Bloomberg Audio Studios, podcasts, radio news.
Inflation is plummeting, incomes are rising fast, the roaring economy is roaring like never before. We are doing really well.
I'm Stephanie Flanders, head of Government and Economics at Bloomberg, and this is trump Oenomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next. And we're recording this on Wednesday morning, Washington Time, not long after President Donald Trump delivered a nearly two hour State of the Union speech where he addressed one of his biggest audiences at what, in polling terms, may
be the lowest point yet of his second term. In his speech, he returned again and again to the same message on the economy. Everything is going great and there is a lot that's going right with the US economy, certainly more than most economists would have expected. On the day the President unleashed his so called reciprocal tariffs last April, growth and productivity in the US were both a lot
higher than any other G seven economy. And this despite those tariffs, which, as it happens, the Supreme Court overturned last Friday.
One of the primary reasons for our countries studying economic turnaround were tariffs. I used these tariffs took in hundreds of billions of dollars to make great deals for our country, both economically and on a national security basis.
He's going to work very hard, he said, to fill the whole left by those tariffs and continue to punish trading partners for what he considers to be very unfair practices. But in the meantime, we are plunged globally into more run certainty about exactly what the trade barriers are around the US economy, and a lot more talking about one
of the president's least popular policies. The combination of that State of the Union and the Supreme Court judgment felt like a good time to take stock what those two things together mean for the President, and specifically what they mean for his economic offer as his party goes into the midterms in the fall. Does he have an answer to the affordability question? Or will a strong economy and potentially new leadership at the Federal Reserve mean he doesn't
really need one. Josh Green is national correspondent at Bloomberg BusinessWeek, author of the New York Times bestseller Devil's Bargain, Steve Bannon, Donald Trump, and the National Uprising. Josh, Great to have you back. Great to be with you. And Anna Wong, a frequent participant on this show, chief US economist for Bloomberg Economics. Before that, she worked at the Federal Reserve, US Treasury and Donald Trump's White House Council of Economic
Advisors during his first term. Great to be here. I'm kind of interested from both of you for your sort of top line thoughts on the actual state of the economy. Does he have a solid story to sell voters about the economic achievements of the first year in office? And I guess the second part of that is where the voters are likely to listen to that message. Josh, you did sit through that State of the Union. There's a lot of focus on what he might say about affordability,
the state of the economy. You know, I hear your pain. How do you think he did.
The good news from a White House standpoint is they wanted him to focus on economic issues and the economy, and for the most part, he did so. I think the trouble with Trump's speech was that the address he gave sounded like something you'd hear from a president with
eighty percent approval ratings. But Trump is mired in the high thirties, and instead of of empathizing with the many voters who tell polsters that they're struggling, they're upset about the economy, about tariffs, about the cost of living, Trump basically gave a two hour celebration of his own presidency. He said it's a golden age and that the country
is bigger, richer, stronger than ever before. So if you're somebody who was listening hoping that things were going to turn around, that Trump might pivot in a new direction, might refocus his presidency around issues of affordability, I'm not sure that you came away feeling much better than you did going into the night.
One pushback on that. There has been the criticism of him, that he's too gloomy about the state of the US, and that he has this kind of apocalyptic tone to him sometimes, whereas he was sort of sounding like some past presidents, at least in parts of the speech, being kind of uplifted about America. We can do anything together. You don't think that that positivity sells well with voters it has traditionally with America.
The way I think about it is that presidents, especially in State of the Union, addresses what they generally try to do Republicans and Democrats is to balance optimism with empathy. Bill Clinton's famous line I Feel your Pain was an effort to say to Americans, I understand everybody isn't thrilled. Everything's not perfect, but I have your concerns in mind,
and I'm working to make things better for you. Trump, fundamentally, I think, rejects nuance and prefers to speak instead and sweeping absolutes, and the absolutes we heard last night, I wrote some of them down as he got going. Nobody can believe what they're watching. We're winning so much that we really don't know what to do about it. If you're a Trump die hard, if you're doing great, maybe your AI company is booming, I think this speech probably resonated.
But if you're somebody who isn't doing so well, who's anxious, who's struggling economically, again, I think it's a speech that would land in a way that would suggest maybe this president doesn't understand what I'm going through here. Doesn't sound like somebody who's about to solve my problems. And that was really the worry that a lot of Republicans and
a lot of Republicans strategist said to me. It's great to have him focused on the economy, but we need to make clear he needs to make clear that he's going to hammer away on issues of affordability, and that really didn't come out in the speech last night at all.
