna get in a car. We we've got a used car lot and a car lot dealer comes up to us as my sun kicks out the car. And the

first thing I do is complain about the car. I complain about everything about it, and then my son kicks me. He says me, but Dad, I want to buy that car. I said, yes, This is negotiations, and I think this is what chump is doing. It's it's a bluster and which is a none of these kind of things, He says, it's mostly bluster. A trade war is not easy to win, it's not desirable, and it's not right that we're gonna

trigger it trade war. Mark, you are perfect to talk to us about with your sense of political history and folding it into economics. Moments ago, the President of the United States a short tweet, we must protect our country and our workers. Our steel industry is in bad shape. If you don't have steel, you don't have a country that's in all caps. If you don't have steel, you don't have a country, Mark Chandler, within your books, is this is Is this a president steeped in nostalgia? Or

is that an accurate phrase for America two thousand thirty. Yes, I can't. I can't really go along with it. But here's what I would think the focus should be is think about a country like Canada. So we get the US gets about a sixth of its steel imports from Canada, but the US exports half of our steel to Canada. Canada said they run a two billion dollar year trade definity with the US on steel, and Canada's been recognized by US law and part of the US National Technology

Industrial based for national defense. So with producing Canada was producing our allies, should that counts for production for the US. And I think that this is by the national security issue is so interesting and why it needs to be explored just the way I would. I would hope that some mayors in the US, mayors of US cities explore eminent domain. These are like areas of law that could be could be used to have some to do some good.

And so I think what this there is unknown like unclear legal area about national trade, national security and trade. And hopefully by challenging it like this, it gets clear that countries cannot use these kind of pretenses for protectionism mark bottom line. When Tom read out those comments from the President of the United States, I didn't think about economics. I didn't think about the markets. I just thought about politics. If you don't have steel, you don't have a country.

That sounds like a campaign message. That's not an economic policy, is it. That's a campaign message? This is politics. Yeah, exactly. I think there's most of a politicive. That's That's the unfortunate thing for me is that we have too You can break down the economy two parts, consumers and producers, and these kind of protections and favorite producers over consumers, and yet we're more of a nation of consumers of these types of things. How wow does this play with

the base this morning? Mark, I don't think the base is going to be affected by this. I think that that Trump has a solid third, maybe a little bit more people who will vote for him almost regardless of what he does, as long as it's seem to be like sticking a finger in the eye of the elite or of the traditions or of establishment. But will it reduce economic output even by tens of points? And again, Mark, I agree with you that the specific threats maybe aren't

that important, but there's gotta be not on effects in retaliation. Correct, they could be, but I think that the country are gonna hold off Italian to go through the w t O. But I do agree with you Tom at the economy, I sort of would think that when you look at the trunk month moving average in non farm payrolls, you look at twelve month moving out of auto sales, you look at the higher rates of delinquency on credit cards, and we've got a lot of symptoms already of late

psycho economic activity, and these tear ups and this kind of uncertainty might be enough to do just further along the curve. Let's recast as quickly. I know John Farrell wants to dive in. What is your twelve month call on us g d P that you're using off your FX desk at Brown Brothers. Airman, we start the penciling in not far from what the feed is. The FETE I think is two point eight for this year, and

we're about two point five slower growth. Excuse me. Chairman Pound wakes up Tuesday morning full of optimism and confidence guys in front of the house and says how great things are going to be through this year and how much better things are since December. How's Chairman Pound fitting

at the end of the week. Yeah. I think he probably gives himself good marks for his presentation to Congress, having corrected the stuff of the stuff about the overheating and that there's no uh no signs of wage pressure accelerating. But I think this tear of stuff is as scary, especially some people who embraced like the free markets and the the global liberal trading system power. I think as part of that tradition, Chairman Pow we thought was going to be a low rates guy and soft on regulation.

I don't see those two boxes being ticked over these last two days of testimon each arc, do you. I don't know. I'm not so sure. I mean the markets. I mean, for me, if taking Powell to convince the market that Yelling was right, Yelling told us in December, those dot plots showed us three rate hikes this year. The markets finally came around to it on Powell's testimony

on Tuesday March. Chandler Jeffrey Sachs will join us later of Columbia University, an acclaimed international economist, and he's talked about and this goes more to more to ecology, the economics of a crowded planet? Is the planets so different now, so crowded that the template of trade of George Bush Sr. Can't work? Now? I don't know. I thought I wonder about like this overcrowded. This if her if her mother goes to her cupboard she's trying to feed three children,

she finds that she has only two pork chops? Does she have too many children? And I think definitely the issue. I think that's hard for me to conceive of. Uh, you know, we've got the real parm in the West, in US, Europe, Japan, uh, China are demographics were just not producing fast enough. Parts of the world that are producing are Africa and some parts of East Asia, some parts of Latin America. More parts are reproducing while the while the older European the highly wage economies are weakening.

