Bloomberg Benchmark is brought to you by Stage Summit, the world's largest gathering of small and medium businesses, featuring Sir Richard Branson July in Chicago. Register with promo code business at stage summit dot com for just It's July. Today also happens to be exactly six months since Donald Trump took office as forty president of the United States of America. Hello, and welcome back to the Bloomberg Benchmark podcast. It's July.
I'm Scott landman and economics editor at Bloomberg News in Washington, and I'm Kate Smith, an editor here with Bloomberg in New York. This week, with the Republican Convention going on in Cleveland and Donald Trump close with Hillary Clinton in the polls, we've decided to ask the question what would the U. S economy look like if Trump were elected president? And it's a great question. In fact, it's such a good question that we don't want to just sit here
and speculate about what could it be like. No, this is going to be a first for us. We are actually going to take the Bloomberg time Machine one year into the future to July and listen to our show about how things have gone during Trump's first six months as president. Are you ready, Kate? I am all right, here we go. Hello and welcome back to the Bloomberg Benchmark Podcast. It's July. I'm Scott Lanman, and economics editor at Bloomberg News in Washington, and I'm Kate Smith, an
editor with Bloomberg News in New York. So, Kate, what's new on the Pokemon beat. Well, things have just kept getting more and more interesting since I took over the Pokemon desk back last fall. So now there are one point five billion people playing the game worldwide, and Nintendo's market value passed Apple two months ago to become number
one in the world. So the Group of twenty has actually add a Pokemon as an official agenda topic for next month's meeting of the Finance ministers in Germany, and there's even talk that policymakers planned to urge Nintendo to step up its development of Pokemon updates to stimulate global growth. It's just fascinating, unbelievable. I can't believe it's been one year since this phenomenon took hold and began changing the
way we go about our daily lives and work. Here has really changed since Bloomberg limited our Pokemon playing to only one hour a day in the office. It's really tough. It is tough. But to be honest, you know, in you know, speaking to other people, we're the lucky ones have heard that a lot of employers have actually limited it to thirty minutes of play a day. But you know what, anyway, we're here to talk about something way
more interesting than Pokemon somehow. Today also happens to be exactly six months since Donald Trump took office as forty president of the United States of America. That's right, and joining us to talk about it all is Neil Datta, head of US economics at Renaissance Macro Research. Neil, thanks for being here today, Thanks for having me, all right.
So it's an interesting time so far. In a lot of Trump's critics were talking about how he would sink the economy, but like most of his predecessors, he's taken
a more pragmatic stance to achieve some of his goals. Uh, immigration is slowing down due to new restrictions, and there's some uncertainty over how the rollback of Obamacare is going to play out in Congress, and there's some international tension over trade as we expected, but President Trump has used fiscal policy to add some juice to the economy, and with bond yields rising, the Fed has raised interest rates for a third time since December. Neil, how surprised are
you by how things have gone so far? Well, you know, I guess I'm not that surprised. Um, going into the year, you kind of have to assume that you know, you're knowing you didn't want to think that Trump was gonna want to get in there and do a bad job. So, UM, my sense is that you have stronger fiscal policy that's pressuring inflation higher. And you know, I think given that the economy had some momentum going into this year, the feed is not really um accelerating their path just yet.
