Trump's Tariffs… or Bluffs?

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Perhaps the biggest topic in the news right now is
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tariffs and Trump's tariffs on every country, including the little
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tiny ones. And the question is will tariffs actually do
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what Trump says they'll do, and how will they affect
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the average business owner and the average American? And with
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us today, we have an economist, Adam Ozimic. Did I
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get that right? Adam? All right? And Adam is an economist,
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and I'll let Adam introduce himself, but an expert on
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tariffs and how they affect businesses in particular and manufacturing,
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which is kind of the one of the stated goals
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of the Trump administration. So Adam, it's a pleasure to
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have you to talk about what I think is probably
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the single most important fiscal topic we've got right now.
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Glad to be here. I'm the chief economist of the
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Economic Innovation Group. I work on all sorts of issues
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from labor markets to monetary policy to teconomic geography. So
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you know, I'm glad to be here to talk about this.
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I certainly agree with you it's the number one economic
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topic right now.
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So let's start with Let's start with some basics here,
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what tariffs are and what they aren't Okay, So one
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of the things that we hear all the time is, well,
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tariffs are just gonna just going to cause inflation. When
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I look at tariffs, I think terrists are attacked, and
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nobody would say. Nobody is saying that when a state
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or a city increases its sales tax that that's causing inflation.
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They're saying, oh, that's another tax, We're gonna have to
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pay that tax. How How are are terraffs really inflation
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or are they attacks?
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A great question. So I think that you have to
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look at short run versus long run. In the short run,
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it is like a tax. It's like a sales tax
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in its effect on prices, and so you would expect
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that to show up as positive inflation in the short run.
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To typically, you don't expect that to be the kind
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of thing that affects inflation in the long run, for
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the reason being that you said it is a tax,
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raises revenues, and so it shouldn't impact inflation in the
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long run. How long is the long run? That's a
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good question. There's a really important nuance here, though, and
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I think an easy way to think of it is this,
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So imagine if we imported all axles from abroad. Okay,
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every axle on every truck and every car, and you
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placed a one thousand percent tariff on axles, well, imports
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would crash to zero, right, and so what would happen
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to auto production in this world? Crash zero? Right? And
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so auto production goes to zero. That would the amount
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of supply chain havoc that you could create there could
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be inflationary, especially the FEDS trying to offset it by
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lowering rates, because you know all these auto workers are unemployed.
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You have this massive adjustment in the economy, but we're
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not making any more cars. People are still buying cars.
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Car prices are a substantial portion of the CPI. You
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can cause these sort of economic shocks and via supply
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chain issues. And I think a great place to look
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for this is like, look at an oil price shock.
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An oil price shock shouldn't be inflationary, right, it just
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shouldn't be and for the same reason that a terror
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from first principles wouldn't be inflationary. But if it causes
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enough disruption to the economy, if it causes supply chains
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to pull back faster than it causes demand to pull back,
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you can get these sorts of medium term inflation there. Yeah.
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On the other hand, it sounds like it could also
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be deflationary because if it causes if there's no cars,
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there's no transportation, there's no work, that sounds deflationary to me,
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not inflationary. So the point I was just trying to make, though,
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is that I hear this all the time that to me,
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inflation is always too much money chasing too few goods,
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and terriffs by by definition or not that they are
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in fact, it's like you get a tax once and
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so your prices go up once, But do they go
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up every year? Probably not. Now, granted, the disruption that
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they could cause if you put a you know, like
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you say one thousand percent tarrafy and you're down about
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ten percent tariff, that's a little different than a thousand percent.
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It's not just ten percent tariff, so right, and so
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you could What I'm trying to make the case is
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to be a little bit humble about the inflationary impact
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when you're talking about a kind of disruptions really off
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the map potentially, right, if you're talking about a simple,
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across the board, relatively low terraff. I agree, that's not
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the sort of thing that's going to tend to be inflationary.
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But when you're talking about very high industry specific, country
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specific tariffs, those are the kind of things where you
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have to say, yes, this could be deflationary, this could
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be inflationary. We don't really know, because it is such
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a large supply chain impact that you can really end
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up kind of off the map in the same way
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that an energy price shop can do. Got it.
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So, one of the arguments for the tariffs, of course,
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that the Trump administration has made is we're trying to
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force manufacturing back into the US because the fact is,
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as I understand it, we have a lot of critical
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components that aren't.
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Made in the US.
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I mean, whether it's I don't know if it's axles,
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but for example, the magnet that goes into an electric
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car battery, some of the components of our defense system.
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I mean, there are other things that are they're just
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not made here. We don't have the supply chain, for
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example for rarer which are which are critical to so
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much new technology. So do you think and why would
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it or why would it not have an impact a
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positive or negative impact on bringing manufacturing back to the US.
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Great question. I think it's very important to sort of
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do to like sort of segment these arguments for tariffs,
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that to talk about them ranging from most the least plausible.
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If you're talking about a very very narrow set of
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like highly defense specific inputs, say there's some computer chip,
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we use it in all of our missiles. Uh China
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is currently dominating it, and tariffs are part of a
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package of goods to stimulate investment there. And I would say, again,
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not just in our country, but this is the kind
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of thing that's really important to coordinate. So when you're
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talking about like de risking the chain from the risk
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of major geopolitical turmoil, it's important to work with allies
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on that right, whether it's Japan, South Korea, Canada, Mexico.