I think the idea that President Trump is not a great one for nuances is one of the more understated comments of his podcast. But Anna, is practically your job description to put the nuance back in from your perspective, that sort of two sided thing that I put at the beginning of the actual state of the economy. What's the actual story he has to sell and how do you think he's done in terms of selling it to voters.
I think he's in the same rabbit hole as the Biden administration in the last year, you know, in twenty twenty four, which is that they're trying very hard to message some developments in the numbers, because you know, in inflation numbers, we have seen some progress. President Trump rattled off a list of things that had seen slowing inflation.
I fact checked it. It's true. Eggs has plummeted forty eight percent in the last year, fruits, chicken, rents, and overall grocery bills have slowed in their inflation compared to the average during the Biden administration. But I think that's not the question that he needs to address in a State of Union speech. He wants to, you know, message
those numbers out to his voters. But voters based on how they feel and when they go to the grocery shop and see that beef prices is now twenty two percent higher, they just don't feel that inflation is coming down, even though the numbers is saying that they are. The second thing that's really different in this economy compared to
the Biden economy is real income. So real income growth during the four years of Biden was about two point nine percent every year, and in the first year of Trump we had seen it grows zero zero point two percent. And disposable income, real disposable income it grew zero point nine percent last year versus one point nine percent and on average in the four years Biden. So while in the Biden administration you have high inflation, but you also
have higher real income growth. In the current administration, you definitely could feel the slow down of the labor market and then increasing sense of job in security, perhaps due to a combination of AI and also just you know, Doge tariffs. All that is causing job growth to be slowing. So I think the vibes are just not great, and a speech that just focuses on the numbers rather than the experiences of people is not going to win many hearts.
You've captured it in the sense of there's the higher prices. Eggs had risen a lot, and they were probably inevitably going to go down, but on a lot of things they had risen a lot in the Biden years and then have not come down. Even though we've obviously seen inflation, the rate of increase of prices go down, and then we did a big thing on affordability in the last few days, and even since President Trump took office, you have seen a bigg increase in some key areas. I
think it's home insurance, utilities, electricity. You highlighted beef. So there are things that are moving in the right direction, and other things that have just continued to be expensive from a consumer's standpoint, without any action by the administration, Anna, do you see prospect for any of that looking better
in the next six months. I noticed recently that you'd written a piece which sort of suggested you had been quite bullish coming into the start of this year, a number of pieces coming into place, and then some of those assumptions now being challenged.
I would say that the more they do, the worst it will get, because the kind of things they are putting forth are populist policy that tends to have unintended consequences and backfire. The whole thing about credit card cap that likely is going to lead to increased credit and availability for the lower to mid income, so hurting the
people precisely that they're trying to help. And then there's also the banning institutional investors from investing in homes that academic research on the impact of that was also clear
it's going to reduce the supply of housing. And also the appointment of a new FED chair who, on the face of it, just does not seem any more doubvish than j. Powell, the current one, And if anything, the new FED chair nominee injected more monetary policy uncertainty and perhaps did his part in raising some kind of equity premium after that announcement, which I think was a contributing
factor to the selloff in the markets. So and note that the stock was the one strong pillar of the Trump economy, and that was propping up the economy, and that one looks kind of shaky in twenty twenty six already.
Although we should say that we're not in the business of offering stock market advice on this show. God help us, but Josh, we should at least touch on the other big event of the last week, the tariff judgment, because I guess the most striking thing for many in response to that not entirely surprising Supreme Court ruling that he hadn't the right to impose about at least half of
the tariffs that he'd imposed last year. I guess the surprise was how determined he was to immediately bring the tariffs back, despite the fact that they're not very popular. So I just wonder our administration officials kind of frustrated that he's doubling down on this unpopular policy. Resigned. Where do you think he stands on that?
Certainly the resign and I think this falls under Anna's line that the more he does the worse it gets. Instituting a kind of slapdash ten percent now fifteen percent tariff regime to cobble back what the Supreme Court struck down is not something that is going to help cost of living issues, affordability. It's clear in every poll I've seen that he is deeply underwater on the issue of tariffs. Most Democrats, most independent voters, and a lot of Republican
voters opposed to tariffs. They don't like, they don't like going into the election.
