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A nation deals with the aftermath of an assassination attempt. Republicans gather in Milwaukee to nominate Donald Trump for what increasingly looks like may be his second term, and investors react to both. This is Bloomberg Wall Street Week. I'm David Weston. This week, Laura Tyson of Berkeley on what the coming Ai Revolution could mean for the US economy.
All of the numbers say significant productivity growth.
Dan Tarullo of Harvard on what's ahead in banking regula.
There will be a kind of hold on regulation and it would await the Trump appointees.
And Steve Rattner of Will and Advisors on investing in the Trump trade.
Is probability of success is now too close to seventy percent, and that has made the market wake up and say, okay, so what are we looking at.
We start with the banking industry and what effect Washington has on its future, with the Chair and CEO of Bank of America, Brian Winhan. Great to have you back, Brian. Let me ask you. You talk to a lot of clients across the country of all sorts, what do they tell you about Washington and how Washington may be affecting their business for good or not so much for good.
Look, at the end of the day, banks reflect the economy. So it's our customers on the commercial side doing something, our customers and consumer side doing something, our institutional.
Customers doing so.
Our job is to transmit economy back and forth for our clients, and we are product of the success in them. When you talk to those clients today, they're saying, hey, they want they want to win. They are big clients that want to win on a global stage of little clients. I want to win on a local stage, and they want to win. And what they feel is as the burdens of the regulation and rules impinge upon that they get feedback and the feedback I get from this, they
feel the balances need to be rebalanced. That's what they tell us. Meanwhile, they're still growing their business, they're still investing. So you got to a little careful what they say they want versus what they're doing. But the roality is is they're saying, hey, get we got to swing the penallum back a little bit because in the end of the day, they are what America thrives on. We have one hundred and a million people work in this country.
The dominant part work for private enterprises. Our success, the ability to fund every governmental program, the defense, everything comes from the tax is paid by corporations and individuals who work for companies, honestly, so that's where the money comes from. So if we're going to have a successful country, and based on where we are in America in the world right now, we can dominate if we let the capital system run right, run with right guardrails run.
How much of Brian is actual the impingement of regulations supposed to talk about it because I'll pick on some one right now, and I trust something I know about.
I used to practice that trust law.
There's a lot of talk about a trust enforcement from the current administration, when if we actually look what happened, they didn't get a lot of that through the courts.
How much it was just the perception.
We're talking about regulation as opposed to actual regulation.
Well, in that case, if you think about what happened with deals over the last couple of years, any deal of size of US announced was purported to be challenged
in a lot of more. And so therefore, if you're sitting in a boardroom saying I'm going to expose my company as seller to a transaction a public company, and I'm going to stabilize it for the period of time it takes to get it done, and I feel that it's going to have to go through multiple reviews and and ultimately a challenge in court, you know what, We'll wait.
And that just slowed down deals because of all the businesses we have in the company that the thing is still there's great pipeline, but not coming through the system is still the deal, the m and a deal flow. We have a strong pipeline, it's ready to go, but the feeling has to be and there's no in our industry, we can't make an acquisition by law, we can't. But the ability to get bank deals done is something you
here talked about a lot. Our colleagues want to emerge and get better so they can compete with us and in our the biggest banks and competitors compete on the worldwide stage and they're struggling because they can't get the deals done.
It takes so long. So that's the decision. It's not necessarily the deal won't get done.
Is if it takes a year a year and a half to get it through, that is just a very destabilizing for the cell side of a company, and on a buy side, they just want to grow their business and be heroken take the competition, and not everybody has a staying power to wait two years to say I'm going to put on hold everything I do in a unit because I'm going to buy a unit to make it grow faster and make it more successful and win and make my company the best of the world.
And if it takes me, you know, two years to do that, that means I got to slow down the organic.
Effort because I think it'll be waste of money if this comes in. If that took six months, you know, then that changes the calculus. It's more about deal flow and capabilities as opposed to what you might see actually get stopped or not go or inquiries.
It's just a chill when it comes to regulation. This report had quite a term. In this last term.
There are four different decisions that basically said we're not going to defer to the regulatory agencies nearly as much, so supposedly taking on the so called administrative state. At the same time, that probably means a lot more litigation. It's good for lawyers if you're a lawyer, and I have nothing against lawyers making money, that's okay. At the same time, do you think that's ultimately good for business if the courts get more involved in it and take some away from the regultary agencies.