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So the approach I would take is to focus on
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our focus on what are the very specific goods that
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we are concerned about. What is the best way to
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ensure that we have a supply of them. There's a
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lot of different ways there. You could stockpile them. You
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could do a sort of thing where the government has
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a guaranteed purchase agreement, so they say, look, we're gonna
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buy this many of that chip every year for the
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next twenty years, and we'll buy it from a domestic supplier,
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right or an allied supplier, And and certainly tariffs could
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be part of that part of that discussion. But it
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has to be targeted, and it has to be a
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holistic plan, right, a plan, and it has to be
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a plan that incorporates our allies as well, because which
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you don't want is this sort of race to the
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bottom where US and Europe and Japan and South Korea
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are doing increasing investments to try to stimulate production of
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one memory chip, one rare earth thing, and then it's
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just ramping up higher and higher terriffs, higher and higher subsidies.
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You need coordination there, otherwise you're going to end up
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with wasting money, a lot of fragility, right in the
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sense that the parat gets pulled down one year, the
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industry collapses, like you need to sort of robust supply chains,
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on shoring, friend shoring, and yes, in that narrow circumstance,
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I think you could make a case for terifs to
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occasionally be a component. I don't think it's ever going
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to be the centerpiece of any sort of strategy strategy
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like that, but that's the space that you're talking about
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where the strongest argument exists for it. There's a whole
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lot else going on other than that.
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In policy, of course, well there is, And in fact,
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it's interesting to me how the Trump administration, and I
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kind of like this, I'll be honest, is combining their
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tax policy with their tariff policy on manufacturing because they're
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talking about bringing down the tax rate for US manufacturers
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increasing tariffs, Therefore, does that not encourage and in some
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cases actually almost require if they want if somebody wants
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to take advantage, if a country wants to take advantage
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of the US market, or a company wants to take
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advantage of the US market, which is we are still
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the largest market in the world, would that not encourage
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or demand that they build in the US.
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I think the Tax Cut in Jobs Act, when they
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cut corporate taxes was a good move in the right direction.
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There other things, like high end income taxes that's not
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really going to have an impact on I'm sure.
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Now I'm talking about I'm talking about Trump's talking about
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specifically lowering the tax on US manufacturers to fifteen percent.
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Yeah, I would. I think you're the tax ext for
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tom But I think attacking like depreciation, making depreciating R
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and D investments rapidly, really depreciating capital investments. That's probably
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the best place to do it versus lowering you know,
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corporate tax rates further across across the board. There's also
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you know, there's a industry specific tax rates you get into,
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you get into a lot of difficult questions who's in manufacturer,
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who's not. To me, it makes more sense to do
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this on the depreciation basis, to focus on specific types
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of capital. I don't know, what do you think?
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Well, so, so, prior to twenty seventeen, we actually had
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the Domestic Production Activities Deduction that was an effective lowering
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of the tax rate for manufacturers that was specifically targeted
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to manufacturers, and it, by all accounts, seemed to work
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to encourage manufacturing in the US. You know, I think
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there's a different argument should we encourage manufacturing in the US.
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To me, there's a lot of supply chain security. I mean,
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we all got disrupted during COVID because of some play chains, right.
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We saw how a disruption in one country had huge
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impacts across the board for US. Just like you're talking
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about all the integration, you know, it's not just one thing, right,
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You disrupt one thing, that disrupts another thing, which disrupts
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another thing. And so I think on manufacturing specifically, one
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of the challenges is, and i'd kind of like to
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get your thoughts on this, is, you know, stability is
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the most important thing for business. It's actually the most part,
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especially when you're talk about manufacturing, because you're trying to
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bring in you're talking about building manufacturing plants. For example,
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where Biden, I think the best thing that happened in
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the Biden administration was bringing the Taiwan Semiconductor into the
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US and actually getting them to build plants in the US.
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And their biggest plant is just down the street from me. Okay,
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so in Phoenix, and it's ginormous. It's taking it's going
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to take years to build that. So you have to
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have have some certainty that, hey, this is going to continue.
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And for example, one of the things that happened when
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in the first midterms, the twenty twenty the twenty eighteen midterms,
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excuse me, was the Democrats right off them out and
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said we're going to raise the corporate tax rate, which
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caused instability, and then it delayed, it delayed. I think
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people saying, well, I want to I want to locate
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my manufacturing here, which is the hardest thing to locate
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right in another country. Is the manufacturing distributions way easier
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than manufacturing. And on top of that, not only does
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it take a lot of time and a lot of effort,
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but you've really got to be sure that, hey, the
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next administration isn't going to change this, so it's got
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to be a permanent thing. One of the challenges with
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our tax law is that we keep extending up for
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five years or eight years or ten years, and now
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we're in the same place we were in twenty seventeen.
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Now we got to go back, just like we did
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with a Bush tax cuts. Now you got to keep
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doing this. And it seems to me like making it
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permanent might be a bigger deal. But I think that
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at a fifteen percent tax rate, we're a tax haven,
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and that is that actually is a big deal. Then
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then people are locating here just for the tax rate.
