Bloomberg Audio Studios, podcasts, radio news. Even if you didn't read the eight hundred and thirty pages, it had a lovely purple lavender cover and you could walk around campus toating your Obsfeld and rogueoff and you get cool points just for that. Joining us now. One of the foundation academics we have on our International Macroeconomics Maurice Sobsfeld. He's with the Peterson Institute with Posen and Blanchard. He is at Berkeley forever and always, professor. Thank you so much
for joining us. What I see in percolating right now, Maurice Sobsfeld, is real tensions about supply lines falling apart, supply lines fragile because of tariffs, the interstitial, the interstitual wiring of our trade system. Is it broken.
It's not broken yet, but it's understrained. It's understrained because of tariffs. It's understrained because of geopolitical tensions. It's understrained because of the trade war. And we can see this in the threats flying back between President Trump and China right now over everything from shipping to rar earth to cooking oil.
There just seems to be two Americas, one affected by goods and trade worry and angst in another a financial boom, like Morgan Stanley, Can we exist like this?
Well, you know, the US economy has become increasingly financialized over the decades, and you know, at some level, the US is the world's banker at this point. And interestingly, finance hasn't seen the kind of backlash that we've seen against trade. You know, trade is blamed for deficits with other countries, it's blamed for the declient of manufacturing. You know, we don't see people wanting.
To curb financial transactions.
Quite the contrary, we're seeing deregulation stable coins and the like. So there really really is a divorce between those two sectors. And you know the question I have is can that go on forever?
Yeah?
Or will the trade tensions eventually feed into the financial sphere.
I think they will, And Professor, that's kind of where we are right now. The folks that are supporting tariffs, they say, we are not seeing the economy slow down. We recently had a very strong third quarter GDP print. We are not seeing a material increase in inflation data, although we are now lacking data because of the shutdown. So again, the supporters of terriffts are saying, we're just
not seeing those economic headwinds coming from tariffs. So my question to you is is it just a matter of time or are corporations adapting?
Oh? I think it's a matter of time.
There is some adaptation, of course, as corporations look for cheaper suppliers.
But you know, just sort of a look at what we've seen. We have not seen any.
Material fall in the dollar prices that foreign countries charge for US. We've seen some limited increase in consumer prices of imported goods and close substitutes for those imported goods, but.
Not enough to offset the tariff.
But we've also seen substantial revenue coming into the treasury from tariffs, which is being paid by our importers.
So how do you square that circle.
You square it with with a hit to profitability and with the observation that firms have been swallowing these tariffs to some extent while they wait for tariff policy to stabilize and figure out what it's going to be going forward. Now that we kind of know where we are with tariffs to some extent, I think firms are going to be adjusting by passing those cost increases.
On Professor Obsfeld synthesize here say the work of Douglass are when at Dartmouth with down the hall from you at Berkeley, Barry Kengreen, and this whole trade up set and the risk to the dollar. This goes back to Obsfeld, Rogueoff, and frankly back to Mundell. I'm assuming you don't have a fear of the gloom crew on the dollar. Is that correct?
The gloom crew?
You know, I'm worried long term about the status of the dollar. I think they're very strong forces keeping the dollar in the prime position it's in in global markets as the world's currency. But foreign countries are increasingly worried about the kind of worse of punitive actions that this administration has been taken to enforce its will globally, not just in the trade sphere, but looking at issues like internal politics. You know, we see this across the board,
for positive and negative. The Treasury right now is bailing out Argentina for largely political reasons. So I think I think the bottom line is that that foreign countries no longer trust the US as a responsible steward of the global economy, are going to seek to decouple and insure themselves against policy volatility emanating from right here.
Maurice, I gotta go to breaking news. Paul, Can I ask a rude question of Professor Absfeld? Yeah, professor and Eiching Green question for you, Maurice Absfeld on gold at four dollars announce? What would berries?
I'm not going to speak for Barry, my good and longtime friend, but I think he would say that. I guess I am speaking for him. Let me speak for myself. Barry and I agree about a lot of things, not everything. You know, gold is a bell weather of fear, and the escalation in its price is far beyond what you would expect to see coming from inflationary fears.
Although I think that's part of the picture.
I think it betokens a shift into something that is perceived as safer than the dollar and not subject to extra territorial action by the US. I mean, you know, we've seen the escalation in price. We've also seen increasing purchases of gold by emerging market central banks. A lot of that is China, but not all of it is China, Okay, So that I think tells us something about the fear out there. And you know, the escalation and bitcoin prices is a similar phenomenon.
Professor, you got to leave it there too short a visit. Thank you so much. Thank you to you and the Peterson Institute, Adam Posen, Professor Blanchard and others for just great support of what we do. Marie Sobsfeld Forever from the University of California at Berkeley,