I know you and I both reform lawyers, and so you know, at the end of the day, we are for good, clear, fair regulation. That's what our industry, That's what I'm for, and that's what our industry is for. Give us a set of rules, let us go after. If you keep changing the rules back and forth based on political movements, based on swings, based on personalities, based on studies we may think are relevant not relevant, industry
that just goes on. So something like Basel three has been going on for you know, years, and you're saying, please just get it done so we can get on with life. Figure out adjust the business model, but don't be overburdening in it. So I think that's what you're feeling with some of this, and I think the court system is saying, wait a second. Whether it was a you know, the Chevron doctor and all these, whether there was a statement that you know, look, we need regulatory agents to be able to go.
And do what they're doing.
Wait, maybe that's swung too far. There's too much activism in the in the regulatory side as opposed to the court side. And if you go back and read the great civil rights cases, there was extreme activism to right the wrongs of the past in the court side.
Brian, it's always such a great treat to heavy on wills ruburgh, Thank you so much. That's Brian moynahan, and he's chair and CEO of Bank of America. Bank regulators went back to the drawing board on those proposed regulations to meet the Basel three requirements, and Terry Powell says that the new proposals we're going to see the later this year are likely to look somewhat different from what
we saw the first time around. To take us through what we should expect, we welcome back now former Federal Reserve Board Governor Dan Trulo of Harvard. So, Dan, thank you so much for being back with us. There's a lot of speculations they're going to be cutting back.
In these regulations.
Let me ask basic question there to comply with Basil three, how much leeway is there to cut back and still be consistent with the commitments.
So there's a fair amount of leeway, David, particularly in the proposals that the three agencies made last year. On the credit side, they went well beyond what Basil three had agreed to. There's a little bit less room in the other areas, that is operational risk and market risk. And actually I would not be surprised if on operational risk the agencies depart some from the Basle agreement, because, to be perfectly honest, the Basil Agreement on operational risk was not especially well done.
So what do you expect, especially what we'll see when the next route of proposal go on. Will they be cutting back in the reserve requirements?
Oh?
Sure, no question about it.
I think Chair Powell has made no secret of the fact that there'll be substantial changes, which means a significant reduction in the required increase in capital. But I do expect that the amount of increase will vary quite a bit depending on the business.
Model of the bank.
I think you can expect to see the banks with most market risk it is trading activity, capital markets and the like, I think you can expect that their requirements will go up more than banks that are straight traditional lenders where most of it's traditional loans and deposit taking. On the operational risk side, I still fear that we're going to have a little bit of a perverse outcome where some of the banks that have de risked get hit a little bit by the operational risk charges on
things like wealth management. So I guess I would say, if you're a bank with a lot of trading and a fair degree of non credit operational risk, you're probably going to see your our capital requirements go up more than anybody else's. If you're a traditional regional bank, I suspect the increase will be very very modest.
If Donald Trump is in fact elected, how might that change the calculus?
Well, in the first place, David, given the intent to repropose, it's very unlikely that a final rule could be done before the end of the year, much less before election day. And so if past pattern patterns hold, there will be a kind of hold on regulation, and it would await the Trump appointees, certainly to the FDIIC and the OCC to make their own decisions. So that probably means that at the very least there'd be a further delay and you could quite possibly have additional changes.
This week we learned who the nominee for Vice President of publican side will be as well. Jd Vance, the Senator from Ohio, And normally I would say, well, it's a vice president, let's not worry about it. But he, as I understand it from you, has had some things to say about banks.
Oh sure, he's on the Senate Banking Committee and his you know, you can't you wouldn't. You would make a mistake if you try to just slot him as you know, bank or industry friendly or antagonistic. I think he has his own set of views. He's said some things and assigned onto some bills that are kind.
Of pro regulatory.
He eventd some skepticism about the growth of very large banks. On the other hand, obviously in a lot of areas he thinks there's been too much regulation, But I would say on banking there's at least a chance that that's one of the areas because of his service on the Banking Committee, in which he takes a real interest if they if the Trump Banks ticket should be elected.
And finally, Dan, let me return to something you and I have talked about before, which is the so called non banks out there and the difference in the banks and the growth of the non banks and what they're doing. One of the things you've pointed out is perhaps a change is they're becoming frontemies, if I can put it
that way. They're increasingly cooperating one with the other. And I wonder what rapplications that might have for the system, particularly not understanding the way you do, whether in fact systemic risks could come in through the back door.
