This is Wall Street Week, bringing you a special edition on what the new Trump administration could mean for global Wall Street. Coming to you from the Cornell Tech Campus on Roosevelve Island. I'm David Weston. Growth was a recurrent theme for Donald Trump and running for president, this time growth in the economy, growth in employment, and growth in the stock market. His pick for treasure Secretary, Scott Bessen, laid out for us at least part of his plan to get there.
I'm a big believer that for Trump two point zero, that we can control spending by freezing the discretionary component except for defense and moving toward a three percent deficit by twenty twenty eight. I think that would be music to the market's ears. I think the debt market would respond to that. I think rates would go down. I think inflation would go down. So there's a chance here for a self reinforcing cycle.
Take us through how Wall Street looks at what Trump policies could mean for that growth. We welcome back now, Rick reader Blackrock Global CIO Flicating income and if it's Global Allocation Investment Team, great to have you back.
Thanks for so.
I think it's your ears that mister Pssant was trying to appeal to is he right that if he could bring that off, it would be music to your ears? And is it doable?
So I don't know about music. It's more of a symphony. I mean that is I mean, it can't be any better. You know what the markets care about is is there a plan? And I thought one of the key things we said by twenty twenty eight there's a plan in place. Oftentimes you have elected officials like we're gonna spend and we're gonna do it now. It has to be a progression, but it has to be a thoughtful progression around how
do we get spending down? But we don't do it to real disrupt the system, but they're thoughtful ways to get there. On my senses, there is a series of initiatives they're thinking about about how to get it down, how to restrain spending and then come up with a consistent plan. Listen, the debt is the biggest problem in the US economy is an incredible shape. I mean, the vibrance of this economy blows people why. I mean how many times last year the rest of the recession economy
just moves along. There's one risk that's out there, and that is the debt burden. If we have a plan to bring it down. Markets are all about confidence and confidence that we see the plan, we see the balance, we see how we can create equilibrium over time, and that can't be any better.
So it's a tall order I think everyone would agree to, even as we say we'd love to have it. But right now we have above trend growth. Can we sustain that over the next two, three, four years?
So I think the harder one is can you do it without any price pressure? So the US economy and think about we've run I was looking at you almost every single month for the last year. Long was the last couple of years income or if you take the payroll and you look at where income is, it's five percent almost every single month. It's amazingly stable. So can
we still run at two three percent real GDP? If you see some initiatives around deregulation, if you see some initiatives that are incentivize people to invest both globally into the US and domestically, you can still grow.
So economist tell us that there's a potential for the economy, and it's largely a function of how many workers you've got and how much productivity you have for those workers. Right now we're talking about, if anything, potentially I think fewer workers demographics, but also on immigration, So can productivity really kick up that much?
So, first of all, I would argue that the best indicator of growth over the intermediate term is demographics. When you track what GDP does, it's amazingly sympathetic to the demographics, including like you say, immigration, et cetera, the age dynamics in the country. But that's over the intermediate term. You can come off that demographic curve because of stimulus one way.
The So think about what's going to be So will we have immigration, Will you have some modest reversal and immigration, probably, but I don't think it'll be significant in terms of aggregate demand, and really can't and I can't believe the president will want there's some real initiative they're trying to solve for. But I don't think there's going to be a mass deportation of people. So I don't think that
is going to be that significant. What I am energized about is I think, and I think people think it's going to take longer. I think productivity, you know, it really talks about AI, but software, inventory management, logistics, technology is changing. You know, people talk about the high profile things like we're going to driverless cars, but I don't think people talk about other ways that we do business.
And I mean even in our business, how we think about documentation, how we think about how we create HR human resource reviews, and things like, all of a sudden, we're implementing a whole series of things. We're going to hit an inflection point on inflation, and it's hard to say is that's six months from now, a year and a half from now, But productivity is going to be is going to be the vehicle we're going to drive on to get there.
What does this mean for rates? What do you anticipate given everything that Donald Trump is likely to do.
