The Delegates Lounge
Join us in The Delegates Lounge, an independent podcast on world affairs based in New York City at the United Nations, the hub of global insights in plain sight. We hope you’ll come back often to listen in on some fascinating conversations hosted by J. Alex Tarquinio, a veteran journalist who writes essays for Foreign Policy from her office across the hallway from the UN Security Council chamber.
We’ll wade into the rising tide of global threats to peace and security in our discussions with the denizens of high-level diplomacy, as well as assorted scholars, scientists, soldiers, spies, and other influencers. From time to time, we’ll hit the road for sit downs with the world’s movers and shakers, whether it be at NATO’s 75th Anniversary Summit in Washington, D.C. or to parts as yet unknown.
This podcast is solely a production of The Delegates Lounge LLC, which was co-founded by the host and her husband and executive producer, Frank Radford.
As we’re a small team, we can’t respond to every message, but we promise to read your messages if you contact us at:
Or on X, formerly (and still affectionately) known as Twitter:
The Delegates Lounge
Talking Tariffs with Mark Zandi, Moody's Chief Economist
As President Donald Trump's self-proclaimed "Liberation Day" approaches on April 2nd, bringing with it a wave of new tariffs, we're joined by an expert who can help us parse rhetoric from reality.
Moody's Chief Economist Mark Zandi explores the potential economic impact of broad-based tariffs on American consumers, farmers, and business owners. As chief economist, he oversees Moody’s global economic forecast. Mark is a frequent guest on American network news shows and hosts the podcast “Moody’s Talks: Inside Economics.” He has advised policymakers at all levels, including giving Congressional testimony on economic matters; so, we’re very lucky to have him help us understand the potential impacts of tariffs.
The president paints a picture of tariffs ushering in an American manufacturing renaissance. Mark explains where, from an economist’s point of view, that theory might run into road bumps. He describes “stroke of the pen risk," the paralyzing uncertainty that dissuades many businesses from making new investments, and how this could impact daily life. Stick around to the end of the episode to find out which classic movie strikes a chord with Mark right now.
Share your thoughts with us at the social media links below and subscribe to our show for more enlightening conversations at the intersection of global affairs and everyday life.
Speakers:
J. Alex Tarquinio (host). @alextarquinio of @delegateslounge on X, formerly known as Twitter.
Mark Zandi (guest). @MarkZandi of Moody's on X, formerly known as Twitter.
References:
Mark has a weekly economics podcast, Moody’s Talks – Inside Economics.
Alex mentioned that she had interviewed Mark in the past, most recently for a New York Times article about energy.
Connect With Us:
Welcome to the Delegates Lounge. Pull up a chair. I'm Alex Tarquinio, a journalist based at the United Nations here in New York City and your emcee for this podcast featuring some of the most influential minds in the world today. Settle in for some riveting tete-a-tete, available wherever you listen to podcasts.
Speaker 2:In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the anyone, anyone, the Great Depression, passed the anyone, anyone, the tariff bill, the Holly Smoot Tariff Act, which anyone raised or lowered, raised tariffs in an effort to collect more revenue for the federal government. Did it work? Anyone Anyone know the effects? It did not work and the United States sank deeper into the Great Depression.
Speaker 1:Welcome back. We have a timely conversation in this episode with Moody's chief economist, mark Zandi, as we approach the so-called Liberation Day. That's how United States President Donald Trump has dubbed April 2nd the day when some of his tariffs are scheduled to take effect. He chose the date over April 1st to avoid April Fool's Day, and if all of the tariffs he has announced go into force on April 2nd, there's no doubt that American trading partners will take them seriously. Some countries are already drafting plans for retaliatory tariffs, and word has it that some Europeans are considering tariffing high-value US service exports, including stock market darlings of the tech sector. Mark and I spoke at the end of last week when the Trump administration had already imposed a global 25% tariff on steel and aluminum imports, 10% tariffs on certain Canadian energy products and on Canadian potash fertilizer, a crucial commodity for American agriculture, a further 25% on some Canadian and Mexican imports and a blanket 20% tariff on all imports from China. The full extent of the tariffs he has planned for April 2nd is still unknown as we publish this episode, and we've all seen since Inauguration Day that Trump can announce tariffs and then abruptly change his mind. So far, he has proposed tariffs without yet providing details on agricultural goods, lumber, copper, computer chips, pharmaceuticals and more. It's important to note that my conversation with Mark took place before Trump's Oval Office announcement of a 25% tariff, starting April 2nd, on all imported cars and light trucks, as well as key automobile parts such as engines, transmissions and electrical components, potentially adding thousands of dollars to the purchase price of a new motor vehicle by American drivers. Trump, according to Wall Street Journal reporting, recently warned US automakers not to raise prices in response to tariffs, but price controls have a poor track record and around half of the 16 million vehicles purchased in the United States each year are foreign-made. The president paints a picture of tariffs ushering in an American manufacturing renaissance.