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It's not just for the tariffs or anything else. But
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if you add in the tariffs, it seems to me
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to be a coordination. What do you think about that?
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Do you think Trump's a scattered as people say the yard,
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do you think this is a coordinated effort?
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Well, you know, I'm not sure that that's where most
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of the emphasis is going. And part of the part
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of the making a tax code be sustainable is making
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it fiscally sustainable, right and making it be sort of
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defensible in the merits when you're talking about massive tax
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cuts on tips, when you're talking about we're not talking
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about that.
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Let let's stick with one thing if we can't at them.
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I get that that's in and the bill, but that's
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not what I want to talk about. I want to
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talk about, specifically the idea of a lower tax rate
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for manufacturing, specifically that part of the bill. I don't
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want to talk to the tips I think. I think
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not taxing tips, not taxing overtime, I think that's silly.
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I think that's just.
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I'm talking about.
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I'm talking about the very specific You make a tax
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haven for manufacturers in the US, do you not, when
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combined with the tariffs, encourage manufacturing in the US.
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The problem is the TIFFs are don't have that certainty
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to them. So you're making the case that, look, if
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we do it on the tax code side, it brings
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more certainty to the decision, but the tarriffs are they're
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not even certain within the week alone.
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Well, let's say it played out. I mean, you know
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where it is. It's a mess right now, but it's
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not going to be a mess in six months. Hopefully
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it will work its way out. Okay. And once it
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works its way out and it becomes like, Okay, here's
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what it's going to end up with, here's what we're
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going to end up with. Do you think that the
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teriffs will continue to go up and down, up and down,
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up and down, or you think it's more likely the
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next administration, even if it's the Democrats, will continue the tariffs,
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just like Biden continued to trump tariffs on China.
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Well, let me answer your previous question first that I
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think that focusing on taxes tax reform as a way
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to stimulant manufacturing is a much smarter direction to go
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than focus on tariffs. I'm not sure that lower corporate
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taxes are the best bang for your buck. I think
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that maybe depreciation is because it's about marginal assets. You know,
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when you cut corporate taxes overall, you're cutting corporate taxes
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for investments made a long time ago. Companies who aren't
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really going to be expanding. I think it makes sense
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to focus more on that margin through aggressive deduction. But
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I agree directionally with you that we should think about
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how do you make the tax code for advanced manufacturing better.
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I don't know that we really gain much by bringing
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back all manufacturing. You know, if I have to choose
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between the marginal manufacturer and the marginal tech company, I'm
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not sure that manufacturing is going to make us better off.
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I don't see a very strong case for so I
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would think, how do we how do we get more
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advanced manufacturing, How do we get more of the manufacturing
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that we that really makes us a healthier, more stable,
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wealthy country. I think you can make the argument that
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the tax code should be a part of that discussion.
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So on that part, I agree with you, whether we
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disagree in the details of what the best way to do,
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but I agree that we should be thinking more about that.
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On the teriffs, I think that one of the things
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you're seeing happening is people are actually turning against tariff policy.
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You're seeing it in polls that moderates, independence and Democrats
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are really turning hard against the tariffs because for a
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long time, both parties sort of promise this kind of
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protectionism and now they're getting it, and people like, oh,
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I don't like this, right, it's chaotic, it's you know,
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it's really the well is being poisoned in a sense,
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the political well. So I don't think that it's really
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we should take of it as a politically sustainable kind
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of policy. It's not the kind of we before when
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you're talking about targeted tariffs, you know, say you do
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something for the steel industry, right, which we know the
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steel industry has a century of handouts, So that's the
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kind of stuff that tends to be more sustainable.
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Right.
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I don't think it's a good policy, but you can
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make the argument that it's sustainable broad based across the
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board tariffs. I don't think so, especially when you're talking
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about these geopolitical goals like isolating China. I think if
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we are trying to isolate China, we're going to need
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more collaboration, in cooperation with our allies, and that's going
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to require getting rid of those kinds of across the
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board and industry specific tariffs and put in place. So
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I really don't think most of what we're seeing is
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very sustainable.
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So so let me ask you about that with China.
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Is how dependent is China's economy on exporting to the US.
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I mean, China runs a large trade surplus, and that
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surplus is certainly plays a huge role in their industrialization.
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They become more consumer oriented over time, so they do
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have a lot of consumers. When you look at most
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their industries, most of what they make is consumed domestically, right,
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So like the average dollar of production is consumed in China.
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So we shouldn't dismiss that entirely and think that this
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is some tiny nation that look counter example, be like
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Taiwan and semiconductors, right, they make for the world, Right,
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they make it for the world. Most semiconductors made in
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Taiwan are not used in Taiwan, but a lot of
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industrial goods made in China are used in China. So
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that is increasingly part of the story. I do think
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that if you know, we shut off exports or imports
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from them entirely, that's going to be a hard adjustment
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for them, for sure. You know, we are stands a
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portion of that surplus. Now they can get around that
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by exporting the third countries. You know, when you're talking
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about individual companies. Sometimes they'll even locate production in a
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third country. So there's ways to dodge it. But if
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we if we tried to turn that off as hard
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as we could, very quickly, it would be extremely I think,
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a big adjustment for them, as it would be for us.