Yeah, I'm not sure I understand it either, David, which probably point I understand the scope of it, and I think that points to maybe the biggest issue right now, which is one of having the data, the information to make an evaluation on this. You do the agencies both
domestically and internationally. Know the degree to which you know a hedge fund or a private credit fund has credit relationships, contingent funding relationships with banks, the degree to which asset funds may take some of the synthetic risk that's being transferred by the banks, the derivatives, counterparty real relationships. I don't think we've got the kind of information and the form that's needed in order to make an assessment there.
And you know, one doesn't want to be alarmist, but obviously the trend towards more interaction between non banks and banks has continued, and you know, the Financial Stability Oversight Committee and the US the Financial Stability Board internationally, we're just going to have to do more to try to get their arms around exactly where the risks may arise.
And it's always so helpful to have you with us. Thank you so much for your time. That is Professor Dan Tarulo of Harvard. Coming up at the end of a week, the odds of Donald Trump being re elected rise. We talk with investor Stephen Rattner Wilder Advisors about what it could mean for his portfolio. That's an Next Time Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg.
You this is Wall Street Week.
I'm David Weston.
The attempted assassination of former President Trump and the tragic shooting of innocent bystanders shook a nation already in the throes of a tumultuous presidential campaign and added to the momentum that mister Trump was already experiencing in the race to take us through the market reaction what a second
term of a Trump presidency could mean for investors. Welcome now, Stephen Ratner, chairman of Willed Advisors, which invests the personal and philanthropic assets of Michael Bloomberg, our founder and majority shareholder. I always a treat to have you here, Steve. Thank you for going back.
Thanks for having me, David.
So, one of the themes of this week is, so this so called Trump trade, given what's going on, apparently we don't know about what's going on. Apparently in the campaign it seems like at least there's a substantial possibility that Donald Trump will be our next president. What is in the Trump trade? What are people reacting to in the market.
Well, well, first of.
All, there's a number of different things going on in the market at the moment. There are a lot of cross currents and so forth. But if we want to just focus on the Trump trade, his probability of success is now too close to seventy percent, and that has made the market wake up and say, okay, so what are we looking at?
And so it really.
Spans a huge gamut of things, everything from gun manufacturers, for profit education which thinks they're going to benefit if he stops us through the loan forgiveness, to the GSS Fanny and Freddy because maybe he won't, he won't take the dividends sweep anymore, energy stocks, manufacturing companies that might benefit from the tariffs, and so investors are rushing around looking for all the different places they think they would benefit from another Trump presidency.
One of the things I think we've seen is in the bond curve, basically for treasuries, because there's a sense that actually there's going to be higher rates out there in the long end of the curve, which changes a fair number of things. What is the possibility of Trump presidency with these economic policies leading to more inflation, therefore the Fed babe having to raise rates again.
Well, the bond trade's a little complicated because we did have that good in the sense of being a slightly soft jobs number, and the predicted number of FED rate cuts is now up to something over too, and therefore the ten years started to come down. And now you have the Trump piece layering on that, pushing it up
a little bit, but not hugely. But I don't think there's a lot of doubt that his fiscal policies, as express would be, would be inflationary and therefore biased toward higher interest rates.
So we talk about that tax Cutting Jobs Act. So we had Scott bessin on last week and he said, oh, no, don't worry about it.
We're gonna save a lot of money.
We're gonna save a trillion dollars a year from the basically undoing the Inflation Reduction Act. We're gonna save another trillion by redoing Medicare. And now I will note that when President Trump had came in the first time, he said they were going to get rid of Obamacare. That would save us low money. But one of the prospects that actually would cut back into of the spending under the Bid administration.
Well, remember that we didn't get rid of Obamacare because John McCain and because while he had technically had control of both Houses of Congress, he lost a Republican that costs him that. So a lot of this is going to depend on what happens to Congress. If both Houses of Congress scoe Republican, then he's obviously got much more scope to do a bunch of stuff.
Whether he really would do it or not, who knows.
The record of the first Trump presidency was not good from a fiscal point of view. The deficit went up by hundreds of billions of dollars before COVID ever arrived, in large part because the TCJA never came close to paying for itself. It was close to two trillion dollar costs with no offsets in spending and no real revenues associated with it.