Actually, it was the least popular even among his voters, it was the least popular.
That's right, And there's almost a certainty this is going to cause, you know, continued disruption in the six months between now and the election. So this isn't something that I think is going to encourage a lot of Republican lawmakers to think things are going to get better now he's found the right message. I think instead it's more
of the same. And one of the things that we know about Trump, that everybody around him knows about Trump is that Trump really truly does believe in tariffs, thinks they're the key to his economic policy, and views the issue in black and white. Winter loss terms, Trump can never acknowledge when he's lost, whether it's an election or
a Supreme Court decision. So what you heard last night was that he was going to turn right back around and institute a new set of tariffs in order to his mind, regain the upper hand on an issue that he cares about.
But the good news is that almost all countries and corporations want to keep the deal that they already made, right Scott, knowing that the legal power that I as President have to make a new deal could be far worse for them, and therefore they will continue to work along the same successful path that we had negotiated before the Supreme Court's unfortunate involvement.
And Anna, when you think about the economic impact, I mean, there's a lot of different things going on here, because you've got a potential hole in the balance sheet that was about one hundred and forty billion dollars worth of tariff's cut down, some of it replaced potentially by this new blanket policy. And there's this question of maybe having to provide the refunds when the government is already borrowing quite a lot, though the government administration has resisted that
idea so far. On the other hand, if you ended up just with the ten percent, it would be a simpler regime than we had before. So that could be beneficial for businesses. They might even find it easier to pay. On the other hand, we know it's not going to stay simple because there are lots of negotiations underway. So sort of net, how do you think about the impact of that ruling on the economy?
So I mentioned that if the administration doesn't do anything, the economy was going to boom this year. Why one of the key factor was that trade policy uncertainty has been coming down sharply and that maximum drag from last year has already happened.
And you know, and to be clear, it was the uncertainty that you thought was most costly. Yes, you haven't seen big spike in inflation as a result or anything else. It's just the sheer uncertainty for businesses.
And then exactly, and when we were going through earning transcripts of you know, the during the earning season for the fourth quarter and third quarter, we noticed that a lot of firms already have put in place plans to respond to this these tariffs, mostly by cost efficiency savings such as not hiring or diversifying supply chain and also automation. So part of the AI story of how firms across various sectors are adopting automation is a response to these
increasing costs from tariffs and from labor. So suddenly, you know, it puts in doubt whether these tariffs will remain in place because even though the administration is going to use one twenty two, it's just a stop gap measure it and the Congress has also expressed that they are not likely to have enough votes to put these tariff permanently
in place. So then what do firms do? I mean, they already a lot of them have already made decisions, investment decisions and also on diversifying the supply chains and automation in response to the past tariffs. So I think that just injected some kind of more decision uncertainty from firms perspective. It's unclear whether it's net positive or negative.
You're literally scratching your head as you say that embodiment of a head scratcher.
Yes, because when you think about that one hundred and forty billion or to one hundred and seventy billion potential refund, So is this adding to the expected cash holding of firms, meaning that well, sadley, they're gonna plow all those expected cash flow into investment. Is this gonna even fuel this investment boom and generating more inflation? That would be the opposite of what you think that by lowering tariffs you would actually reduce inflation. No, it's actually the other whereound.
On the other hand, you know, if he has threatened that he will raise the global tariff by fifteen percent, and according to our trade team's calculation, that will bring the effective US teriff freight to twelve point one pretty close, not far off, yeah, yeah, not far off from the previous one. But what that didn't reveal is the compositional shift of the tariffs. You see, so the flat tariff will benefit China and the ones who received a very
higher rate under the reciprocal terraf regime. So firms have made decisions diversifying supply chains in response to the reciprocal the composition of the reciprocal tariffs, So when you now have a flat tariff, that also changes your supply to calculations.
And I will struck by and he's obviously you know him quite well. But this whole debate about refunds about the burden of town tariffs is not necessarily one that the administration wants to get into. And I noticed that the National Economic Council Director Kevin Hassett has condemned a New York Federal Reserve study that showed that US companies
were bearing most of the tariff burden. I think you had said, we've discussed that in the past, you would more or less say that, but he said it's an embarrassment and the people associated with it should be disciplined. What did you think when you saw that?