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Let me ask you this, what what would it lead to?
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A kinetic war? Trade wars historically have led to have
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led to kinetic wars, have led to real wars.
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Right. You can look at the example of Japan, right
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and cutting off oil exports to that and how that
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you know, accelerated there.
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Look at the Boston tea party that was that was
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that was a terrif issue, same thing.
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I really think it's a very hard question. I think
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it's a very relevant question, and I think that people
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should be a little bit more concerned about it because
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you know, when we when we back up to the
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very beginning, what is our motivation here? What are we
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trying to do a lot of the motivation is exactly
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to ensure ourselves against the war with China, Right, So
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if we're trying to avoid that outcome, that bad outcome,
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it doesn't really behoove us to take steps that then
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make the outcome more likely. And I think, you know,
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it's hard to imagine the counterfactual, but I think that
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if we were if we had done this disconnection from China,
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if we'd started doing it, you know, twenty years ago,
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as many China Hawks wanted and still want, if we
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had done this decoupling, what does China stand to lose
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by invading Taiwan? We lose that economic spread, right, So
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I agree with you. I think on balance, a hard
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de couple would increase the risk of a real conflict
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in Taiwan. Now that's outside my area of expertise, but
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I you know, I think your instincts are correct.
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So let me ask you about another argument that has
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been made for tariffs, and that is that they raise revenue.
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In fact, there's been a there then an argument floated
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by the administration that hey, this we could collect as
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much as seven or fifty billion dollars a year, we
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could eliminate income taxes for people under one hundred and
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fifty thousand. What's your take on that argument.
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Yeah, the numbers, the numbers don't add up needed to
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the arguments. So they try to argue that if we
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impose these high tariffs is going to cause all this industrialization.
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The US is going to bring back all these manufacturers. Well, okay,
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what's that going to do to tariff revenue if that succeeds? Right?
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If we put tariffs on all the auto imports such
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that we stop importing automobiles, where does that revenue go?
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So you can't have it both ways. Tariffs can't be
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this maximum estimate, right, you have to adjust that and
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you can't argue that we're going to onshore all this
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stuff too. To the extent that terraffs raise revenue, that
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reflects that it is a costly adjustment. It means that
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businesses and consumers are continuing to import the goods but
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pay that high price for them. So I think if
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you want that revenue raiser. You know, it's funny because
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you know, the Trump administration is arguing that Europe's that
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is a tariff, right, and that is so much more
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efficient than tariff. It's like, if you think of that
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as a tariff, can we just have a vat instead, right?
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Because now that now you're talking about a substantial revenue
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raiser that that would be sustainable.
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So now you're talking about something that that I love
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this topic. So let's say to take a couple of minutes,
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because I can't resist, because I do think that of
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that Europe's that, and in fact, every country has that
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except the US. Okay, every country we trade with has
401
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a BAT except almost every country that has a BAT
402
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except the US. Canada has a VAT, they call it
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a GST, China has a VAT, they all have that,
404
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Mexico has a has has a big VAT. So the
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argument that a that is not the same as a tariff,
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so that if we export goods to France, that they
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then have to turn around and export goods back to US.
408
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But that is not how the world works. Okay, the
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euro dollar. There are more euro dollars in the world.
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This is dollars created outside the US than there are
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dollars inside the US. That's that's a fact. And so
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that it absolutely to me is an unfair trade practice.
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And I get that they charge their own people the
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same thing, but it's different because let's take air bus
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as an example versus Boeing. Okay, Boeing sells a plane
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to France, there's a vat twenty two percent. France sells
417
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airbus to the to American airlines, there's no VAT. Okay,
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so that's a twenty two percent on gross. That is
419
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a huge number that you're talking about here. So I
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would agree with you, actually, but I don't want a
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VAT unless we eliminate the sixteenth Amendment because if you
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add a that you're just adding another tax, and that
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just that's a terrible idea to add another.
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Keep in mind, your argument coming into this was that
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if we raise revenues for tariffs, then we can lower
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other taxes.
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Right, So if you're saying, yes, that's what the administration is.
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If they're correct, then then a bad is the way
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to go about it. But if you're saying you don't
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believe that raising revenues will be used to cut taxes
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and the terriff one.
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And I would say even with the tariff as an example,
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is that well a little bit different because if you're
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talking about people under one hundred and fifty thousand, remember
435
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Biden had four hundred thousand dollars with his target number,
436
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right that that they average person, right, one hundred somebody
437
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making one hundred and fifty thousand is certainly not in
438
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the top I don't think they're even in the top
439
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ten percent. They're in that that middle middle group there,
440
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So you're making a hundred fifty thousand dollars a year,
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that's your voter, so your voters can want that.
442
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The voter is going to be be there.
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They're going to be thrilled with that. If you talk
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about eliminating taxes, all you say, Hey, we're gonna we're
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gonna use a vat and we're going to eliminate the
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income tax entirely. Okay, it's going to come back and
447
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it's going to come back to the progressive income tax
448
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just like we have now. Okay, and it's just going
449
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to get more progressive. Yes, you're going to exempt you know,
450
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because a that also can be very regressive, right if
451
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you're not careful. Sales tax is the most regressive, one
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of the most regressive taxes we have unless you exempt
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certain commodities that that that the poor and the middle
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class have to have to buy. But it's just an
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interesting argument. It's just Trump's actually the first person I've
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heard talk about of that as an impediment to trade.
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I actually I actually think it is. But let's let's
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let's talk.
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About Oh can we can we talk more about that
460
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though before we move on. Sure, So all right, so
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the that doesn't affect if you're talking about Boeing or
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air Bus selling in France, they're selling on equal terms, right,
463
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Boeing and Airbus selling in the US, they're selling an
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equal terms a terriff, that's not the same. The same
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is not true for a tariff, right. A tariff creates
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a difference in taxes depending on who is selling into
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the country. Now, if you're talking about a difference in
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taxes for Boeing selling into France versus Airbus selling the US, well,
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they pay a whole range of different taxes in the US.
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You have to pay the corporate tax, you there's incidence
471
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of the payroll tax, you have property taxes.
472
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And you have all those in France too, right, But.
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I'm saying that you can't if you're going to make
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this argument that it's unfair, we're unfair to manufactures in
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the US because taxes are higher in France and lower here.
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We have to talk about the whole tax package. And
477
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now in the same this means that in the same
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sense that of that if that counts as a tariff, well,
479
00:27:01.240 --> 00:27:04.240
then the US property tax, if our property taxes are higher.
480
00:27:04.359 --> 00:27:06.000
That counts as terrif you have to look at the
481
00:27:06.039 --> 00:27:09.480
whole tax system and what I would say is a
482
00:27:09.519 --> 00:27:10.640
relatively low tax.
483
00:27:11.039 --> 00:27:13.319
I'm going to completely disagree with you on that, because
484
00:27:14.240 --> 00:27:17.480
if Air France does not pay property taxes in the
485
00:27:17.559 --> 00:27:20.640
US because they sell the plane to the US, Boeing
486
00:27:20.640 --> 00:27:24.359
does pay property taxes in the US, Air France does not, Okay,
487
00:27:24.440 --> 00:27:27.079
So it's not the same, Okay. And if that is
488
00:27:27.119 --> 00:27:29.759
not the same as an income tax, because an income tax,
489
00:27:30.079 --> 00:27:34.200
the income tax rules don't work. That's effectively a sales tax.
490
00:27:34.400 --> 00:27:36.880
I mean, that's effectively what it is. It's a gross
491
00:27:37.200 --> 00:27:39.400
it's a gross income tax. Right, it's on the gross
492
00:27:39.400 --> 00:27:42.400
sales price. But we're not going to agree on this,
493
00:27:42.519 --> 00:27:45.720
That's okay. Not very many people agree with me on this. Actually,
494
00:27:46.160 --> 00:27:48.160
the Trump administration is probably the only people in the
495
00:27:48.200 --> 00:27:50.720
world that agree with me that I think of that
496
00:27:51.000 --> 00:27:54.799
is similar to a tariff. Let me ask you the
497
00:27:54.880 --> 00:27:59.160
other question I wanted to ask you about is the
498
00:27:59.200 --> 00:28:04.200
trade deficits? Okay, because I find this aspect fascinating that
499
00:28:05.039 --> 00:28:08.680
Trump decided to go after not just a reciprocal tariff,
500
00:28:09.400 --> 00:28:15.119
but actually going after the trade deficit. Just your thoughts
501
00:28:15.440 --> 00:28:18.200
on trade deficits. I've got an idea where you might
502
00:28:18.279 --> 00:28:22.720
end up here. But tell, tell, tell our listeners. Trade
503
00:28:22.759 --> 00:28:28.200
deficits good bad? Or does it depend on the situation? Uh?
504
00:28:28.279 --> 00:28:31.319
Yeah, it depends on the situation. I don't think trade
505
00:28:31.359 --> 00:28:36.759
deficits are particularly important indicator, and I certainly don't think
506
00:28:36.799 --> 00:28:42.119
it's an indicator of whether to two kinds of trade deficits. Right,
507
00:28:42.200 --> 00:28:46.359
what's our overall trade deficit? Right? Where you can make
508
00:28:46.480 --> 00:28:50.000
an argument that the level may be bad in the
509
00:28:50.039 --> 00:28:53.039
sense of it represents sort of borrowing from the future.
510
00:28:53.720 --> 00:28:58.319
Bilateral trade deficits much harder to make the argument there, Right,
511
00:28:58.440 --> 00:29:00.880
we borrow we bought from some country, we selve to
512
00:29:00.920 --> 00:29:04.680
other countries. You know, we have a trade surplus with Australia.
513
00:29:04.759 --> 00:29:07.000
Is that a problem for Australia. I don't think so. Right,
514
00:29:07.640 --> 00:29:10.720
So it's not a very the bilateral trade deficit, let's
515
00:29:10.759 --> 00:29:14.599
start there. The bilateral trade deficit is not a good
516
00:29:14.640 --> 00:29:17.240
policy target. It's certainly not a good policy target. We're
517
00:29:17.240 --> 00:29:19.559
talking about one hundred and eighty countries. Now. If you're
518
00:29:19.599 --> 00:29:23.000
focused on maybe one or two countries who have really
519
00:29:23.079 --> 00:29:26.359
huge trade surpluses and you want them to sort of
520
00:29:26.440 --> 00:29:30.680
like make changes in their industrial policy or rebalance their
521
00:29:30.720 --> 00:29:33.119
economy or whatever. There's an argument to have there, But
522
00:29:33.599 --> 00:29:36.160
let's take the bilateral trade deficits with the rest of
523
00:29:36.200 --> 00:29:37.799
the world kind of off the table. Can we at
524
00:29:37.880 --> 00:29:40.599
least agree that that's not a reasonable thing to focus on.
525
00:29:41.000 --> 00:29:44.279
Go ahead, great, all right, So now you talk about
526
00:29:44.319 --> 00:29:48.839
our overall trade deficit. Our overall trade deficit has much
527
00:29:48.839 --> 00:29:51.559
more to do with, you know, domestic savings and investment.
528
00:29:52.079 --> 00:29:54.599
And so I think that you're not You're going to
529
00:29:54.640 --> 00:29:57.799
have a very hard time getting rid of that trade
530
00:29:57.799 --> 00:30:03.319
deficit via tariffs. Right, Uh, so you need more domestic savings.
531
00:30:04.039 --> 00:30:07.400
So and you okay, but.
532
00:30:09.240 --> 00:30:12.240
How do you get more domestic savings if if you're
533
00:30:12.279 --> 00:30:13.960
constantly shipping your money offshore.
534
00:30:15.920 --> 00:30:19.000
By shipping your money off shore, you mean people are
535
00:30:19.079 --> 00:30:20.559
buying our debt.
536
00:30:20.680 --> 00:30:25.279
Cheap that we're well, we're we're we're we're constantly buying
537
00:30:25.720 --> 00:30:32.319
cheap disposable stuff. Uh, you know, cheap cheap stuff from China, Asia,
538
00:30:32.440 --> 00:30:36.039
whatever our money, it goes off shore. And then then
539
00:30:36.279 --> 00:30:39.359
the the transactions are off shore, they're not back to
540
00:30:39.400 --> 00:30:39.960
the US.
541
00:30:40.279 --> 00:30:42.400
Well, there are there are other countries who buy many
542
00:30:42.480 --> 00:30:44.920
cheap things from China too, and they have a trade,
543
00:30:45.319 --> 00:30:50.359
they have trades maybe, so buying from China doesn't doesn't
544
00:30:50.359 --> 00:30:52.119
necessitate the trade depth sit.
545
00:30:54.240 --> 00:30:57.599
So so Japan, as I understand that, of course they
546
00:30:57.599 --> 00:31:02.720
have the largest UH debt to GDP in this in
547
00:31:03.240 --> 00:31:08.079
in the industrialized world. But my understanding is that Japan,
548
00:31:08.200 --> 00:31:11.599
maybe you can clarify this, Japan, most of their debt
549
00:31:12.640 --> 00:31:17.119
is owned by Japanese, whereas a good portion of our
550
00:31:17.160 --> 00:31:22.200
debt is owned by nine US people. So how does
551
00:31:22.319 --> 00:31:25.440
how does that affect or does that have any impact
552
00:31:26.000 --> 00:31:30.519
on our you know, on our abilities to continue to
553
00:31:30.519 --> 00:31:31.000
to thrive.
554
00:31:32.359 --> 00:31:38.240
UH. Foreign demand for US debt certainly has an impact
555
00:31:39.160 --> 00:31:42.920
on you know, capital flows and trade flows for sure,
556
00:31:44.200 --> 00:31:48.160
But does that have any impact on our UH on
557
00:31:48.160 --> 00:31:50.640
our well being? I don't. I don't think so. Essentially
558
00:31:51.119 --> 00:31:53.799
that they're they're lowering our cost of our cost of debt.
559
00:31:53.799 --> 00:31:56.440
They're lending us money. We can do things with that money.
560
00:31:56.519 --> 00:31:58.400
What we choose to do with that money is far
561
00:31:58.440 --> 00:32:01.519
more consequential than there's someone is lending that to us.
562
00:32:01.880 --> 00:32:05.519
If the world stopped, for example, if the world suddenly
563
00:32:05.519 --> 00:32:11.319
decided the US dollar is not valuable, the US debt
564
00:32:11.480 --> 00:32:14.400
is risky. I don't want to invest in it. But
565
00:32:14.519 --> 00:32:17.319
what happened is interest rates would go up, right, right,
566
00:32:17.359 --> 00:32:20.279
And I don't think that in the situation where interest
567
00:32:20.359 --> 00:32:22.480
rates go up on the US economy, I actually don't
568
00:32:22.519 --> 00:32:25.160
think that's going to solve our address our savings crisis.
569
00:32:25.400 --> 00:32:29.200
Our responsive responsiveness of our savings rate to those interest
570
00:32:29.240 --> 00:32:32.160
rates is not strong enough. But we're still going to
571
00:32:32.160 --> 00:32:35.079
be running debt a debt, it's just at a higher
572
00:32:35.119 --> 00:32:38.640
interest rate, right, and so that's even more deficit spending.
573
00:32:39.000 --> 00:32:40.880
So I don't. I don't even if we had a
574
00:32:40.920 --> 00:32:42.480
way to do that, I don't. I don't think Americans
575
00:32:42.480 --> 00:32:44.079
are gonna like that. The higher interest rate's going to
576
00:32:44.160 --> 00:32:47.400
slow the economy. I think it is in general. I
577
00:32:47.440 --> 00:32:50.039
think it is a privilege and positive for the economy
578
00:32:50.119 --> 00:32:52.079
that people are willing to lend to us. The most
579
00:32:52.119 --> 00:32:54.000
important thing is what do we do with that money?
580
00:32:54.559 --> 00:32:58.160
Are we using that money to spand our education or
581
00:32:58.240 --> 00:33:01.799
capital base, keep tax is low, or we're wasting it
582
00:33:01.839 --> 00:33:05.759
on boon doggles. That's the much more important or silly
583
00:33:05.799 --> 00:33:08.279
tax cuts that don't really do anything, those sorts of
584
00:33:08.559 --> 00:33:10.920
that's much more important for a well being than than
585
00:33:10.960 --> 00:33:12.519
the lending itself. What do you.
586
00:33:12.519 --> 00:33:15.200
Think, Oh, there's no question there's always going to be
587
00:33:15.200 --> 00:33:18.799
boon dooggles because politicians will always be politicians. So don't
588
00:33:18.799 --> 00:33:21.200
I don't think there's any end in sight to boon doggs.
589
00:33:21.240 --> 00:33:24.039
You need to keep our boondoggle to GDP ratio as
590
00:33:24.079 --> 00:33:25.759
love as I'd love it.
591
00:33:25.880 --> 00:33:27.839
There's a there's a new term we need to get
592
00:33:27.880 --> 00:33:29.640
out there at him. We're going to do the boon
593
00:33:29.680 --> 00:33:34.319
dooggle to GDP ratio or I love that. I absolutely
594
00:33:34.359 --> 00:33:37.640
love that. So final question, where do you think, uh,
595
00:33:37.839 --> 00:33:40.599
six months down the road, where do you think tariffs
596
00:33:40.680 --> 00:33:43.240
end up? Get out your crystal ball.
597
00:33:44.200 --> 00:33:47.599
You know, I wish I knew, I wish I knew.
598
00:33:48.759 --> 00:33:51.400
You are starting to see more signs that the Trump
599
00:33:51.440 --> 00:33:55.960
administration wants to wind this down, which is different than say,
600
00:33:56.039 --> 00:33:58.480
two weeks ago, where it seemed like they had a
601
00:33:58.599 --> 00:34:01.799
very high tolerance for econ pain. They were not flinching.
602
00:34:02.680 --> 00:34:04.799
They were not flinching in the face of interest rates
603
00:34:04.839 --> 00:34:08.000
going up alongside the stock market going down, which are
604
00:34:08.079 --> 00:34:10.840
very worrying signals. And so if you had asked me
605
00:34:10.840 --> 00:34:13.199
two weeks ago, I would have said, I, you know,
606
00:34:13.760 --> 00:34:16.280
they're showing a high pain tolerance. They're gonna keep going
607
00:34:16.320 --> 00:34:18.800
and they're gonna push through until we get a recession,
608
00:34:18.840 --> 00:34:22.239
and then hopefully the recession is enough to push them
609
00:34:22.360 --> 00:34:26.360
off of this plan and pull back. I'm getting a
610
00:34:26.519 --> 00:34:30.159
sense and some signs of a little less pain tolerance lately.
611
00:34:30.280 --> 00:34:33.639
I'm not sure exactly what's causing that. But you had
612
00:34:33.880 --> 00:34:37.119
yesterday the other day of the Trump administration talking about a
613
00:34:37.159 --> 00:34:38.880
deal with China. It's not gonna be a hard deal.
614
00:34:38.920 --> 00:34:40.880
It's not gonna you know, we're gonna make an easy deal.
615
00:34:40.920 --> 00:34:43.559
It's we're gonna bring down rates soon. That's coming. And
616
00:34:43.679 --> 00:34:49.119
there's a more conciliatory tone now. Of course today, uh,
617
00:34:49.760 --> 00:34:51.880
you know, back on the table talking about fence and
618
00:34:51.880 --> 00:34:54.559
all again, attacking China. So it's my goodness, it's just
619
00:34:54.599 --> 00:34:58.519
so hard. It's so hard to look like normally is.
620
00:34:58.599 --> 00:35:00.679
In forecasting, you you have to have a model of
621
00:35:00.719 --> 00:35:04.039
what the at least what the actors want. You know,
622
00:35:04.119 --> 00:35:07.039
what the Federal Reserve wants, and so when you incorporate
623
00:35:07.159 --> 00:35:11.719
their expectations of their behaviors, you can model scenarios. If
624
00:35:11.719 --> 00:35:14.079
our unemployment goes up, they'll do this, If inflation goes up,
625
00:35:14.079 --> 00:35:18.440
they'll do this. The administration has not really laid out
626
00:35:18.800 --> 00:35:22.599
what is it exactly that they wish to accomplish. They've
627
00:35:22.639 --> 00:35:25.880
laid out a variety of things, some of which are impossible.
