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He appeared with this a month or so ago, and I talked to the team here this weekend and I just said, we've got to get Doug Irwin on to sort through this. This conversation is for every elected politician in Washington. As they listened on ninety ninety one FM this morning, Douglas Irwin is an institution. Blanche Flower is not an institution. He's just a macroeconomist. Doug Irwin is
an institution at Dartmouth at College. In his ute the definitive book and still Fresh, Fresh Fresh is against the tide. It was definitive at the time, more recently is clashing over commerce. For those of you on YouTube, it's over his right shoulder at right now in his book line Office, Professor Irwin, we are honored that you would attend today. If you were to meet with a congressional leadership today, how should they respond to what the executive branch as wrought.
I would say that under the US Constitution, Article one, section eight, you have power over tariffs, and the problem has been is successive Congresses have delegated so many powers of tariff setting to the president. On the assumption that the president will basically act in the national interest and tend to lower tariffs and reach trade agreements. That Congress has given up its authority, so it's time for Congress to stand up and assert itself a bit more on trade.
Their constituents will be hurt by many of these measures, and yet the Republicans seem to be very quiet about it.
How will they affect that reassertion. Do they need the judicial branch to support them or do they just sit down with the beverage of their choice. What do they drink at Dartmouth? It's like labats, Yes, exact labats, Doug Irwin, do they have a labat? So the presidents say this is too much.
I think you have to look back to the first Trump term when President Trump almost pulled out of NAFTA and he was convinced by his Secretary of Agriculture and a few congressional allies that that would not be a right move, that he should renegotiate it because they were pointing to the harm that would be done to his voters, farmers in the Midwest, manufacturing firms in the Upper Midwest that depend on exports, and so that sort of helped convince them in terms of a longer run solution of
changing legislation to and power Congress more that sort of a long run solution to what is now a short term crisis.
Doug, how do we think about tariffs in a global intertwined economy. It's not like the eighteen hundreds where we imported a relatively small number of goods. We exported a relatively small number goods and then global economy to tariffs. How do they work?
Yeah, you're right, it's actually very different than it was a century ago.
A lot of trade a century ago was sort of in final goods or in very basic raw materials, and now what we have is integrated supply chains and international production networks. So the web of commerce and the greed to witch firms in all sectors are sort of bound to the global economy in some way. Is so much more extensive today than it was even fifty years ago,
let alone a hundred years ago. The terriffs have much more ripple effects throughout the economy, and these proposed tariffs will rip apart North American supply chains and be quite extensive in terms of the reach that they will have.
Dougr when you mentioned Frank Tausig the giant at Harvard years ago. This is folks one hundred years ago writing on terriffs. To me, there's a whole mythology going on right now, whether it's a president's affair with mister McKinley from another time and place. We trot back Lisa mentioned Smoot Holly this morning, or we go back to August of nineteen seventy one when the world turned upside down with Richard Nixon and gold, which myth Doug Irwin is most wrong.
Well, I'd say the myth that the US economy grew in the late nineteenth century when we came in industrial power because of the tariff. There's a classic case of correlation not being causation. So there are a lot of reasons why the US became an industrial power after the Civil War. Up until World War One, we had massive immigration, not many people in come administration and mentioned that we were the recipient of major capital inflows from Britain and
other countries. We were adopting technology from then the technological leader of Britain. We are pretty much open to the world except in trade, so we did have high tariffs, but they did promote manufacturing a bit. But if you look where the productivity growth was, it was in the service sector. It was railroads and then later electrification and telecommunications. It wasn't just manufacturing and becoming rich because of the tariff walls.
If you're just joining us this morning on Bloomberg Surveillance, and thank you for joining Bloomberg. We continue with Douglas Irwin of Dartmouth at College. Many good guests coming up, including Damian Sas are in Foreign Exchange down negative five ninety one to Irwin of Dartmouth, Paul Sweeney.
Professor, talk to us about these tariffs in the context of they seem to be enacted by President Trump in response to non economic issues per se, maybe whether it's the fentanyl coming into this country, whether it's immigration policy from our neighbors. Is that kind of the way tariffs should be used typically are used. How do you think about that?
Well, what's interesting about these is they haven't really been vetted by the Trump economic team.
His US Trade representative is not in office yet.
We've just had the confirmation of the Treasury Secretary Commerce Secretary to come. So usually when countries imposed tariffs, and usually when the US has done this in the past. There's an interagency process where you deliberate and you figure out what is the best case and how can we make these work.
And I think these are a.
Little bit in advance of those advanced discussions within the administration. So I think you get this hodgepot, you have reasons why we're doing this. It could be the fentanyl phrase of the migrants. But we also hear still about the trade dempsit. I mean, when President Trump makes these statements, comes back to the imbalanced trade and he's actually ordered a.
Review on that.
But it's very hard for other countries negotiating and there are ten different things that are being fun at you at what in terms of what you're doing wrong.
Dougarwin honored to have you here for breaking news. This is from Doug Ford. He is a Premier of Ontario. He's basically I mean Ontario Stretch is from just north of Hanover, New Hampshire, all the way over to Carlton College in Minnesota. But the Ontario government says they will cancel all US contracts. And what's important is this is quote We're going one step further. We'll be ripping up the province's contract with Starlink, and of course it has to do with the Elon Musk and all that. Doug
Ford service sector hasn't been talked about much. Expects service sector to be harmed as much as the goods sector.