Well, when I heard that, I thought, has got a bit emotional. You know, it's a bit odd because that study was so well circulated in the mainstream, and also a lot of people have similar finding, and the techniques behind it is not that controversial, and you know, Kevin has it just credit. Did later on apologized, and he
did say that he got a bit emotional. And I think the reason why it was an emotional issue he had that instinct was because this particular set of authors from New York Fed also came out charging out the gate in twenty eighteen with a very similar study and dominated the kind of like the mainstream, the oxygen of the mainstream discussion of the burden of tariff back then, so it was like a kind of like an eight to nine year thing.
And the issue, I.
Think that the issue, even though I said that that the finding of that piece, to me is not controversial because when we looked at impro prices, we also have come to the same conclusion. But I think the issue, the bones the administration have to pick with that piece is that it just focused on one thing, the price, when the burden of terrorists could be born in a variety of ways. For example, from China's perspective, Chinese exporters
are seeing a hit in sales in quantities. Did the study compute whether you know, in fact China is selling less on that dimension? Are they also considering how US exporters have read you see for a higher price, so you has actually experienced a positive terms of trade shock last year where the export prices was rising faster than import prices. So there are a lot of things that that paper didn't consider, which to the administration seemed very
one sided. So that's why they got very emotional about it.
Josh. The politics of this is interesting, right because you've had I think the Democrats are said to be quite excited about the possibility of running with this sort of refund Americans should get their money back kind of line. It certainly is unhelpful to have lots of discussion about who's paid the price of tariffs and whether or not they should get their money back. What's the level of nervousness around that in the administration? Do you think?
I think there's a lot of nervousness. Trump's claim is that tariffs aren't taxes, that it's this wonderful windfall for the American people, and Democrats are essentially calling this bluff and saying, all right, if it's a windfall, give all
this money back, where's the money. Note thing that stood out about the address to me last night was that in the past Trump has promised a number of goodies to American voters, whether it was a ten percent cap on credit card interest or two thousand dollars refund checks. I didn't hear any of that last night. I don't
believe you mentioned credit card interest at all. And so this would be another case of voters having their expectations raised, in this case by Democratic politicians that they've got some money coming in and then if that money doesn't show up, is it doesn't seem like it's gonna I wouldn't bet on it anyway.
With Teriffrey film basically said you can find us for it.
Yeah, with the two thousand dollars check, that's going to add to voter frustration and disappointment. And I think that's the real political risk that Republicans in the White House are worrying about. They have a hard enough job as it is convincing Americans that the economy is actually in a pretty good shape. They even have some facts on their side. And if you look at polls of public sentiment, of consumer sentiment of how voters feel about Trump tariffs
in the economy, they're terrible. The numbers are in the toilet, disappointing voters on maybe getting a new stimmy check is only going to make things tougher for Republicans in November.
But there is a bit of money coming to voters as a result of a big, beautiful bill. And I guess one question still with Josh, I wonder do they feel they need new proposals, new legislation to talk about or is there a possibility they could just talk more convincingly about the stuff that's actually coming down the track, including some money in people's pockets from the tax bill last year.
Yeah, I think, being realistic, most Republicans would be thrilled if Trump simply focused on stuff that he's already delivered, described it accurately, and hammered away at that message over the next six months. I mean. The trouble is that Trump is serially prone to hyperbole an exaggeration, and we had all sorts of examples of this. Last night he boasted about dollar ninety nine gas prices.
I noticed that Lackney once again, CNN.
Did a study they called gas Buddy, my favorite gas app, and found that of the nation's one hundred and fifty thousand gas stations, eight were offering gas at one nine nine yesterday.
And that's very presumably.
I think a bigger issue, though, is, for instance, Trump claimed last night that he had eliminated tax on Social Security for seniors as part of his one big, Beautiful bill. That simply isn't true. What he did was an act a temporary six thousand dollars deduction for people over age sixty five. So when you're constantly raising people's expectations and getting excited about policies that don't exist and that they
can't take advantage of. Again, I think it just increases this frustration that Trump is talking a good game and yet people aren't seeing it in their own lives, in their own pocketbooks. And that's always a danger for Republicans heading into an election year.
And Anna, you said at the start that some of the things that the President has talked about limits credit card interest, some of the sort of showier proposals, you didn't think they would be effective. But what about this idea that there is just things coming down the track, which if he does a good enough job drawing attention to them and describing them, that will get people to a better place. Improve this in the vibes as you discussed.
I mean, whether it's the delayed impact of the big beautiful bill or potentially a pre election tax cup from the new head of the Federal Reserve.
