Bloomberg Audio Studios, podcasts, radio news. I'm Stephanie Flander's head of Government and Economics at Bloomberg. Welcome to Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy. What on earth is going to happen next? President Trump, it's often said, approaches the presidency like a reality show. The deadlines, the late night social media posts, the multiple plot lines. It's
all about keeping us all tuned in. And that might be unfair, but there's no doubt he knows how to keep his audience guessing, and he really knows how to raise the stakes. We're recording this in London on Tuesday, June twenty fourth, after twelve days of conflict between Israel and Iran, and many days of guessing quite how far the US would allow Israel to lead it into war. But peace is now broken out, or at least a
fragile ceasefire. Everything may have changed again by the time you hear this, but I want to shift focus anyway to consider a conflict which could have, probably would have a much larger impact on the global economy, the trade war unleashed by President Trump with his Liberation Day tariffs on April second. Now, the ninety day ceasefire in that war runs out in just two weeks, with barely a
trade deal with US trading partners in sight. But having blinked once with that ninety day pause, the assumption of many, especially in the markets, had been that Donald Trump would back down again if his so called reciprocal tariffs were again riling the markets. But the world found out this weekend that President Trump doesn't always chicken out. So should we be considering alternative plot lines for the great tariff
wars of twenty twenty five. I don't know the answer to that, but I know two colleagues who can speculate more sensibly than most in Washington, d C. Sean donnand senior writer with Bloomberg on the US and global economy and a frequent participant on trumpnomics. Welcome back, Sean. Wonderful to be here and usually in New York City, but this week with me in London is John Authors. John is a senior editor for Markets and a Bloomberg opinion columnist.
He was also the Ft for many years before that, and his daily newsletter Points of Return, is now one of the most read on Bloomberg. Very nice to have.
You with us, John, Thank you for that very kind introduction. It's great to be here.
It's all downhill from here. So Sean reminds us what the US tariff rate is now with the rest of the world, because it's obviously much higher than it was when Donald Trump took office.
Right, So, we entered the year with the average applied tar f rate on US imports around two and a half percent, and it's now sitting around fifteen percent, which is its highest level since the nineteen thirties. And I think that's the key point right there. We're at the highest rate in almost a century. That is in the
middle of a pause. Trump has threatened much higher tariffs that would take that average applied rate up closer to twenty five percent, which would take us to the highest rate since somewhere in the late nineteenth century.
I'm glad we started with that because it's something to bear in mind that there's one of the clever things that President Trump does is sort of change our perceptions of how bigger number is or how small a number is. So just falling on from that, as you say, there's a ceasefire with the sort of big reciprocal tariffs, those ones that he announced in the Rose Garden with a big menu board. But that would mean a much larger
increase in average tariphraates. As you said, it's about another twenty percent increase in the US tariffhrase and quite a hit even just for the US economy.
Absolutely, we should go back and remember that when those initial Liberation Day tariffs were announced, most economists very quickly started predicting a recession in the United States, and that we saw the chances of a recession from big banks and big Wall Street analytical shops go up above fifty percent, and it was a pretty immediate threat of a pretty
dramatic slowdown in the US economy. What we've ended up with is a much more benign scenario, but one still where we're going to see slower growth and higher prices. We're just not going to tumble into that dramatic recession.
So John, I mean Sean said, when those tarifts were announced, we saw lots of people expecting a recession, and there was a lot of action in the bomb markets, which probably did force Donald Trump's hand in announcing that ninety day cease five. But it was only a ninety day ceasfive. So how come everything's been so quiet since then and even now in the lead up to this deadline, when the deals that were supposed to be signed are just nowhere to be seen. Apart from that rather feeble UK deal.
Which wasn't really a dealer. All of us speaking today are alumni of the Financial Times. To mention the guy who is actually still at the Financial Times, I will colleague Robert Armstrong came up with the glorious acronym TUCO for Trump Always chickens Out.
I was thinking it's great for him to get credit for that, But I wonder whether he, given how much Donald Trump apparently hates it, I wonder whether he's sort of wishing it would been a bit more anonymous.
I gathered yes. But anyway, the point is that when he used that phrase, it touched a nerve beyond the tariff truces. There had been the earlier deciding he was going to lift the fentanyl tariffs on Mexico and Canada in return for really no concessions at all. There was the brief threat to see if he could fire Jerom
Powell from the FED. That's also got removed quite quickly, and so there really was a sense in the market that this was something you could rely on, that it was like a put option that Trump always chickens out. You can safely ignore him. If other people are selling because they think there is more political risk because Trump might actually go through with what he's doing, then it makes sense to buy. And that's basically the logic that
has moved. And that means that officially we are moving back to whatever number Swan gave us over twenty five percent average tariffs two weeks from now, which is economic armageddon scenario. I know nobody who thinks that wouldn't cause a recession if you actually had tariffs that eye for any length of time. And yet people are so calm.