And you know, my sense is that you know, you have stronger fiscal policy, um out of the Trump administration. You have more restrictive immigration that's putting up with pressure on inflation. So I think that would be what I would expect economically, um, coming out of a Trump administration. So one issue that a lot of people overlooked a year ago was when Trump said that quote, we have
to rebuild the infrastructure in our country. So now he's really followed up on that through working with Congress to pass a hundred billion dollar plan to kick start roads, bridges, and real projects all around the country and really encouraging states and cities to take similar action by taking advantage of low interest rates through municipal bonds and of course those for our listeners who don't know, are the vehicles in which state and local governments can issue debt to
spur the economy and start infrastructure projects. He's also signed a defensive re author zation bill that increases spending by ten So how much is this going to actually help the economy? Well, I guess it will help the economy somewhat. The question is that the extent to which you know he's willing to offset that what cuts down the road. Um, you know, there is a lot of debate about how
much of a multiplier you'll get from fiscal policy. I do think, you know, given how low interest rates still are, there's probably very minimal cost to going this route, and so I think it's probably a good thing, you know, for the economy, have stronger fiscal policy and you don't really have much of a monetary offset, and you know, if you look at where the bond market is has been, it's you know, you can make a very strong case that it's screaming for fiscal stimulus. You know, a hundred
million dollars on roads and bridges isn't really a big deal. Um, you know, actually we miss boke there. It should be a hundred billion. Yeah, I mean I again, I think, you know, one of the one of the points that I would make about all this is that when people think about for structure, they think about roads and bridges, like you just mentioned. You know, these sort of ribbon cutting ceremonies where politicians get in front of a red tape with a big scissor and a hard hat or
something like that. And and it's not immediately clear to me that we actually need to be spending money on roads and bridges, right, I mean, if you look at transportation spending, highway and street spending as a share of GDP, it's pretty much higher now than it was on average
from two thousand two to two thousand and seven. There are other areas of infrastructure, you know, that are actually less sexy, that probably have more need for spending, you know, things like um, you know, government hospital and health facilities. Given the fact that we have veterans coming or you know, UM veterans coming back from overseas war fighting, UM water supply things like pipe fixtures and so forth, we're not
We're under resting there. It seems to me if you look at the data, UM, so you know, roads and bridges are nice. UM. Trump has mentioned LaGuardia Airport, you know, every other week, and it shouldn't be noted that LaGuardia is already getting an infrastructure revamp. UM. But you know, the thing that I would just say is that the
net effect of all of this is inflationary. I mean, if you're an investor and you want to play for you know, an aggressive fiscal policy stance coupled with restrictive immigration laws and anti trade and anti trade agenda, I would be UM buying tips and selling treasuries. I want to jump in quickly. You mentioned the infrastructure question. I
want to pose a question for you. Before I took over the Pokemon beat, I was a municipal bond reporter, and one thing that was really interesting was that even though you had you know, generational lows for interest rates, you saw a huge contraction of the municipal market. Of course, you know, for listeners who don't know what the municmal market is, this is the vehicle in which states and
cities finance, road, bridge, all sorts of infrastructure projects. So even though rates were at lows, even though you saw all these incentives going on to build these things, states and cities still didn't want to do it. So, I mean, I guess, Neil Scott, what do you guys think of that? I mean, what's going on now that we think that's actually going to stimulate something that you know obviously couldn't
happen to three or four years ago. I think one issue politically is that you're seeing I mean, basically monetary policy doesn't have as much scope to stimulate as it did four or five years ago, and so there's an additional burden, I guess, or growing burden on fiscal authorities to kind of move the needle on the economy. You know, you're seeing that clearly in in Japan, You're seeing it
to some extent in Europe. You've already seen it in our neighbors to the north and Canada, where they've announced a more aggressive fiscal package with the new government under Trudeau coming in this year, and so I think that's part of the reason why you're seeing it is because, um, you know, typically when we think of sort of cyclical
demand stabilization, we tend to think of monetary policy. But um, you know, given that monetary policy is basically you know, I mean at its end, Um, there's more of a sort of there's an increasing pressure on fiscal authorities to do something. And on top of that, it seems like a perfect opportunity because if you look at, um, you know, what's sort of on the top of of most people's minds. Um, you know, four years ago, Um, you know that I would argue that the budget deficit and debt was high
on the minds of a lot of Americans. Today it's near the bottom if you look at in terms of, you know what, what issues people care about the most. Um, So the political pressure of reducing the budget deficit isn't a strong today or as pervasive today as it was five years ago. And so you know, I think for all these factors, you're seeing more of a push. And you have a new government coming in they're gonna want
to do something. Given given the US election sort of cycle and the legislative calendar and this sort of you know, twenty four hour news cycle, and I mean basically the window for a new government to get something downe feels like it gets shorter and shorter with each new government. Yeah, central banks are certainly welcoming this push on fiscal policy, especially FED Chair Janet Yellen. But as we all know,
she's not going to be around much longer. Uh, we're going to take a break right now, and we'll talk more about that right after this message. Ullinberg Benchmark is brought to you by Stage Summit, the world's largest gathering of small and medium businesses, featuring Sir Richard Branson July Chicago, registered with promo code business at stage summit dot com.
For just as we were just saying, Neil and Kate were six months away now from another momentous date, January thirty one, that's going to be Janet Yellen's last day as Chair of the Federal Reserve. Speculation is growing in Washington about who President Trump will pick to lead the Central Bank. What will be the main challenges for the next FED chair. Well, my view is that the next FED chair's biggest problem is going to be higher inflation. Right.
I mean, for years now, we've been talking about low inflation, low inflation, deflation risks, the FED running out of ammunition, and the FED continually bending to uh, you know, the lower sort of implied rate path that has been put out by the market. And you know, I think given the confluence of factors that we're assuming here, which is a stronger fiscal policy, anti trade, anti immigration, those are
inflationary policies. I mean, if the biggest secular force for disinflation in the last twenty five years has been the opening up of the global economy, what does the push to protectionism mean. I think it's pretty obvious. So this is something that that's going to have to deal with, and I would argue that, you know, in some respects,
you coul can make an argument that Yelling should actually stay. UM. If I were actually advising UM the president on who who denominate, I'd argue for her to stay because a lot of the folks that have been coming up the ranks don't even know what high inflation is. They have no idea about how to respond in a rising inflationary environment. So much of what's been going on right now is trying to come up with innovative ways of combating disinflation. So um to me, that would be the issue for
the Central Bank at least. I mean. Also one of the largest you know items that has happened in coming from Washington this year has also been the Transpacific Partnership, which has died. So Trump formally notified Mexico and Canada that he wants to renegotiate NAPTIS so he can, in his own words, of course, bring jobs back to America. And trade with China has really started to plunge after
Trump announced that teriff on all Chinese goods. China's retaliated with similar levies and US exports, and the Chinese are also very unhappy with being labeled as currency manipulators. I've canceled the strategic and economic dialogue that took place over the at last eight years, although Trump said he wasn't unplanning on doing it anyway. So, Scott Neil, is this debt negative for the US in the world? I mean,
I think so, you know, I think it's uh. I mean again, I mean, you know, now you're you're we're sort of talking about a different situation, and it would be it's not clear to me exactly how the feder would respond. I mean, you're you know, you're talking about collapse in global trade brought about by political events that would have repercussions to US growth, which the FED may have to actually use policy in front of. So you know, look, I mean there's a couple of things here. I think first,
globalization in the main is is a good thing. I mean, but I mean what I mean by that is, you know, the opening up of markets, trading, this sort of specialization that you see across economies. UM. You know, I think those rules, UM, you know that that still applies. At the same time, it should also be noted that there's no law that says trade has to grow at some sort of exponential rate relative to GDP. I mean, you're
already starting to see a slowing and global trade. Um. That's pretty much been the case since A lot of that has to do with the fact that, you know, there hasn't been a big policy UM announcement, right, I mean, so much of the I mean, if you know, in the nineties and even early you know, to mid two thousand's a very reliable rule of thumb that we would use is that for every one unit increase in global production, trade would row by two units. Today the relationship is
one for one. And um, you know, a lot of that has to do with the sort of the fact that we haven't had a big we sort of we had the one time opening up at the global economy and the games that have been sort of exhausted. You've had a lot of emerging markets going to different sort of growth strategies and that's put pressure on trade again. You've had you've had sort of in sourcing back to the home market given the depreciation in the dollar that
we've seen. So so while I think, you know, sort of a protectionist stances is a bad thing, I would just say that, you know, trade activity has not been as elastic as it used to be. Um. So again, this could be just a case of politicians kind of top ticking the trade of the trade story. Yeah, and the IMF has really been on the case, just sounding the alarm about possible to decline in global treat growth