So I think that, you know, there's a near term in the longer term, So I think the near term is Listen, I don't think the Federal Reserve can cut rates anytime soon. You know, maybe the back half of
this year. We've got to see because you've got this this growth I think this growth stimulus that's in there, and you've got what is you know, nominal GDP that could run at about five percent pretty hard for them the cut rates, and they did, which I would argue was a great call to get rates down to a level that's not that restrictive and just leave it there for a long time. So usually it takes the FED moving to get rates down. So I don't think rates
are going anywhere anytime soon. I certainly don't think they're going down. The other side of it, it's hard in the near term to get inflation down. So with all these in issues, including you know, there is a near term effect. I don't think it's a long term effect around tariff that is a price level adjustment, but in the near term that does affect it some deglobalization because you're gonna have some build in the US as we bring some of the manufacturing and other product back. So
near term I think inflation stays a bit higher. So what does that mean. Listen, don't think anybody's gonna make any money on interest rates rallying anytime soon. If anything, I could see them migrate a bit higher in the near term. But I think what's going to happen is you're going to have this in the near term, and then I think we're going to hit this inflection point alongside the productivity enhancement, but I think will be quite real. But in the interim, I like staying shorter in terms
of my interest rate exposure. And by the way, it's a pretty historic point in time. With interestrates where they are and the yield curve as flat as it is, you can you can sit in the very front end of the yield curve, clip a lot of coupon, a lot of income. We run the CTF for the go bink that we just we just clip coupon and income and you don't have to. Traditionally, as a lender, you have to go way out, you have to lend long. You don't have to do that today.
How different may this Trump administration be than what we've seen in the past. A lot of things you describe, I've been around for a long time, things like the debt and deficit you think are so big nobody's be able to fix it. Can we really expect them to find new approaches? And let me introduce for example, Elon Musk. It's the must affected all this in sort of different sorts of thinking.
So I'm hoping that sound. I mean, I think the traditional the way traditional economics work in the traditional how we thought about tariffs, how we thought about some of
these initiatives. I actually think there's going to be some vibrant thinking, some new thinking that will be You know, if you think about what tariffs are, do you get an initial price level adjustment, but you can actually create growth around it if you're going to see more product produced domestically, there are certain products that are efficient for us to continue to expert how you utilize tariffs can
quite frankly not be that. People say the normal traditional economic thesis is, you know, lift inflation and then it'll slow growth. I'm actually not sure. And I think a lot of in the type of economy we operate in today, service economy different than the past. I think the historic algorithms of how you thought about how economies respond. Think about the interest rates, we talk all all the time. People that got rates are going high, the economy is
going to tank, doesn't happen. I think you'll see some innovation in this administration, and I think you'll see some things that are different, and I think they're going to quite frankly try some things and make it and determine you know, where is And I'm hoping quite Frankly, some of these initiatis, as we talked about earlier, have a longer timepective, longer term perspective to them, like not just focus on the next week, the next month, but how
do you put in place some initiatives that are creative, thoughtful and create what I call velocity, that are durable and actually put the economy on a pretty good spot longer term versus gosh, we got to succeed in the next month or so.
We've spent several years now fixate on the FED, what it's going to do, what it has done every month we talk with you about exactly what's going on. Are we looking at a time that actually FED maybe a little less relevant that will we focus more on the White House into somebody Saint Congress a little bit less on what the FOMC does.
So, David, I mean, we've lived in markets for a decade or more in this dynamic of everything's on the back of the monetary policy mechanism, not just in the US, in Europe, Bank in Japan, Bank of England, and it has been because normally for years we've thought about the way policy should work, is monetary fiscal policy work hand and glove. Fiscal creates some initiative on the to stimulate, and then the central bank pulls back, and then vice versa,
and you get this pendulum effect. We've lived in a world where there's been functionally no effective fiscal and it's all been on the back of policy making of monetary policy way too much today. I actually think today central bank, the FED should go on holiday for a while and let the fiscal do what it's going to do and then react. If inflation is a bit higher, then maybe you have to react that. If in fact we're getting productivity,
then you come in to look at it. I think today it'd be great to have a different decade than we just had of where it just had to be the monetary policy tool and it doesn't work. I mean, there's singular think about negative interest rates in Europe. It didn't do anything other than hurt the banking system, of pension system. It doesn't work. Extremes of central bank policy does not do not work. So I think the extending of some fiscal it's quite healthy.
Many things to Rick reader of Blackrock. Coming up, we continue our special edition anticipating what lies ahead during President Trump's second term, focusing on fiscal policy with Torsten's lack of Apollo and Maya McGuinness of the Committee for a Responsible Federal Budget here on Wall Street Week. This is a special edition of Wall Street Week focused on what President Trump's return to the White House will mean for investors.