So that's all on the text. The revenue side is that were What about tariffs? The one thing in Prisident Trouble has always seemed to enjoy is been imposing tariffs, particularly on China, but not only on China. Frankly, he likes tariffs. That does, of course increase the cost to the consumers, and therefore I guess inflation.
Sure, And by the way, his last set of tariffs, which were far less robust than what he's talking about now. Hra he'sed something like thirty billion of revenue. I thought you were going to ask about revenue, very little contribution to revenue.
The evidence is overwhelming.
Many economists have studied this that essentially one hundred percent ninety five, one hundred and five percent something in that ballpark was paid for by consumers. None of it was paid for by child Maybe a little of it came out of the companies in terms of profit margins, but essentially it was paid for by consumers and was therefore inflationary. Now they were very limited tariffs. Start talking about ten percent across the board on all imports, you're in a different ballgame when we.
Talk about inflation. One of the things we naturally think about is the feder Reserve.
It's their job. Actually, it has price stability. Right.
There's a lot of speculation, not necessarily coming from Donald Trump himself, it's from people around him like Peter Navarro, who's talked about firing J.
Powell.
But what are the prospects of really undermining to some extent the independence of the Fed.
That's to me incredibly scary. I think the independence of the FED. They don't get everything right. They got inflation wrong. Will stipulate to that they got some stuff wrong in twenty nineteen. They may have gotten some stuff wrong coming out of the GFC, although they did a great job generally in the GFC. But let's just stipulate the independence of the FED is critical and central to our economic success.
There's no if sands or butts about that. You would not want the Congress or the White House in charge of monetary policy. And so any step to undermine the FED by any president of either party should be something that we all push back as strongly as possible.
So overall, why do we find so many investors who are backing President Trump.
They have a variety of reasons that I understand their reasons. For example, one of the biggest reasons you hear is the regulatory stuff. There's no question, and now, in fairness to the President, although he appointed these people, they are
independent regulatory agencies. But nonetheless a lot of what the FTC has been trying to do, a lot of what the SEC has been trying to do, even the FCC, the FDA really has upset business and they simply feel that this president is too progressive, and they feel that his vice president, should she become president, he's even more progressive, and they don't like any of that. And there are other reasons, but that's a good example, maybe the main example of what they just don't think this is a
pro business administration. I would say, even though I do support the president, attacking businessmen with some regularity is really not the way to get their support.
I don't think. That's not what my mother taught me.
See, let's talk about the rest of the world as it were, and particularly those big tech companies. They have been getting so much money with huge I would say, huge capital investment about AI.
Yeah, look, those companies have had a great run.
Obviously in Vidia we all know about, but Microsoft, Google and so forth, Amazon. And the question really is whether the market is valuing this situation appropriately. You're talking about massive capex by some estimates anywhere from six hundred billion to one point two trillion dollars per year on this kind of stuff, And the question the market is starting to ask itself is are the revenues going to be
there to offset it? And that cap x is not just a cash expense, but it runs through the income statement and depreciation and so forth, and so it affects their margins. It affects their profits, and you have to earn You have to create a huge amount of revenue to justify the magnitude of the capex.
That is going on right as we speak.
So see back in the olden days, a capsiities for general, when I was running budgets, if I had a capital expense, I had to show what the projections were about when I would save that money back just and we us had a rule about a couple of years, maybe two and a half years, we had to earn it back. Is anybody taking pencil and paper, if they have it anymore, and doing that with AI. Is anybody actually thinking about where do we really see this in the real economy in terms of increased productivity?
Well, that's exactly what's happening now to some degree, and why you're starting to see a bit of a rotation. It might be just a mean reversion after a big run. It might be people doing what you talk about, but people are doing it. And by the way, this is a very debated subject. There's not a preponderance of view on one side or the other. And I don't even frankly have conviction myself. I think you could argue either way,
although I think the numbers are pretty daunting. But what you're starting to see the analysts do is exactly what you said. They're starting to pencil into their projections. This is the level of capex, This is a level of depreciation we're going to be taking for it. This is the amount of revenue we have to generate to justify that and achieve the kind of paybacks you're talking about.
And you say to yourself, is this really plausible? Are we really going to you know, is Microsoft really going to be able to generate thirty billion dollars of revenue from AI I think that's actually a roughly right number in the next over the two years from now. And given that at the moment this stuff is essentially free. You might pay ten dollars a month for this or that, it's a real open question whether those kind of revenues are there.