this year. They they just issued their revised forecast for twenty seventeen and um, they're talking about how growth is going to be flat for a third year, still one of the lowest rates since the global financial crisis, So this trade tension really isn't helping that that much in terms of global growth. You know, the situation might be slightly different in America where we're getting that boost from
fiscal policy. But you know, Christine Leguard, she's just been really, really vocal in every appearance I've seen her lately talking about this and you know, venturing into the political in some ways. Neil, I want to jump in and ask you one question. We've been kind of talking about this a little bit high level about what we do with fiscal policy and monetary policy in regards to kind of more protectionist stance on trading. But how about for the
average American? I mean, are we going to start to see the price of goods rising? You know the iPhones that you know, we're so ubiquitous throughout all of America really and across all incomes. Really everyone has an iPhone? Right, Um? I mean, are we going to start to see that, you know, kind of the quality of life and consumerism that we've kind of gotten so used to. Are we going to see a clamp on that if we indeed go through with all of these protections theories? I mean,
I I would think so I would think. So, I mean, let's look at what's we're gonna have to go back to flip phones. Well, I don't think that that would. We would see like a you know, an arrest in terms of the technological advancement, but in terms of the price for goods, it would go up. I mean, think about it, right, I mean, I mean, the the issue, the bigger issue here is that the benefits of trade
are widespread, the costs are centralized. It's very easy for a politician to get in front of a bunch of steel workers and say I saved their jobs. What's unseen is the fact that, you know, the prices for your cars may be higher. You know, I'm not the first person to say something like that. I mean, you know, to me, it's pretty obvious. Look at look at the inflation data that we've seen. Even in the last few years, apparel prices, for example, had been falling year after year
after year after year. More recently that's basically stopped. I mean, apparel prices have stopped falling. And I think again it goes back to our earlier discussion about we're no longer seeing a widening out of the global trade um story so this whole idea about the world is flat, Well, the world is no longer flattening, I guess, is what you could say. And some of the policies that are being um advocated would actually go in the opposite direction.
I think it's definitely possible that that you get an inflationary response over time if economies become more inward, and I think that that brings costs to the very people that that think they're going to be helped by more protectionism, And a lot of the research that I've seen are shown that protectionism actually hurts those at the lower rent.
That's right. You've seen these prices rising, and it's not clear if the jobs are going to come back or if the wages are actually going to rise to support with that. But anyway, UM, well, we'll leave it there. It's been a fascinating six months so far. Surely the next three and a half years at least will be even more interesting. Neil, thanks so much for joining us today.
Thank you. Wow, that was really cool. Yeah. I can't believe how crazy Pokemon gets in the future, and I can't believe I'm going to be the editor of the Pokemon Beat. I know what did you think of how things turn out a year from now. You know what, I don't think it's I don't think the world is going to end, which is which is a net plus, right. It seems a little bit more levelheaded than maybe everyone's
screaming about what do you think? I don't know? I mean, you know, this is definitely a lot better than I thought things were turned out. After having a coup of all this craziness over the last few months and seeing how the election campaigns have turned out, you know, we can only hope that this is our one of our
best case scenarios right here. I hope so, I certainly hope so Benchmark We'll be back next week, and until then, you can find us on the Bloomberg terminal at Bloomberg dot com, as well as on iTunes, pocketcasts, and Stitcher. And while you're there, take a minute to rate and review the show. Some more listeners can find us and let us know what you thought of the show. You can talk to us and follow us on Twitter. You can find Scott at Scott Landman, and you can find
me at by Kate Smith. I'll see you next week. Bloomberg Benchmark is brought to you by stage Summit the world's largest gathering of small and medium businesses, featuring Sir Richard Branson July in Chicago. Register with promo code business at stage summit dot com for just nine dollars