I'm David weston President Trump returns to office having committed his administration to cutting two things, taxes and the cost of government. Mitch Daniels ran the omb for President George W. Bush before becoming Governor of Indiana and head of Purdue University, and he says cutting the cost of government is long overdue.
It's not a bad place to start. You're right that the money's not as big, But for the reasons we've discussed, I think it is a more straightforward case to make that the federal government needn't be doing many of these things. And we're going to have to get into a mode where the federal government limits itself to must do items, nice to do items or optional ones we simply can't afford anymore. We haven't really afforded them for quite a
long time. As I've sometimes glibly said, you'd be amazed how much government you'd never missed.
You would not miss.
You'd hear the screams of the clients and recipients of the money, but the average person would not see any difference in their lives, and that might embolden the country to support other trimming and reductions and modernizations of the kind we really need.
That was Mitch Daniels explaining why we might not miss the Department Education if it went away. To take us through the income statement and balance sheet of the federal government, we turned out to torst and Slock Apollo, chief economist again as president of the Committee for a Responsible Federal Budget. So welcome to Wall Street. We're good to have you here. Min. Let me start with you, and before we get to what we can do about cutting costs and fixing the
deficit problem we have. How big a problem is it? How do we define it?
It's big, It's a big.
So we're basically we've waited till the last minute to start to try to turn this ship around.
We should have done this years ago.
Debt to GDP, which is probably the most important metric right now, is about one hundred percent of GDP. The record we ever had in this country right after World War Two was one hundred and six we'll surpass that in two years. That was right after a world war. This is during a time of economic growth and stability. More worrying, I think is interest payments on the debt, which really signal the health of the fiscal situation.
But they're the fastest growing part of the budget.
They are the second largest item in the budget, larger even than spending on defense. And so all these numbers are projected to get worse over time, with our borrowing about twenty two trillion dollars over the next decade if we don't do anything to make the situation worse, which, if you know, Congress, I wouldn't bet on. So the fiscal situation is now at the point where it's having profoundly negative effects throughout both our economy and I would even say our national security.
We've got to make changes really quickly at this point.
Torsa Azmaya says, the problem is bad and it's getting worse now. President Trump assures us he's going to somehow address it. But how do we see the problem in our everyday life, in the markets, in the value of assets.
Well, one thing that has been unusual in the last few months is that Normally, when the Federal Reserve lowest interest rates, you begin to also see long term interest rates come down. But since the FIT started lowing interest rates on September the eighteenth last year, we have seen short term interstrates have come down, of course, around one hundred basis points, but long term interest rates have gone
up one hundred basis points. And this has opened the conversation in markets about why are long term interestrates going up when the FIT is cutting interest rates? And the worries and some of the debate is is this because of fiscal worries?
Is this because of other factors?
And some of the quantifications suggest that may be there is, at least in some of the term premium estermates from the Federal Reserve Bank of New York, there is some reasons to worry about that. Maybe as much as eighty percent of the rise in long term interest rates has been driven by not what the FIT expectations have been doing, but by other factors, including, of course, what the fiscal outlook is at the moment.
Maya, you've dealt with the federal budget and the deficit for a good long time now. We remember the so called bond vigilantes what brings those out. Are we in danger at all of bringing out bond vigilantis.
Well, my highly non scientific method would say things are changing.
I'm hearing, We're hearing from market people all the time.
While this issue was kind of in the wilderness for a long time there, even when our debt was growing, even when we were clearly borrowing beyond our means and we didn't need to, interest rates are incredibly low.
Markets weren't worried. Now they seem to be very worried, and we're hearing about it.
We're interacting with them much more in terms of the policy level. The problem is what I get, the sense I get is that markets want lower debt and lower taxes. Citizens want lower debt kind of they like that talking point lower taxes and higher spending. Politicians don't want to
do anything hard. So you can see that there's a real understanding that we need to make changes, but the political will to get us there is really challenging at this time because those changes we can cut a lot that people wouldn't notice, like Governor Daniels said, but if we're going to actually make a difference, this is going to start to have real effects in some of these bigger programs that politicians have said they're not willing to touch.
So we're going to have a political tension about whether we're going to do this for real or not.
That political will is almost always an issue in Washington.
But let's assign that's help though.
Well, let's put that to what side. If we wanted to fix the problem, what are the things that would make the biggest difference. There are a lot of things we could do, but where to get the most bang for the buck.
Yeah, the three things that people have said they absolutely will not do is what we should really start with. So the biggest items are Social Security and medicare, both of which are the largest government programs and have trust
funds which are headed towards insolvency. So not only for the fiscal situation do we need to make changes, but if we do not take social Security in about a decade, it will be insolvent and there will be across the board benefit cuts for the people who depend on the program.
So political points are scored for people who promise not to touch it.
It really leaves everybody vulnerable, and it harms the budget because we're repaying trillions of dollars to those trust friends every year with no plan to make it structurally sound. At the same time, the promise, the belief we can do this without raising revenue is completely at odds with the general size of the problem. So I would start by looking at Social Security, raising the retirement age, thinking about means testing, changing the way you calculate inflation, medicare.
There are a lot of changes that we can make because the healthcare industry itself is remarkably inefficient. And finally, there's almost two trillion dollars in tax expenditures a year lost revenue from exclusions, exemptions, deductions. They are inefficient, they are regressive, they are not transparent. They pay us to do things we would do anyhow. So those are the three areas I would start.
Torston helped me understand when we talk about things like medicare, and we talk about Social Security for a long time, does that factor into the term premium you talked about. As the term premium goes up, are the markets really anticipating that as well as the short of how much money we're spending week by week.
I do think that they do, because the market is looking at the Congressional Budget Office forecast and also MAAS and the Community for a Responsible Federal Budget forecast, and they are all showing that we're going from one hundred percent debt to GDP to two hundred percent that to GDP.
And the biggest component of that increase is indeed mandatory spending, meaning social security and Medicare and medicate And if you think about that, there's about seventy three million people in the US who get soci security and supplemental income from the government. That's a lot of voters.
That's a lot of people.
And if you begin to think about what the path looks like for demographics going forward, it is the case that this is by far the most important driver of
why dead levels are going up. So that's why from a market perspective, it becomes in some sense, it doesn't matter for the market where the cuts or how we are going to reverse the trend as long as auction sizes do not grow dramatically, as long as treasury auctions and the metrics coming out of how treasury debt is auction begin to potentially look better at least down the road, because it is clear, as J. Powlo also has said numerous times, we are on a sustainable path.
At the moment, Meyer, we have now a president coming in office who says that he really wants to do something about the deficit. Now, to be sure, it seems to be on the cost side, not on the revenue side. But let's assume he does have the political Really he has two people who are going to help him on that, mister Mosk and mister mederical swaming. How difficult will it be to really make a substantial reduction in the deficit through cost cuts.
If they are not concerned about politics, we can get a lot done. I think the real challenge is going to be what they recommend where I think they'll have very sound and probably aggressive recommendations with what the President and Congress is willing to do. But if they want to be serious about this again, they would not take
social scurity and medicare off the table. But there are so many areas where we can change the way the government does its business, starting in healthcare reform, so looking at the hospitals, looking at the various associations prescription drugs, the insures, tons of money to be saved there if we redo the way the entire industry is set up, right.
Now where there's many inefficiencies, likewise.
Procurement in the national security field. Huge savings can be had there. But these are very vested interests. They're incredibly powerful, and like you were just saying, there are going to be more and more seniors who are voting. THEARP is also going to push back on them if they do go into that area where they should so I think they'll take I think they'll come up with real savings.
I think their disruptive approach is exactly what's needed. I worry that they have conflicts with the government and that we're going to have to have a lot of transparency around this effort. But I think they can come up with not that two trillion in a year that they originally were talking about, but they've backed that to about one trillion or less.
That's very aggressive and reasonable at the same time.
But it's once it goes into the political propu where I think we're going to see pushback because there are constituencies for every single program in the budget.
Why hope they succeed.
What about cutting the federal payroll. That's something that's been put out there, actually is something that would really help us.
Absolutely, we should do that if you talk to anybody who works in government, the bureaucracy is bloated. There are certainly savings to be had there. It's not going to save a tremendous amount of money.
Though.
One of the things that we've heard out of the dose folks so far is pointing to the things where the savings seems kind of easy, like let's cut the huge bureaucracy, let's save money in the silly stuff like gerbil racing, you know, and all the laugh lines out there.
Those aren't where the dollars are.
The dollars are in interest these days. But the things that you can control social security, medicare, medicaid, and national security where there's a lot of savings. But I would say those savings are going to end up being plowed back into that area of the budget where I think is very likely to grow, and we.
Probably have to think about that too.
National security and climate related disasters are likely to absorb more and more of our resources going forward, would put on an even bigger squeeze than we already have.
Torsten, how worried should we be about this? Because there are members of your profession economists who say, you know, as long as we have the reserve currency, you don't really have to worry about it that much. We can continue to borrow going forward. Should we be worried about this, are there consequences that really hurt our economy? Well?
The good news is that the rest of the world is not in good shape when it comes to this discussion, both when it comes to the fiscal outlook, but also when it comes.
To the business cycle.
Europe from a business cycle perspective, is not doing very well. UK is not doing very well, China is not doing well very well. Japan is doing a.
Little bit better.
But for global investors, they still want to invest in US financial markets. It is the biggest financial markets, both on the debt and the equity side. So that is to a last degree, helping us a lot at the moment and a very important reason why it all that is going up.
Are we going to get it done?
Oh no, We're not going to get enough of it done. I mean, right now, you would need to save nine trillion dollars over ten years just to stabilize the debt as a share of GDP where it currently is. We need seventeen trillion to balance the budget. That's not happening. Luckily, we don't have to balance the budget. But what's discouraging is that a decade ago that was the goal, and it was a reasonable goal.
Now it's not. Nine trillion in savings is a tremendous amount.
When we put in place the Fiscal Responsibility Act as part of the debt ceiling last time around, that saved one to two trillion. That was difficult to do, and that was the easiest part of the budget discretionary. So now we're moving into savings that are going to have to come from the harder parts.
Many thanks to Miamiguinness of the Committee for a Responsible Federal Budget and to tourist the slack of Apollo. One of the changes President Trump has promised is in the US approach to trade and tariffs. To explain where we may be headed, We're going to talk with Ambassador Michael Frohman of the Counsul and Foreign Relations and Libby Cantrell from PIMCO. That's next on our special Trump Administration edition of Wall Street Week.
Every economist I know who's not employed by labor union is in favor of free trade. Every congressman I know is advocating some restrictions on trade. Can we survive without putting new restrictions on trade?
Well, I don't think we have to put new restrictions on trade, but we sure got to get a better deal out there. We are absolutely the world's worst negotiators on trade.
That was Lewis Rockeiser on Wall Street Week talking with GM CEO Roger Smith back in nineteen eighty seven, back when free trade was still in fashion and before Michael Moore made mister Smith the centerpiece of his mockumentary Roger and Me. As we anticipate what the second Trump administration may mean for investors, we have to consider the pledges he has made to raise various tariffs on trade with others.
Here to sort it out, we turned to Ambassador Michael Frohman, president of the Council on Formulations, and Libby Cantrell, head of US Public Policy for PIMCO. So welcome both of you. Is great to have you here. So first we'll start with exactly what the Trump administration did the first time seventeen What actually happened.
Yeah, So, what we saw them do is move forward with tariffs, limited tariffs on limited products from China. On average, the effective tariff freight increased from about two percent to about twelve percent on Chinese products, but it was still limited and it was sequenced, it had exceptions, so it was quite different from what he has indicated that he wants to do under Trump two point zero.
So it was limited, Michael, but did have effects on the economy to affect the stock market, did to affect values.
You know, I don't think it affected the stock market because the stock market took a lot of other things into consideration, including tax policy, deregulation, and other issues. It didn't necessarily have the effect that was desired though, in that for example, steel, he put tariffs on steel not just coming from China but from around the world, and we didn't see that much more steel production or that much more steel employment in the United States than we
had before. What it ends up doing is diverting trade. So rather than importing from China, we're deporting. We're importing us from China and importing more from Vietnam from Mexico. Mexico is now our number one trading partner, and we're still importing though more or less the same amount.
Yeah, but President Trump has a solution to the Mexico problem. Right, He's going to go after Canada and Mexico.