Let me just make one other point, which.
Is that if you think back on the success of Microsoft, Google, Facebook, they were essentially software companies. I mean, there were certainly some capex involved in that, but nothing on the scale of what we're talking about here, and so we're in a whole different world, a whole different ballgame for these companies. And by the way, it's also a competitive ballgame. Open AI is not going to own all of AI. Microsoft
is not going to own all of AI. It's going to be they all have to protect their market share, and it's going to be a pretty competitive world.
When you're looking at this phenomenon, you're looking at the videos of this world, and Microsoft and others just take off like.
A rocket ship.
It must be difficult to stay out of it.
Yes, this has been a challenge for active investors this year because these big companies, Microsoft is something like a seven point three or seven point five percent waiting in the SMP. Very few money managers have a seven percent position in anything, and so it it's when you know, you know the numbers, when you disaggregate the magnificent seven from the rest of the market, what the differences are,
And so it's been very tough for active management. That's point one point two is, Look, this is no different than any other investment. You do your best work, you figure it out as best you can, and you make a bet and sometimes you're right, sometimes you're wrong. I would say we tend to be pretty conservative in our view of this stuff, and a little bit of the view that we've seen some of these movies before and we want to be a little careful about piling in, especially late in the game.
Is there a risk that the enormous success of that Magnificent seven what are you going to call them, is masking other weakness in stock markets?
As you say, you look at the rest of.
The market, it has not done all that well, and yet we tend to gloss over that and say.
A market and the aggregate boys good, great, it's totally masking it. If you take the Magnificent seven out and you start looking at some sectors, especially things like manufacturing, industrial stuff like that. Markets actually had a pretty poor run over the last certainly this year and even I
think last year. And so yes, I think we're starting to see when we listen to companies, we listen to our managers, we are starting to see signs of softness in the economy on the consumer side, on the manufacturing side, and so forth. I don't think the economy is falling out of bed, but we definitely are in the later stages of an expansion.
Let me ask you.
About an ancillary part to the AI. If we talk about Nvidia and much of things, but the power required to drive this general AI is enormous. I mean, I'm hearing stories now. There's just really in a lot of story and that's really driving a lot of demand for power. Is that an investment opportunity?
We have invested around this opportunity? I would say modestly. We were actually kind of early to it. Others have now caught on to it. And if you look at the stocks, for example, of nuclear utilities that have less regulated power and also clean power, which is important to
these hyperscalers, they've shot up. I think people have woken up to the fact that the conventional projections of electricity demand over the next five to ten years we're ridiculously conservative relative to what's going to happen, and we're going to face a major I believe we're going to face a significant power crunch in this country unless we do something.
And so we're running to the conflict between the desire to reduce our dependence on fossil fuels and the need for power that's right in front of us.
That's just what I was going to ask because this goes right against the need to deal with the climate where were trying to give up the fossil fuels, and this drives us back into it unless you go, for example, to nuclear. Maybe there's small modular reactors.
As you know, I think you may even talk about your show. Bill Gates has a project I think out in Wyoming or someplace to build not a small reactor, but a new technology that involves less less heat and less water and so on and so forth. But it's going to be done in twenty thirty. He doesn't have a permit for it, so we're a long way. I think we're a long way from nuclear happening. It could happen.
I think the technology is there, whether it's small nuclear reactors or different kinds of nuclear technology, but I see no support at all from people to do it. And so the result is we're going to have probably some coal staying around longer than any of us would like, probably building more what are called ccgt's natural gas generating facilities in order to support the renewables, because obviously the
sun doesn't always shine, the wind doesn't always blow. We all know that, so you have to baseload power, and we're going to find that we are doing more with fossil fuels than any of us would like.
Okay, Steve, it is such a treat I have you here. Thank you so much that it's Stephen Rattner of will It Advisors.
Coming up.
An exceptional US economy is driving investments. How long can it last? And what could carry it forward or get in its way?
We ask Laura.
Tyson, have you see Berkeley Hush School of.
Business promising signals that AI will lead to a significant boost in productivity growth.
That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is Wall Street Week. I'm David Weston. The US economy continues to outpace.
Much or all the rest of the world.