And I think that this is you know, maybe uh having fewer people is one way to release some ecological damage. March on. The final question for you before we have to let you go. More importantly, the base case for you from listening to you for the last twenty minutes or so, is that remain calm. Things are going to be okay. This won't escalate. That's the case. Is this market falls out of bed this Friday morning, what would

you be looking to pick up? What pieces would you be looking to pick up as this market falls out of bed? Now? The good question, I think that probably trying to epside the value invest So I'd be looking at those stocks. I'd have a list of stocks that I think they're the big sell off, they have good value, and so those that those that have been beaten up pretty badly, and it might be uh so i'd be looking at valuation value stocks. We haven't groof stocks. Mark Chandler,

thank you so much. We have tried all week to get perspective on China that is shifted from a two term to permanence of President g too. Of course the arch themes of the President United States on merc until his trade What an honor to have Steve saying with us earlier this week, and now we do better. Carrie Brown is with us of Chatham House and the Law Center China Institute at King's College, who is without question the definitive author across the various leaders of China in

the modern age. There are five six, eight ten books, including China's World. What does China? What? What a perfect leading Carrie Brown to where we are this morning? What does China want with a mercantiler's trade policy of the President of the United States? Well, um, I think they probably were expecting something like this. Um. When Trump went

to China late last year. The only discordant note really was that he said the imbalances in trade were things he wasn't wasn't happy about, And of course he's always appealing to his base. That's something that Chinese leaders know very well, and this is a sort of symbolic move as I understand it. The reports show that only two percent of the steel, for instance, in the United States is from China. So I mean it's going to probably have a bigger impact on UK or European exporters to dates,

but I don't mean for China. I think it's probably going to be interpreted as, yeah, this presidency is really kind of serious and keen about this issue, and they have got to give some kind of leeway back. What for shape that leeway takes, we'll we'll we'll find out soon enough. I imagine Park Frogman in an essay after the election, uh makes clear that one theme as people wait out President Trump is President Gee's plan to wait out this president for whatever is on the other side.

I think China is going at a faster sort of velocity. I mean, they've got the hundreds for you know, anniversary of the hundred, the anniversary of the Communist Party, in the big, big moment that will maybe Trump will have gone by them, maybe you know not, so you know, they are not going to kind of disrupt their plans

by you know, the American presidential circle. What they will do though, I think is to make sure that they have enough to give Trump to look like he's doing what he said he would do for his base back in the US, they're probably maybe quite soon some of the sectors are protected a little bit. In China, they will kind of, you know, be able to incrementally do that. They're in a position of having quite a bit to

give away. In an odd way, they have hoarded all sorts of goodies, and I think now they realize, okay, we'd better give something back, and that rebalancing, I think will be the story of the next year or two. The thing is whether it satisfies, you know, people in particularly America with Trump and elsewhere in the world because

of these imbalances, these trade imbalances. Professor Brown, And what if you could speak to the issue of President j Ping of China the removal of the two term limit on his presidency and maybe twin that with the concept of stability and the reaction of Western leaders to this move in China. So the presidency is not really a

powerful position, it's a symbolic position. So this again is also a declaration of intent more than anything, and I think it's signaling that this may be a perpetual leadership for stability. That means we see a lot of changes in the world. Of course, democracies I think in China have regarded as being more stables never before, and China is this sort of bulwark of you know, kind of

stability and stable leadership. So the problem really with that is of course that everything ends at the sort of desk of she Jingping, that highly centralized leadership, lack of a real successor as in Russia and similar sort of situation. Is you know, kind of probably okay now because you know, as she is obviously operating and functioning fine, but there's

this big question of what were to happen. Should that not be the case, should for instance, he being able to kind of operate, or whether there will be some kind of kind of big change centralized leadership. The course, when the weather is good and everything is looking okay, is fine. But when there's more complex issues coming along and there's blame going around, is not so fine. So

it's a big gamble. So does this mean that Western leaders are okay with Ping because they see China as an area of stability compared to much of the rest of the world. I think at the moment, all the distraction from Brexit in Europe, from you know, the presidency in United States, for all of the instability in the

Middle East, the problems with Russia. I mean, having a China which is at least not kind of you know, unstable, didn't look unstable relatively economically okay at the moment, you know, kind of looks like it's going to be geopolitically quite kind of cooperative in areas, most areas, as long as they don't impact on its completely. It's very closest region. I think most Western leaders would probably think, yes, it's okay. I mean, we don't want to have to worry about

another you know, big, big unknown. I think the only problem really is we can be complacent. China is a complicated place, is going through extremely difficult, difficult transition. There's a lot that go wrong. Levels of debt are high. Um, you know, there's a kind of lot that's not really known about the stability of the Chinese system. We may be kind of banking too much on Mr. She being our kind of you know, best bet for a stable sort of you know China, and unstable China would be

a massive problem. Sue, Thank you, so much. We really look forward to speaking again and of course visiting with you in our London studio Studios Professor Brown Legendary at Chatham House, where I'm sure we'll be writing up this weekend. I really can't say enough about this consistent output as well. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio