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  • How Will Trump's 90-Day Tariff Pause Impact the Economy?

How Will Trump's 90-Day Tariff Pause Impact the Economy?

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Bloomberg Apr 10 06:29 · 28.8k Views

Ben Harris, Vice President & Director of Economic Studies at the Brookings Institution and Former Assistant Secretary of the Treasury for Economic Policy, discusses how President Trump's 90-day pause on reciprocal tariffs for countries who haven't retaliated will impact economies and how Trump's 125% tariff on China will affect the various goods the United States gets and if the supplies acquired from China can be easily replaced. Ben Harris speaks with Kailey Leinz and Joe Mathieu on the late edition of Bloomberg's "Balance of Power."

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Transcript

  • 00:00 So is this officially the decoupling,
  • 00:03 the decoupling of trade with China?
  • 00:04 Yeah,
  • 00:05 We've heard that term a few times in the Biden administration.
  • 00:07 Look, I think that the past is sometimes the best guide to what's going to happen in the future.
  • 00:11 And if you go back and look at the first Trump administration,
  • 00:14 despite all the rhetoric on tariffs and trade deals with other countries, it was really just a one way trade deal with China.
  • 00:20 And so my expectation had been that's what we've seen in the second Trump administration because the same forces
  • 00:25 that led the Trump administration to really not put up tariffs on other non China trading partners are still there today.
  • 00:32 So, you know, do I expect this to continue?
  • 00:35 Sure.
  • 00:35 I don't think Trump can back away from everything,
  • 00:38 but I think you saw today that markets don't like these trade barriers
  • 00:42 and
  • 00:42 and this was just a great day for anyone with a 401K or any interest in equity markets.
  • 00:46 Yeah, with the best day since 2008.
  • 00:48 On the China point though, and what Jenny was just speaking to this idea that there may be
  • 00:52 still trade in some things because we simply cannot replace China as the source
  • 00:56 of those things.
  • 00:57 How how big is that POD, how easily replaceable in terms of supply are the vast majority of goods that we get from China?
  • 01:04 Well, a lot of the Chinese goods are traded through other countries, Vietnam, other Southeast Asian countries, right?
  • 01:08 So the fact that we
  • 01:09 entered into today with the 50% tariff on Vietnam and today we don't have that, I think it means there'll still be a way to facilitate some of that trade.
  • 01:17 So sometimes the headline number isn't quite as big as it as it seems.
  • 01:20 The same is true for the tariffs on
  • 01:22 Canada and Mexico.
  • 01:23 It seems like a really big headline number, but there was an exemption for the USMC.
  • 01:26 And so, you know, I think this may be a case where that 125 doesn't apply across the board quite as much as it may seem.
  • 01:32 You know, Ted Cruz was talking about the Angel on one shoulder and demon on the other for Donald Trump.
  • 01:37 Did Peter Navarro lose today?
  • 01:38 We've heard so much about non tariff barriers, tariff evasion, Vietnam.
  • 01:43 Now, it's not going to be addressed apparently, at least for the next 90 days.
  • 01:46 Yeah, and probably longer.
  • 01:48 Look, all the reasons that they pivoted are going to be there in three months.
  • 01:51 And today was a great day for markets.
  • 01:53 I think the real winner out of all this was the bond market and the power of the bond market.
  • 01:56 And one thing that I've said kind of from the get go was that, look, Trump doesn't really pay attention to the courts like you'd hope maybe a president did.
  • 02:04 And so the referee now are financial markets and the bond market said, we are uncomfortable with the posture you're taking.
  • 02:10 Foreign
  • 02:12 entities said, look, we don't necessarily want to loan to the United States.
  • 02:15 And there's some evidence that suggests that China gave some
  • 02:18 guidance to state banks to say, stop buying US bonds.
  • 02:22 But
  • 02:22 the real sort of winner in all of this was the power of the bond market.
  • 02:25 And Trump just can't continue like this if it wants to continue having foreign investors alone in the United States.
  • 02:30 Well, we began today, it's worth pointing out, with the former U.S.
  • 02:33 Treasury Secretary Larry Summers saying on social media, looking at the bond market that we were on the precipice of another
  • 02:39 financial problem here.
  • 02:41 Jamie Dimon was talking about the prospects of a recession.
  • 02:44 Has all of that really changed just because of that
  • 02:46 90 day pause?
  • 02:47 Are we pulled back from the brink to that extent or were we never actually on the brink of brinks to begin with?
  • 02:53 I mean, we're living on the brink now.
  • 02:55 I think that what happened is that we sort of solved the problem in equities and we're still down 5% relative to Liberation Day,
  • 03:01 but what remains is threats to our credibility.
  • 03:05 And that took us decades to build up.