Yeah, I think the biggest piece of positive development that the administration could count on is the you know, the tax refund that many people will get in during this tax season. I think Scott Beasant, the Treasury Secretary, has been a very effective messager for that. I believe he mentioned a figure of around one thousand dollars on average
of tax refund that people are going to see. The administration previously had floated this idea of rebating some of those tariff wind falls to consumers, and I think now they're recasting that to as a tax refund. So I think after April we can see whether the best economic news they could have, which is the tax refund going into people's pocket, will help them improve the numbers into the midterms.
And just the state of the economy. I've seen some discussion around despite the fact that, as you said, he's not a sort of straightforward dove, he has made an argument that AI and other things allow interest rates to be lower, reduce the non inflationary or raise the non inflationary potential growth rate for the US. Do you think that's a sort of very high profile thing that could happen in the lead up to the election.
Well, I think that they're in thinking about whether a warsh is a Dove or hawk. That discussion has been way too simplified. Just because he has promised to cut short term interest rate, doesn't that his effect his tenure will lower the long term interest rate, which is really what runs the US economy.
Anyone who wants to hear more analysis of Kevin Walsh's views of the balance sheet, what kind of fed chair he might be, you should go back a couple of weeks to an excellent discussion I have with Krishna Guha a couple of weeks ago, just a wild card for both of you. Before we finished, there were some who said even just sounding like he was almost making fun of the affordability word was a dangerous thing for the president to do. Last night.
Now the same people in this chamber who voted for those disasters suddenly use the word affordability a word they just used it. Somebody gave it to him.
Again, goes to this point that Josh made of not hearing voter's pain. But there are also some who say, in six months time, we're not going to be talking about this, We're just going to be talking about AI because of the pace of change that we're seeing and the program in these tools that everyone is talking about, particularly this week. But in the last few weeks, there's people vibe coding working out that large chunks of the business models of American companies might be at least up
in the air as a result of AI. Josh the president. The only real comment he made about AI was reassuring people it wasn't going to increase their electricity bills, which may or may not turn out to be the case. But do you think in the end this is still going to be this will be an affordability midterms or will it be much more about AI once we get there.
Yeah, unless the advance of AI somehow produces lower consumer costs. I don't see how the election could be about anything but affordability in the economy. That's usually what elections are about. It is far, in a way, the most important issue in the minds of voters in every poll that I have seen over the last six months. It would take something striking in radical, in positive to a degree that
Trump himself might struggle to celebrate. I think to switch the American electorate off of the affordability track and on to something else that would make things better for Trump and Republicans in November. But who knows. We've got nine months between now an election day.
Certainly all things it's going to be better, right.
We don't know if it's going to better. I mean, Trump also hited at war with Iran last night, So maybe it'll be worse. But the truth is we've got nine months to go, we don't quite know. But my money would still be on affordability being the primary issue in the November elections.
Anna, you're not a political analyst, because we've already got quite a lot of those, but you did begin by highlighting the kind of disconnect between the state of the economy and the state of the public mood. Do you think that AI could end up changing that for better or worse or are we going to be focused on those pocketbook issues between now and they're worse.
AI is going to hit the labor market faster before it hits the inflation improved affordability. So first AI is going to make everyone feel more insecure about the job, including myself. And then as people feel more insecure about their job and we see nominal wage growth start declining, then you're going to see the disinflationary impact in a short term, but certainly before the midterm. It will be the job market that would be the more determinant issue in voter's mind.
And it is we're all right to wonder about our jobs, and Anna, yes, I'm constantly testing you relative to Gemini or chet GPT or our own internal tool. I told you when we were sitting in a conference the other day and you were speaking, there was someone next to me who was feeding the same questions that the audience was giving to you into chet GPT and comparing the answers, which I found unnerving, to say the least. Josh Anna, thank you very much, Thank you happy to be here.
Thanks for listening to Economics from Bloomberg. It was hosted by me Stephanie Flanders, and I was joined this week by Josh Green, national correspondent at Bloomberg BusinessWeek, and Anna Wong, the chief US economist for Bloomberg Economics. Trumponomics was produced by Samasadi and Moses and Am with help from Amy Keene and special thanks in Washington to Rachel Lewis Kriskey.
Sound design was by Blake Maples and Kelly Gary. And do help others find us by rating and reviewing us highly wherever you listen