There is a strong assumption that Trump does always chicken out. Now, the interesting thing is, after we've the effect of the bunker buster in Iran, which does it has to be said, show that Trump doesn't absolutely always chicken out, might actually make it easier for the administration to chicken out on this one, or to take a step.
Back to contorted Trump in logical Yes.
Now that we have shown that at least once you can't rely on Trump not to go through with a threat, and particularly when so far it looks as though the threat is working out for him. That makes it politically much easier for him to step back on the tariffs.
At sure, you're sitting in DC, you spend more time trying to get into the brain of Donald Trump. That doesn't sound too uncomfortable. Does that ring true to you that that's how the White House might be thinking about it.
Look, I think there's definitely some recalculating that's happening around the world in all those capitals that are dealing with the prospect of higher tariffs. You know, Donald Trump followed through on a pretty dramatic threat, and I think around tariffs he may do it again. But we may see a version of what we've seen in the wake of Iran is a pretty dramatic escalation and again an attempt to raise the leverage on other countries, to increase the
heat to force people to the table. We've seen him do that actually during the ceasefire by threatening fifty percent tariffs on the EU because they weren't negotiating fast enough, and that prompted some pretty rapid action on the EU side, where they quickly jumped on some planes came to Washington and toxic accelerated at least for a few days. So we may see something like that again this time around.
But I think in all of this we have to remember where Trump's trying to get to, right, and I think actually the first time he was asked about this taco acronym, he was had a kind of indignant response, but he also laid out very clearly how he negotiates, and he says, I throw out an extreme number that causes people to come to the table, and then we finally settle at a lower number. And that's what he's
been doing here. The fact that we are now here in the end of June thinking about a ten percent tariff on the world, which a year ago would have been an incredibly dramatic policy gesture as some kind of benign option, means that Trump and the administration have actually succeeded in a way and doing what they do, which is shifting the framing, shifting the assumptions out there in
the world about what's normal. Plus we should mention these pretty dramatic sectoral tariffs, So twenty five percent tariffs on cars coming into the United States, some looming investigations on semiconductors and copper and lumber, all of which are going to include not just the raw materials but products that are made of those things. You know, that being accepted as normal is to me still the mind blowing thing here,
and that's perhaps Donald Trump's great achievement. I think, you know, you can say Trump always chickens out, but if financial markets read it as him chickening out, Trump actually wins because he gets what he wants, which is tariffs and the revenues that come.
With them, I guess it's now it's going to be It's going to be Trump. Trump always cashes out, He's managed to come away, you know, he's cashed out.
Or Trump always gets what he wants, or I mean, you know, there's all all sorts of acronyms and memes we can come up with.
I think John, you and I had both seen this. To the slot, the chief economist of Apollo and sends around these influential notes and charts. This is something he'd framed as all sort of part of a cunning plan of Donald Trump's that we're going to end up in a place that we recognize as being modest, which isn't really modest at all.
Yes, and there is a pretty real chance that will happen, because it gives him some grace. The specific suggestion that Towston comes up with is that the net, rather than that on the three month deadline, he will announce a twelve month further period and people can continue to get ready, but they can feel much more of a sense of certainty and not notice that the tariffs the US are charging of their highest since the nineteen thirties.
So this would be July night saying or sometime before July nine's saying, actually, we're going so well with our trade negotiations, we're going to let them run another year.
Yes, And I think the point there is that if inflation hasn't picked up due to tariffs after another twelve months, then there will be some degree of confidence that a lot of us, including myself, certainly have been wrong in thinking that tariffs would be directly inflationary. And similarly, if the most recent pmi's manufacturing surveys Japan, Eurozone, the UK, the US, they're all higher than they were three months ago. In the era when we've known about tariffs and when
we've had the ten percent tariff. There are any number of reasons which you probably don't want to go into the weeds, why you might well expect the tariff effect to take a while to show itself. Give it another twelve months. If inflation does pick up, which most people on Wall Street think that it pretty much inevitably will to some extent, that becomes a big issue for Donald Trump, because that's one thing he must not allow to happen,
is inflation to start increasing again. And it becomes almost like a put option or a balancing mechanism that if inflation takes off, if people begin to think it's your stupid ten percent tariff, which is meaning our prices are going up, that will become a major inhibiting factor. That will probably be the end of the tariff agender.
It is worth getting into a little bit because one of the other reasons for complacency, it was not just taco being a fun acronym and people starting to believe in it, but there was also this sense that the economic pain that we've been sort of quote unquote promised from these tariff rates a significant increase, as Sean reminds us, in historical terms, the fact that that was not slowing the economy in a visible way and was not adding
to inflation in an invisible way. I think was another factor that has led people to be more relaxed about these high tariffs.
Now.
I was looking at the analysis that are US economists have done whether we should expect any kind of meaningful increase inflation later in the year. I mean, so far, they're not. They're not seeing it. They're seeing importers US companies taking the full brunt of the tariffs, so they're not getting any discounts from the exporting countries, which is obviously you know, Donald Trump had said it's the exporters that are paying these tariffs. So far, that's not been
the case, at least at the border. They are, by and large, we're seeing it's the squeeze in profit margins rather than an increase in prices.
I think one of the things with trade and tariffs is we always expect this kind of dramatic reaction in the economy, and we expect an immediate reaction in the economy.
And we know that going into these tariffs is a huge build up of inventories, for example here in the United States, and the products that are on the shelves today, by and large are things oftentimes that were imported before the tariffs went into place in April, So you were never going to see a dramatic, immediate impact on inflation from these tariffs, although we should point out that steel prices in the United States have risen sharply, aluminum prices
have risen sharply, and so some of the inputs that are tariff most dramatically have reacted fairly quickly. But when it kind of flows through to the consumer end, there's lots of stops on the way where you can take a little bit off in terms of costs, you can
rely on inventories and so on. I was talking to someone yesterday who works for an agency that does kind of credit ratings for trade finance, and these are two companies involved in trade transactions, and they do the credit ratings on the companies, and they say, one of the things that they're seeing is a lot of small businesses really getting hit hard on the cash flow side because suddenly they're paying these tariffs that are that they weren't
expecting to pay three four, six months ago. And the point that this person was making to me is that they can weather that for now, they can stretch payment terms for a little bit, but over the next sixty days, the whole game is going to change because the cash flow situation for a lot of these small business is is going to get a lot more dramatic. The payment terms being extend is going to have an impact on credit ratings, which will have an impact on access to
capital and so on. And so by the end of the summer, this person was predicting, you're really going to see an impact that's much clearer and so on, and that rings true. A lot of companies will tell you, yes, we've sucked it up for now, but I've just had two months, three months of losses and at some point I need to adjust and I need to increase prices and so on. So I think there's a delayed response
in the economy. And the final thing is this is, you know, the impact on an economy is we're talking about often in the tenths of percentage points in drag on growth, maybe a full percentage point in terms of a drag on growth. That is not something that is kind of felt immediately. It's an accumulation of things moving slower.
It's interesting though, so if you look at most of our estimates, and that you know, the Bloomberg Economics estimates sort of across the board. Actually, the biggest impact when we look at the impact on Europe of Donald Trump's trade policies on China, uncertainty is that, you know, when they sort of break down the components, by far, the biggest chunk of the hit is uncertainty. And as I said before, that's not going to go away with endless ceasefires,
short term fixes truces. So that seems to me a pretty pretty significant thing for the future because people could just decide, and we're seeing this with foreign investment as well, to just decide, I don't want any piece of it because I just need certainty, even if I'm paying higher tariffs, I just don't want to be dealing with the uncertainty of being inside the US or trading with the US.
Yes, now, picking up on that point where I suspect this issue is going to move is towards flows of capital rather than trade blows, because you can close off capital flows very swiftly. Indeed, and ultimately, we have a proposal in the One Big Beautiful Bill Act that would allow direct reprisal taxation on foreign capital in the US, which would have a very interesting effect on its current role in the global financial system. But it's also the case that a universal tariff is at this moment a
tariff on or attacks on US company's profits. And one of the big trends of the last ten to fifteen years has been the ineluctable flow of capital into the US chasing the higher profit margins, the higher profits generated by big US companies. So what we do have with the ten percent baseline? Does we all know? It's changes at the margin that matter.
There's people are reason at the margin to get out of the EUA.
Yes, the odds that you will steadily see capital which has flowed in dramatic way to the US and twas not ever. Thus, it's remarkable how big the US stock market is compared to the rest of the world. It's never been bigger, and so on. That could lead to pretty serious problems years down the road, which may not be possible to directly Again, econometricians will have all kinds
of arguments that's exactly why these problems are happening. But it will be harder to borrow in the US because rates will be going up and it will be harder for companies to access abundant capital because their profits and they no longer trade at the same attractive valuations. Meanwhile, any return of capital to Europe and Japan will presumably have that much more of a positive effect.
There.
There's something we keep coming back to about, Yeah, the reasons for people to stay as invested in the US market as they are. You mentioned it. If we're thinking of things that have changed since Liberation Day, I mean, one thing that has become very apparent is the very high cost of the big, beautiful bill. Yes, and how quite how beautiful it is, and how big it is in so many ways that might not have been anticipated.
And in fact, we have a story running about how the three point four trillion dollar cost of making the twenty si seventeen tax cuts, the Trump one tax cuts permanent, that the Senate Republicans are hoping to just wish that away and just say, well, that's no change in policy at all, so we don't have to count that three
point four trilliant. One thing that any investor, any policy maker around the world would have to conclude looking at this is taratt are not going to go any lower than they are now because he really needs the money, Chawn, he needs that offsetting revenue. I think is it four hundred potentially four hundred billion a year.
I mean, we'll see it's been about forty billion dollars that has been collected in the first two months of these terroffts. I think it was twenty two billion in May, just to give you an idea. Before the tariffs went into place, they were collecting six seven billion dollars in duties a month.
So the incidents are that they could go much depending on what you think about July Nut, you could go much higher and make it absolutely the make a dent in there.
Yeah. So look, I mean we could be looking at uh, you know, thirty billion dollars a month, almost four hundred billion dollars a year in terms of tariff revenues before long. That would absolutely make a dent in the costs of the big beautiful bill. And this gets into also how
you score this thing. Economists will tell you though, that four hundred billion dollars is tax revenues, and some people have been out there saying this is the biggest tax increase put in place in the US since the nineteen eighties. And that's how we should be thinking about this, and that in itself may be a drag on growth in the economy, which might mean fewer tax revenues on the
income and business tax side the longer run. So I mean yes, in theory today it offsets things, but the economic effects of that tax increase are likely to pull things down a little bit. And that's where if you the Congressional budget off is. All sorts of fiscal geeks in America have been looking at this, and one of the things that are really strong with is how to account for this tariff revenue and the impact of tariff's on the economy. And it's the same thing over at the FED.
Because the US hasn't seen anything like this. I mean that the only analog.
To since the nineteenth century.
Yeah, well, well is the nineteen thirty smooth Holly tariff bill right.
Well, and before that, I would say, when we depended more on tariff revenue than you know before.
What happened in the nineteenth century, Yeah, but when it was a much smaller economy, government was much smaller, uh and and so on. So, but that's a long time ago. There aren't many living economists today who remember going through the after effects of the nineteen thirty Smooth Holly tarifil. There's plenty you have studied it.
Channel I in a sort of tax economist. I mean, there are many things that are bad about tariffs, but if you do end up with a fairly uniform ten percent tariff raid You looked at the US in the last twenty thirty years, like many countries, it has a structural neat desire to have more spending on government services than it wants to pay for in terms of taxes, and the specific thing in the US has often been a very great unwillingness to have high sales taxes compared
to Europe where you have a VAT and other things. You could argue that this is a way of resolving that that you've got a step change of you're going to have a significant increase in your tariff revenue, which is probably going to be felt by consumers, but they don't see it in the same way for better or
worse as VAT. If it's broadly uniform with all of the trading partners, and you have another belief alongside that that people have been sort of trading off the US and sort of you know, free loading off the US superpower for this for a long time. You know, you stop crazy. You're not necessarily comparing in the nineteen thirties. You're comparing it with a sort of structural shift in the global economy.
Absolutely, And you know we've forgotten about this now, But Kamala Harris's whole political pitch against Donald Trump's tariffs was to dub them a sales tax. This was a ten percent sales tax that Donald Trump was pursuing on American consumers.
So Grits get interested when they hear the words sales tax. They think, oh, that sounds great.
That's what I mean. There's a kind of economically sure, you can rationalize anything, I think, including tariffs. But I do think it's going to be interesting to see as we see these things hit the economy, as we see prices go up, and they will go up. I think the political reaction is also going to be interesting. And you know, we could go from a moment where in
twenty sixteen we're all talking about the backlash against globalization. Well, you know, maybe in twenty twenty six in the midterm elections, one of the narratives that emerges is a backlash against tariffs and a back lass against papers. Now that's a long way away. Smarter people than me will disagree with me, but I think that is a possibility.
I'm sure Adam Smith would be proud if we were all out on the streets campaigning against tarist. John Shawn, thank you very much, Thank you, thank you, thanks for listening to Trumpnomics from Bloomberg. It was hosted by me Stephanie Flanders. I was joined by Bloomberg's John Authors and Sean Donnan. Trumpnomics is produced by Summer, Sadi and Moses and with help from Amy Keen and special thanks this week to Rachel Lewis Chrisky. Sound design is by Blake
Maples and Brendan Francis. Newnham is our executive producer. Stage Bowman is Head of Podcasts and to help others find the show, please rate it and review it highly five stars wherever you listen to podcasts.