  • 03:07 And I think that's where we're really on the brink, where you've got a CEA chair who says, look, maybe we should go ahead and withhold interest payments to foreign creditors.
  • 03:15 And like,
  • 03:16 who knows who will have the president's ear.
  • 03:18 And so
  • 03:19 I, I think that we've kind of solved the equities problem for the short term.
  • 03:22 We haven't solved the bond market problem.
  • 03:24 And it would take some real statements coming out of the president and the White House to, to, to change that.
  • 03:29 You said something important that in 90 days, we'll still have the same factors in place that this White House was trying to address Now with regard to tariff evasion or any number of factors.
  • 03:38 Does that mean you do not expect a flurry of
  • 03:41 tailored trade deals as the president says to be announced?
  • 03:44 No.
  • 03:44 I mean,
  • 03:45 look, I know enough about politics to know that recessions are bad for sitting presidents.
  • 03:49 Goldman over the course, Goldman Sachs over the course of an hour today
  • 03:53 changed their call as you guys have reported, from a 65% probability of recession back down to 45%
  • 04:00 probability of recession.
  • 04:00 This is they went from 45 to 65 back to 45 over the course of 75 minutes.
  • 04:05 Recessions are bad for sitting US presidents.
  • 04:08 Uncertainty and volatility are bad for sitting US presidents,
  • 04:11 and unwillingness to invest in the United States are bad for sitting U.S.
  • 04:13 President.
  • 04:14 So I think that Trump has kind of understood how far he could push all this.
  • 04:18 And we have a new set of parameters.
  • 04:19 There's no 90 day review.
  • 04:20 This is just over.
  • 04:21 In your view, he's turning away from this.
  • 04:22 Yeah.
  • 04:23 And look, I see, I still think that there's going to be pressure on on China, just like there was in the first term.
  • 04:27 And I think it's easier to have a trade war with
  • 04:30 one partner than with the whole world.
  • 04:32 And I think we saw sort of the limits to how much the world is willing to accept.
  • 04:36 Well, of course, he argues that he wants to see more of what happens around the world happening in the US in terms of manufacturing.
  • 04:42 If we abandoned these higher levies, which he said we're going to bring that about a manufacturing renaissance, is that just not going to materialize or the 10% base levels
  • 04:50 that are still in place, even if the reciprocal rates that were higher aren't going into effect for a while, does
  • 04:57 can he still achieve that same objective with this kind of policy?
  • 05:00 I mean, there's a bunch of questions here.
  • 05:01 One, do we want to make T-shirts and cheap toys in the United States?
  • 05:04 Look, I have three daughters.
  • 05:05 I don't want them working in a factory.
  • 05:07 Like I would love for them to go work in services or something else.
  • 05:09 But if the idea is to really to shift
  • 05:11 all manufacturing back to the United States, that means we'll be a poorer country overall.
  • 05:16 If the idea is, look, we want to shift certain supply chains back, which was a priority of the Biden administration as well, This is a bipartisan idea,
  • 05:23 then there are other ways to do it than this really blunt instrument of across the board tariffs.
  • 05:27 You can have subsidies, you can have export control, like there's a lot of other more nuanced tools you can use.
  • 05:32 And
  • 05:32 to the Trump administration's credit, it largely did that in the first Trump administration.
  • 05:37 So my sense is that you'll probably see a retreat back to the prior, the prior strategies rather than these really blunt instrument
  • 05:44 if the economy
  • 05:46 continues to look like it's going to weaken,
  • 05:48 right.
  • 05:48 So that really puts a limit on what you can do in terms of tariffs and, and
  • 05:52 importantly to on on tariffs and inflation.
  • 05:55 You've seen from surveys that Americans do attribute price increases
  • 05:58 to tariffs.
  • 05:59 So there's also a political risk for the White House that if you do see three, 3 1/2% inflation, you know exactly who's going to get blamed.
  • 06:05 Even if this ended today, what would be the residual effect,
  • 06:09 the lagging effects of all the front running that we saw from both consumers and businesses ahead of this?
  • 06:14 So I think this is a very rocky time for investment in the United States.
  • 06:18 When I speak with business leaders, I hear that there's a virtual stagnation.
  • 06:21 I mean, this is what you do in the face of outstanding uncertainty.
  • 06:23 You just kind of stand pat.
  • 06:25 And so M&A activity is down, IPO activity is down.
  • 06:28 There's a real concern around business investment
  • 06:30 being depressed.
  • 06:31 So while the US consumers still in pretty good shape,
  • 06:33 I think businesses are taking a hard look at, you know, do we want to continue to invest and certainly foreign invest in the United States will likely slow as well.
  • 06:40 So I think that's where the real, the real risk is in terms of investment and less so on consumption.