Not as much because they're not directly hit by tariffs. But there's a complementarity between trade and services and trade and goods, and the two often go hand in hand.
So if you.
Disrupt trade and goods, there's going to be some spill ow er effects, negative ones for the service sector as well.
Professor. Some of the concerns here as it relates to tariffs just in general, is that they are inflationary in the US economy. How do you think about that?
But I don't think they don't cause inflation in the sense of a sustained increase in the CPI. They are sort of level effects, so they will increase the level of consumer prices and industrial prices, so that will lead to a bump and measured inflation. It's not clear that FED has to respond to that, but what that means is the declining real income and purchasing power of those
businesses and households. I mean, just to give you a personal example, which I shared on social media yesterday, an email from Irving Oil, which provides US with propaine, saying that any tax that's levied on them as they ship propane from Canada to the US will be directly added to the bill that we're facing here in New Hampshire. So even before the terrorists took effect, are already being warned prices are going to go.
Up, Lightheiser, and it's on my table at home. No trade is free. Robert Liittheiser focused on China. Lightheiser pushed aside in the second Trump administration, Douger went on a ten percent tariff on China. How would you suggest Beijing will respond.
Actually, I'm a little bit less worried about China, and I'm a little bit surprised we're going after our allies and ripping up North American supply chains by going after Canada and Mexico.
I mean, the big.
Rival to the US and big problem in terms of trade has been China, and yet he President Trump has deemphasized that. So I'm not going to agree with Robert Lithheiser on many things, but to the extent that he's focused mainly on China, I think that's where the administration has to look too.
So, Professor, how do you think the governments of Canada and Mexico should respond? Will respond? I mean, how deep is this going to go? Do you think how long will does go?
Do you think, well, it's very interesting.
There's a report that the Prime Minister of Canada, Justin Trudeau, will be speaking with President today. So I'd say there's a small chance things could get averted, even though I wouldn't be too optimistic about that. But I think they're responding in the way that actually they did at least Canada did with the smooth halite care for nineteen thirty.
That is not to take it sitting down to retaliate.
And they're very strategic in terms of the goods that they put pressure points on that are important in the US when I'm putting those tariffs on.
So they try to post tariffs on things.
That will maximize the political harm in the US, but at least economic harm for Canada because there'll be subst to products that they can import.
Doug The World Stopped for Against Tide, An intellectual history of free trade, thirty some years ago. The final chapter thirty some years ago, Page two seventeen, The past and future of free trade? Okay, WTO. I was in Jimmy Chang's office in Hong Kong the day WTO collapsed. Doug Irwin, what is the future of free trade? After GAT, after Uruguay, after WTO, and now Trump? What is the future?
Well, it's going to be a bit of a mess, and it could be basically redrawn lines of trade based on geopolitics. But you know, most countries, speaking outside of the US now, most countries have a tremendous stake in the trading system and open trade. They're much smaller economies. They've opened up over the past thirty forty fifty years or so. They received economic benefits by and large from that,
and to undo that is harmful for them. I think even if the US, because of our politics or what have you, move in a different direction, the rest of the world will still be open for business to the intent they can.
I mean, Doug, I know hitters like Jamie Diamond and listening, Brian moynan and others in banking, maybe Christin Lergard. Good morning, Madame Lecguard and your team in Frankfort. Doug Irwin on the X axis, forget about j curve dynamics. I don't buy it. On the X axis, Professor Irwin, we shift from an inflationary dynamic of tariffs over to the growth or less growth dynamic on your time continuum. What's the when of that? When do we shift from a study of inflation higher to growth slower?
Well, there have been a lot of independent forecasts of these Trump tariffs, and from the Tax Foundation, from the Peterson Institute for International Economics, and from other entities, and none of them have any positive effects.
It's always negative.
And the question is, given the scenario, how negative you go you shape point two point three point four percent off of GDP. Those are sort of where the numbers are coming in, and those will come in fairly quickly. If we actually see the tariffs go into effect on Tuesday, we'll probably see, certainly by the second or third quarter,
somewhat slower growth. Now, once again that doesn't mean it's pushing us into recession, but it just means that after a year or two, our real GDP will be lower than it otherwise would have been.
I got one final question, Doug. You're sort of up in you know, the edge of Canada. Yeah, handovers really money I mean, it's not a Connecticut River, and it's really it's like it's sort of like New York North.
I don't mean those are hardy people up there.
They're hardy. Yeah, it's a shrift bubble. Yes. What are you telling somebody over a cup of coffee this morning, Doug Irwin in Victoriaville, Quebec. You're at a diner in Victoriaville. What are you telling them to do? What should Canada do?
You know, Canada was very savvy during the first Trump term. They made a lot of We talked about Congress, We opened our discussion with Congress. They realized that maybe the administration is not going to be very sympathetic, but in members of Congress are because they are much closer to
how their constituents will be affected by this. And so they worked state legislatures, They worked on Capitol Hill and tried to create an environment where it constrains the administration in terms of how much they can push things and
what they can do. So there may not be much support for Canada in the White House, but there are other pressure points in the business community and the state and legislatures and elsewhere that they can try to contain the damage that will be done to them from these tariffs.
Douglas Irwin honored that you go to Tend, go back to Klass, get the chalk on your head and teach them.
Okay, I won't tell Blanche Flower what you said.
Okay, don't tell them. We're going to He's probably done in Florida right now, distant from the Terraffs. Doug Erwin, thank you so much