Right, Tariffs on maritaris for everybody. Look, I think he starts from the premise, and this is a core belief of President Trump. He's been focused on tariffs for decades. He starts with the premise that bioladical trade deficits are bad. It's a measure of who's winning and who's losing in
a relationship. And the tariffs are intended to set the standard that we want to eliminate bio level trade deficits, either by those countries buying more of our goods or those could be selling less of their goods to us. And then it's beginning of a negotiation. And now he's also said tariffs are a very useful tool for a lot of non economic issues, whether it's migration or fence and al or to deter countries from invading one another.
So it's become a tool of choice for the incoming administration.
How much can President Trump as president do without Congress?
Liby Michael knows this well. I mean, he can do a lot.
The Congress has bequeathed a lot of authorities to the executive branch. Meaning that much of what he has threatened to do, whether that is just just empty threats, whether that's just bark or not bite, he could actually do and he could do it without Congress. So, for instance, he can increase tariffs on China. He can potentially declare a national emergency and put a universal tariff on under powers that are afford to him by AIPA, a very
esoteric statute that hasn't actually is not typically used. And then there are other, honestly other statutory authorities that were provided by the Congress to the executive brands digging back into the nineteen thirties, and we actually haven't seen use of those since the nineteen thirties. But again, I think the punchline for investors here is that on mostly on fiscal issues, on taxes and spending, you have to go through Congress.
But in terms of the.
Executive branch and the president specifically can do a lot and basically can do it unchecked.
Michael, why did Congress seed so much authority to presidents through the years.
Well, how do we get sure they I'm not sure they realized how much authority they seed it. And in fact, there's a debate going on in Congress because they read the Constitution as giving them authorities to regulate interstay trade and trade policy by custom has always been a partnership between the executive and Congress. But as as Libby said, they between the various trade the trade laws, but also AIPA, the International Economic Emergency Powers Act. If he chooses to
invoke it, he has really pretty much unchecked power. It may be questioned in courts, but my guess is there'll be a fair amount of difference to the executive.
You mentioned that Donald Trump indicates that he may use these for purposes other than purely economic purposes, all sorts of geopolitical political issues might be. How effective is that. I mean, some people say he doesn't really want to impose the tariffs, he just wants to use it as a bargaining chip. That's right.
Look, I think we have to first of all take him at his word and take what he says seriously, because he does have a very strong belief in this area. But he does love to negotiate the deal, as we all know, and he wants to negotiate from a position of strength, and thus far he's been really quite successful in that. When he announced that he was going to
impose tariffs on Canada. Canada immediately up their budget for border security, and my guess is that they announced the tariffs on Mexico will lead to a conversation with the government of Mexico about what more they can do on migration and on pentanol issues, and really country by country, my guess is tariffs are intended first and foremost to bring the other country to the table, and then if they can't reach an adequate agreement on the outstanding issues, he may ultimately impose them.
Donald Trump seems to think they're also there to raise revenue. He has said that he thinks he can replace a lot of the Internal Revenue Code essentially with tarifs. How big are tariffs? Can they really make up a bit lot?
So this is actually something I do think that's quite important. I think the margage just views tariffs as a problem, but I think in a lot of ways, President Trump used tariffs as partly a solution, not only to get concessions from our trading partners and maybe to kind of right or wrong, but also to raise revenue. And if you look at actually current customs revenue, the US is generating about one hundred billion dollars of revenue a year
from existing tariffs, so it could go up much more. Now, of course, tariffs could have an inflationary and could impact growth as well, so it does have sort of a double sided effect, and that could actually affect.
Revenues just generally.
But if you just look at it sort of steady state your tariffs, I mean, they're basically to tax and they can increase revenue quite a bit. And this is actually, think on the Hill something that's pretty salient because you know they are looking at this as a potentially relatively big source of source of revenue.
Does that make extension of the Trump attack TCGA right?
If the task cuts and job did you.
Make it easier to get that extension done?
And I think that it sort of depends on whether the CBO, the Congressional Budget Office, incorporates that in the overall score. And as you know, members of Congress are really focused on the cost of the bill with the score of the bill according to the CBO. But I do think it's going to be in the back of the minds, even if it's not legislated so that can't be scored by the CBO. I do think it'll be the back of the minds of members of Congress when they go vote for a big tax cut bill that
will likely add to the deficit. I think in the back of their minds they'll think, well, we also will be increasing some regvan.