What is driving that economy and can we expect it to continue? Welcome back now, Laura Tyson of the UC Berkeley Host School of Business. Doctor Tyson served under President Clinton as the chair of the Council Black and Equad Advisors and then as Director of the National Economic Council. So doctor Tyson, thank you so much for being back with us. So give us your analysis of why we see the American economy so strong a lot of people are surprised at how strong it is at this point.
I think, I want to say that the majority of economists are probably surprised, and I think the FED we heard today from jerom Pell, I think he's surprised the resilience of the economy given that we've had high interest rates. We've had them the highest in three decades, we've had them for a long time. That should have slowed the economy down. It did not. So what is what is
the driver here? I think the investment strategy that has been unleashed by the private sector in response to Biden's industrial policy and semiconductors, his industrial policy in overall manufacturing, his climate policies, those texts cuts, those text incentives for climate investment have unleashed a lot of investment. And so if you think about this, this is spending that's investing
in the productivity of the future. I want to add to this AI a lot of investment in AI because of the anticipated effects on productivity.
So let's continue on that if we could. Because in the past, you and I've talked about when you were in the White House and you saw the internet kick in that really affected productivity. Now that we know a bit more about AI, do you think we're maybe on the threshold of something like that.
You know, I think we could be. I have done some work on this. Look, we don't have a lot of evidence right now, but all the evidence we have, whether we do it through how does a programer benefit from working with AI? How does a call center operator benefit from working for AI? All of the numbers say significant productivity growth. So I think it's largely anecdotal larger
case studies. We don't have enough yet, but boy, the promising promising signals that AI will lead to a significant boost in productivity growth, which is it was the major surprise in the nineteen sixties, and it may indeed be the major surprise in the next five to ten years.
So you're an economist at the same time, when you were in the West, you had to pay attention to the politics as well. Given the fact that you see the economy as strong as is, why are so many people so dissatisfied, even some of them angry with who we are economically?
You know, there's no simple answer to if you look at all of the numbers, The only number that does not generate the same kind of benefit for the population. Are the inflation numbers. If you look at GDP growth, or you look at employment growth, you look at the unemployment rate, you look at vacancy rate, you look at every end. You look at the rate of growth of real wages. Now since January twenty three, those are positive numbers. The thing that really gets people, I understand this is
the prices of things that they need are higher. They are higher. They're not inflation is We're not going to disinflate. Prices are not going to go down for most things, so prices are higher. And I think there you have a lot of service prices people people going out to restaurants now and realizing that the price includes the price is higher service charge. It costibar to do it. I
would say housing. Housing is a huge national problem, and I think we've only recently seen the last quarter quarter two of this year we began to see some easing in the inflation rate of housing.
Part of the issue is economy. Part is how you communicated about the economy. You worked under somebody that I think was a very strong communicator. You can agree with President Clinton or disagree, but boy, he was a good communicator, and he would explain what's going on in the economy. How do we avoid the popular street that we're seeing right now, because I think a lot of Americans, whether rightly or wrongly, are saying that inflation is linked to some of the investments that you.
Think is a good thing.
Well, I think we have to you know, again, if you listen to and I'm not sure that this is a populist message, but if you listen to your own pal today, he would say, Okay, look, we had a very set of tight supply change as a result of COVID. That that's a tightness in the product market, lasted a long time, longer than we expected. Okay, But then you have that unleashed. You have the prices in good starting to slow or even come down somewhat, and that what
are people spending their money on? They're penned up. Demand is on services, is on vacations, it's on going to restaurants, it's on having a normal life outside of COVID, and those prices go up. I am very concerned by the way, and you haven't raised it yet, but I'm going to go to immigration here. If you think that there are numbers on this. The employment rate of Native born working age Americans has been stable. Okay, it's not gone down
from twenty nineteen. It's not gone up from twenty nineteen. What's going on here, The employment the number of working age Native Americans is going down. It's going down. So all of the employment growth that we've seen over the past three years has been non Native born working age population immigrants, and they are the ones that are filling the service jobs and the manufacturing jobs, and the care
economy jobs and the restaurant jobs. And if we actually dramatically deport millions of immigrants who have some status that the President Trump would want to undo, then we are going to create a labor market shortage really really fast. That is going to be a major slow down variable for the US economy.
Let's talk also about tariffs.
We could, since we're talking about the possibility of a Trump presidency coming up now, tariffs, because there is a sense that the so called China Shock was not good for portions of the American working public.
It wasn't across the board, but.