Speaker 1:Mark explains where, from an economist's point of view, that theory might run into road bumps and in this episode, mark explores how the09 by John Moody, an American financial analyst who pioneered bond ratings in the evaluation of credit risk in the golden age of American railroading. Today, moody's credit ratings play a critical role in helping investors, corporations and governments around the world make decisions about raising capital and evaluating credit worthiness. Mark Zandi, a University of Pennsylvania-trained economist, co-founded Economycom, which he sold to Moody's 20 years ago. As chief economist, he oversees the Moody's global economic forecast. He's a frequent guest on American network news shows and hosts his own podcast, moody's Talks Inside Economics. He has advised policymakers at all levels, including giving congressional testimony on economic matters, so we're very lucky to have him help us understand the potential impacts of tariffs.
Speaker 1:We recorded this interview remotely and occasionally you'll hear a dog barking in the background His background. That's part of the refreshingly verite quality of podcasting. Stick around to the end of the episode to find out which classic movie strikes a chord with Mark right now, and I'll give you a hint it's not, as you've just heard, ben Stein and Ferris Bueller's Day Off. Here's our conversation. Mark Zandi, welcome to the Delegates Lounge. Thanks for joining us today. We have a really interesting conversation looking at the intersection between geopolitics, geostrategy and economics and the global economy. So welcome. Well, it's good to be with you, Alex.
Speaker 3:Thanks for the opportunity.
Speaker 1:I was trying to remember before this when we first spoke. We've spoken on and off. When I've been in different roles I think writing about markets and business you've always been in the same job.
Speaker 3:You're doing something right Well I don't know, I might be the only person on the planet who's doing the same thing now that they were doing 35 years ago. I mean, I got better data, I got better models, I work with smarter people, but basically I'm doing the same thing. So artificial intelligence takes no job.
Speaker 1:Yeah, not unusual for an economist, perhaps.
Speaker 3:But maybe you're right. I didn't think of it that way. Maybe you're right, yeah.
Speaker 1:Yeah, yeah, they call it the dismal science. And why do you think that is?
Speaker 3:Oh, I know exactly why. I actually had a website called the dismal scientist back in the day. Egg Thomas Carlyle was commenting on Malthus's theories about population and food. I won't go into the gory details, but it was pretty dismal. So that's the dismal science. I think I got that right. Someone will chat, gpt it, but I think that's right, that makes sense.
Speaker 1:And then you also have some fun on, and I should tell our listeners, if they're looking for a podcast based on economics, that you have a regular. I think it's every Friday.
Speaker 3:your podcast Is that right, yeah, generally, yeah, generally. It's Inside Economics. You've got to be a little nerdy, alex, to appreciate it.
Speaker 1:It's a very nerdy podcast. One thing I do like is when you guess the number. I'm not going to play that game with you. I know my limitations, I'm not going to go up against an economist. But when you try and guess surprising or obscure data points of the week, Yep, the stats game.
Speaker 3:We each put forward a stat. The rest of the group tries to figure that out. You know it's a lot of fun and some of the stats are pretty esoteric, I'll have to say.
Speaker 1:With the transition to the Trump administration. I mean, is it easier maybe to guess because they are surprising, or is it harder?
Speaker 3:I don't know that the stats game has gotten any harder. It's always been hard, so I don't know. I don't know if it's any harder. Well, of course, the script is still being written here, Alex. We'll have to see, because we're only what? Two months in. You know something like that. It feels like two years in, but it's only two months, so a lot of script to be written.
Speaker 1:Well, tariffs, that's obviously one of the key things we want to talk about today, and we still don't know if many of those tariffs are on or off or whether we'll really have 200% tariffs on wine. That script is very much still being written. But the Trump tariffs in general, it does seem to go against economic orthodoxy, at least since Ronald Reagan's famous 1982 free trade speech, and I'm just wondering are there any economists now making this protectionist case that the Trump administration is making for tariffs?