There's some mirony there though, because either tariffs work, in which case you're going to reduce imports and therefore have no tariffs to pay, or they don't really work. They're going to increase the cost of goods that consumers and manufacturers that import inputs into their manufacturing processes have to pay. And so I think it's of limited use really as a revenue tool. I mean, even one hundred billion dollars when you have a Trump tax cut, which might cost
five trillion dollars over ten years. Tariffs are not a substitute for income tax, either corporate or individual income tax.
But make it the other side to the take. But you might not like what the other side has to say. There is retaliation because of it.
When we look at the cost of tariffs, we tend to look just at the direct cost of tariffs. How much more a consumer or an importing manufacturer might have to pay for their products. There's a cost of retaliation, And as you said, countries don't tend to just sit back and let countries impost tariffs on them without responding
with an equivalent amount of retaliation. And then I think there's a third cost, which is the cost of imitation, which is that other countries around the world look and say, well, see if the US can invoke the national security exception and impost tariffs on anything they want, why don't.
We Let mean at another time, in another place, Congress might get really upset about retaliation and trade wars and things like that. How much of this is really filtered through the China lens, if I can call it that, that really changes the entire dynamic on Capitol Hill.
I mean, I think a lot is. Honestly, if you ask the average number of Congress back in twenty seventeen about tariffs, I would say, you know, ninety percent of members would say, there, this is a bad thing. This is going to hurt inflation, will hurt growth. I will heard our relationship with China. Now you fast forward to twenty twenty five, I'd say ninety percent of members will say that, actually they're more supportive, PARTICULARI of tariffs on China.
And because I think that they haven't really seen the economic impacts that are kind of the worst case scenarios that some of the folks have talked about in terms of the kind of negative impacts from tariff. So in some ways, you know, I think that the proof has been in the pudding if you're a member of Congress, and it really there hasn't been as much friction as I think was expected, and again there's been this sort
of upside on the revenue. I think the fallacy though in that thinking, potentially could be if there's a universal tariff.
And while we didn't really see a much of a pass through from a CPI perspective on the first round of tariffs on China under Trump one point zero, if there's a sort of a universal tariff, mean you really can't substitute goods that you don't have a currency offsetting effect that actually could potentially be inflationary, and I do think that members of Congress may have a different a different.
View on that.
Michael, as a true international economics expert in trade, explain FX and its function here, because why don't other people just devalue their currency? And that's not something President Trump particularly wants. He doesn't want a stronger dollar. That's not going to help his bilateral trade devils.
No, and a lot of the policies that he is proposing could well lead to a stronger dollar could lead to higher inflation here as well, And so you're going to see a lot of FX volatility potentially depending on what actually gets announced and what gets what gets implemented.
You know.
The other thing I would say to say Amplifyabliby said is one thing that the tariffs on China did. First of all, it's tarifs on both strategic.
And non strategic goods.
You know, becasibe one can make a case that goods that we really want to see made in America or that we don't want to be dependent on China for we could impose tarras on There's a case to be made for that, whether it should apply to T shirts and footwear and sneakers, all of which are being predominantly you know, it's low income Americans who spend a larger portion of their disposable income on important goods like that.
So it's a regressive tax on low income Americans on a non strategic set of goods which we don't really care about whether we make T shirts in America or pajamas in America. And I think the Bide administration kept the Trump tariffs on despite a lot of efforts to have people to say, why don't you separate strategic from non strategic and at least relieve the tax burden of the non strategic I was just going to.
Go back to the FX point, which I do think that one of the reasons why you didn't see that consumer passed through was because the Chinese did actually devalue their currency, you know, incrementally, and that actually absorbed some of the impacts, some of the sort of a deleterious impact of those round of tariffs. I think the issue kind of fast forward to twenty twenty five is the
Chinese currency is already very weak. They've already actually devalued it as they're trying to revive their economy, and so their flexibility in terms of actually changing their currency is, you know.
Is more limited.
And as a result, if in extreme if he does exactly what he said he's going to do, and I don't think any of us actually think he is, but I do think we should take him seriously for sure on this. This is a deeply ideological issue for the president, But I do think that you're not going to be able to kind of count on that currency kind of adjustment as a buffer, just given what's happening in China.
Many thanks to Michael Froehman of the Council on Foreign Relations and Libby Cantrell from PIMCO. That does it for us here at Wall Street Week, I'm David Weston. This is Bloomberg. See you next week for more stories of capitalism.