There were portions that were really hit hard by that may have been a mistake, and people are worried about a second China shock. Now, what about the popular appeal of saying, let's compose some tariffs here.
Well, I think I would start with the view that tariffs are an inflationary tax. Who pays the tariffs? It's not. And I heard Trump of the debate say he doesn't believe this, but it's just true. China doesn't play the tariffs. The foreign country doesn't play the tariffs. The American consumer
who wants to buy foreign products pays the tariff. And there are some very good studies now which indicate that at the tariff rates that Trump is proposing, it would cost the average family, a typical family in the middle of the income distribution, it would cost him about seventeen hundred dollars extra a year to buy the goods and services they want. So tariffs are inflation a price increasing and they are therefore, I think consider it a kind of inflationary tax.
Laura, it's always so helpful to have you on Walshreutig. Thank you so very much.
That's Professor Laura Tyson of the Host School of Business.
At you See Berkeley.
We began the week trying to come to terms with an attempt to assassinate former President Trump and ended it
with his being nominated as the Republican presidential candidate. As investors focus more intently just what a second Trump term could mean for them, So our one more thought this week comes from a Republican member of the House Financial Services Committee, Congressman French Hill of Arkansas, and how things might be different from what we saw during President Trump's first term in office.
I think President Trump comes into this position in a tougher economic scenario, but more experienced in the sense that he had four years in office and he knows many of the challenges that our presidents face and how to work with Congress.
But how does extending the tax cuts from twenty seventeen help that situation? Because again CBO is projecting that in fact, only twenty percent of those tax cuts actually paid for themselves.
They did not pay themselves, So.
How does extending that improve the situation fiscally?
I think he's going out to work with Congress to determine on those that are expiring, how to focus on growth and focus on responsibility give the now budget deficit unsustainable budget debthics. I think he's inheriting from what would be his predecessor. This is a bipartisan challenge. Spending in Washington is a bipartisan challenging. Trying to find a way to balance the budget is a bipartisan No one.
Has clean hands here.
But I am saying he's going to be constrained in spending authorities and constrained in picking and choosing and working with Congress on how to deal with the tax cuts and expiration. I think it's going to be very difficult in the first few days. What are some other constraints the need for national defense spending. We have never had more people challenging US, our allied nations and Western values
like now. The access of evil that George Bush, George W. Bush talked about decades ago now is really infruition and in full flower. North Korea, China, Russia, Iran and their proxies are actively challenging and actively at war with America and American allies at home from a terror threat elevation and abroad. So that's a constraint on how to have
spending priorities. And this is why I argue that we need a solid president vice president active, working seven days a week, twenty four hours a day, working with Congress to face the realities that we have.
You mentioned trade in tariffs. Some people who are close to President Trump say that would be a revenue source, so it would be good on the deficit. At the same time, a lot of comments are saying it also is inflationary because although it does put money in the treasury, it doesn't come from China, it doesn't come from foreign countries. It comes from US consumers in higher prices. How do you both raise tariffs and avoid inflation?
Smart question. I think there are two.
Reversals of the global trend that we've witnessed in our career over the past three decades. One of them is having redundant supply chains, not single source, not just in time and reshoring, having those supply chains in maybe safer hands than just the lowest cost provider in an Asian nation like China, for example. That's going to cost money and time. That's an inflationary trend. And you're right.
Across the board.
Tariffs, if put in place, in left in place, are inflationary, its attacks, and it is borne by the American consumer. I think where President Trump demonstrated his ability to negotiate was using them, as I said earlier, as a cudgel.
To bring people to the table for a.
Positive outcome, not just simply leave them in place. And I'm concerned, for example, when I spoke out in general opposition to the across the board stealing aluminum tariffs back early in the administration when they were imposed the first time, saying, demonstrate to me that you actually across the board and steal an aluminum domestic product, manufacturing new production as opposed to just higher prices. And I still think that's a mixed report. And that's why I think you have to
use tariffs very targeted and obtain the trade benefits. And I do believe that former Ambassador lighthauser who advised President Trump, did achieve that in several places Japan, China selectively, and then they had a big success with redoing the North American Free Trade Agreement into the USMCA. So again we are cognizant we're in a different situation than we were in twenty sixteen from a macroeconomic.
Point of view.
That was Republican Representative French Hill of Arkansas.
That does it.
For this episode of Wall Street Week, I'm David Weston.
This is Bloomberg. See you next week.