628
00:35:25.960 --> 00:35:28.480
You're not going to bring back all the lost manufacturing jobs.
629
00:35:29.159 --> 00:35:33.159
Some of which are narrow and defensible about national security interests,
630
00:35:33.679 --> 00:35:37.239
some of which are It's all over the place. It's
631
00:35:37.320 --> 00:35:38.719
very hard to say. If you put a gun to
632
00:35:38.760 --> 00:35:41.599
my head, please don't. But if you do, I would say,
633
00:35:42.119 --> 00:35:45.400
in six months, I think we are back down to
634
00:35:45.679 --> 00:35:50.400
fairly low teriff rates, and we've made some trade deals
635
00:35:50.400 --> 00:35:52.639
that look like the deals that trade Trump made with
636
00:35:52.719 --> 00:35:56.800
China before, which was empty promises about soybeans that don't
637
00:35:56.800 --> 00:36:01.559
really address national security. The real way to change China's
638
00:36:01.559 --> 00:36:06.360
behaviors through, you know, working with our allies, multi multilateral
639
00:36:06.480 --> 00:36:10.400
organizations like it's not it's not asking that they buy
640
00:36:10.519 --> 00:36:14.119
more story from us. That's not a path to prosperity
641
00:36:14.239 --> 00:36:17.519
or anything. But I think that that seems to be
642
00:36:18.280 --> 00:36:22.079
the direction we're heading. But boy, it is harder than
643
00:36:22.079 --> 00:36:22.559
ever to say.
644
00:36:22.760 --> 00:36:24.679
Interesting to say, A lot of a lot of a
645
00:36:24.679 --> 00:36:27.599
lot of countries are sitting down and negotiating right now
646
00:36:27.679 --> 00:36:29.719
with the United States and trying to come up with
647
00:36:29.760 --> 00:36:32.679
a better deal. So we'll say if the you know,
648
00:36:32.800 --> 00:36:34.400
if the beat works or not. I mean, to me,
649
00:36:34.519 --> 00:36:36.480
that's that's it. To me, it's either going to be
650
00:36:36.480 --> 00:36:39.280
a great success or of a great failure. So I
651
00:36:39.320 --> 00:36:41.320
don't I'm not I'm not seeing a whole lot in between.
652
00:36:42.119 --> 00:36:44.880
But look at the previous terror Look at the previous
653
00:36:44.920 --> 00:36:47.719
terrors right in twenty eighteen, twenty nineteen. They didn't destroy
654
00:36:47.760 --> 00:36:48.400
the economy.
655
00:36:48.519 --> 00:36:51.239
Yeah, but they were tiny compared to what we're what's
656
00:36:51.280 --> 00:36:52.599
going on now, that.
657
00:36:52.519 --> 00:36:55.119
Maybe what we end up retreating to is very tiny changes.
658
00:36:55.360 --> 00:36:55.559
You know.
659
00:36:55.880 --> 00:37:00.480
Interesting? Interesting, So, Adam, where can we get more information
660
00:37:00.559 --> 00:37:04.719
about you and the work that your organization does.
661
00:37:05.920 --> 00:37:07.960
You can go to e i g dot org to
662
00:37:08.199 --> 00:37:09.559
see more of the work we do with the Economic
663
00:37:09.599 --> 00:37:12.360
Innovation Group. Follow me on Twitter at Model Behavior.
664
00:37:13.159 --> 00:37:17.400
Awesome. Thank you, Adam, very very great, having you a
665
00:37:17.599 --> 00:37:21.199
really good discussion. Thank you for putting up with my
666
00:37:21.320 --> 00:37:24.079
pushback and thanks for pushing back. I love that kind
667
00:37:24.079 --> 00:37:27.880
of discussion. It's that's how we learn. I think that
668
00:37:28.000 --> 00:37:31.760
the more real discussions we have, the more we're gonna learn,
669
00:37:32.239 --> 00:37:36.000
and the more we learn about the macro economics, the more.
670
00:37:36.119 --> 00:37:39.960
We're going to learn about our microeconomics, and we're gonna
671
00:37:39.960 --> 00:37:43.800
make way more money and hopefully pay way less taxes.
672
00:37:43.840 --> 00:37:47.840
But in the right way, not in not in the
673
00:37:47.920 --> 00:37:51.559
boondoggle t GDP way. And so if you like this,
674
00:37:51.760 --> 00:37:54.599
join us again, Share this with your friends, share this
675
00:37:54.760 --> 00:37:59.079
with with your your colleagues, and join us next time
676
00:37:59.159 --> 00:38:03.119
on the Wultibility Show. Remember it's always about making way
677
00:38:03.159 --> 00:38:05.719
more money and paying way less tax See you next time.
678
00:38:06.400 --> 00:38:09.679
This podcast is a presentation of rich Dad Media Network.