Speaker 3:Well, as you know, economists will debate everything and anything. They'll get many perspectives on the same issue. But I'll have to say, on tariffs, broad-based tariffs like the ones we're talking about here I'd say, if you put 100 economists in a room and ask them the question, I'd say, if you put 100 economists in a room and ask them the question, is it a good idea, a bad idea? 98 of them would say pretty bad idea. You find two that might say no, not bad, or maybe okay, but I don't know who those two are, but I'm sure there's two out there somewhere. But it's pretty uniformly the view that broad-based tariffs again, like the kind President Trump has been talking about and looks like going to implement here shortly that's just a bad idea. It's a lose-lose. Everyone loses.
Speaker 1:Would you call it a tariff war or a?
Speaker 3:full-blown trade war. I would call it a trade war. Yeah, it's a trade war, yeah, I mean I believe, if I have the numbers right, there are now US tariffs have been increased on imports from Canada, china, mexico worth about $800 billion. Just for context, we import $3.4 trillion worth of goods every year, so that's a fair amount In those countries. Certainly, the Chinese and the Canadians have responded in different ways. I don't think Mexico has responded yet, but they will. But that's a war, right. I mean, when both sides are starting to fight back and fight at each other, I consider that a war and yeah, so I think it's fair to call this a global trade war.
Speaker 1:Looking at the history, and I'm sure you've seen that the Ferris Bueller video is making the rounds talking about that. I love that the TikTok generation is taking this moment to discover Ferris Bueller. Maybe don't love the reason, but I love the video. Ben Stein does actually a great job in that film of describing the Smoot-Hawley Tariff Act. Is that an accurate representation, and do you believe that it caused or at least exacerbated the Great Depression?
Speaker 3:I think it was a contributing factor. I mean, of course, that war did escalate quite significantly. The US engaged in tariffs and other countries responded, and we went back and forth, back and forth, and back and forth, and global trade collapsed. A lot of other things going on at the same time probably would have had a whopping recession even without the tariff war, the trade war, but that obviously exacerbated things to a very significant degree. So, yeah, I think the history there gives you strong evidence that broad-based tariffs are a pretty bad idea. But I don't think you have to go back that far, alex. You can go.
Speaker 3:President Trump's first term, when he imposed tariffs. Now that was on a much smaller scale. I think he raised tariffs on about $350-$400 billion worth of imports from China mostly from China and that did a lot of damage to the economy. The nation's manufacturing base was in recession by late 2019. The agricultural industry, the farmers, were getting crushed. You may remember President Trump had to cut checks to farmers to compensate them for the loss of exports to China. China is a very large market for US agricultural products. So even in that much smaller case study, I think it was pretty clear.
Speaker 3:Just another interesting data point going back to Trump. 1, great study just came out from the Federal Reserve System on the steel and aluminum tariffs that were imposed in that period and it resulted in very significant declines in the productivity of those two industries. These are protected industries. They saw tariffs go up in an effort to protect them, but the result was it undermined competition and because of the lack of competition, these industries did not invest, did not continue on and their lesser productivity and competitiveness declined. So there, even in that case, you know, you see a very good example of why tariffs are a pretty bad idea. They're bad in the short run, they're bad in the long run.
Speaker 1:And I know you know the answer to this question from listening to your podcast but how many people work in the American steel and aluminum industries?
Speaker 3:Oh, you are listening to the podcast. Yeah, very cool. I appreciate that. Well, 300k roughly speaking 300,000 people work in the US steel and aluminum industry, and I you know this as well. But just for context, 1.6 million people work at Walmart domestically. So that just gives you a sense of scale and context.
Speaker 1:So is there a risk, if we increase the cost of imported raw materials, that the United States could become a high cost or a higher cost manufacturer?
Speaker 3:Yeah, the tariffs have a number of impacts on the economy. One the obvious is that it's a tax that consumers UNIs as consumers will pay in the form of higher prices for imported product tariffs was. The bulk of the tariff increase was passed through to us as consumers and of course our purchasing power is reduced and that hurts the spending. But the other thing that it does is there is retaliation. The other countries respond In Trump 1, china responded, and that costs American jobs. And oh, I should also say, obviously it's not only consumers that are purchasing the imported product, it's businesses, right, businesses in their own activities, like, for example, take steel and aluminum, you know, the food processing industry or the beverage industry uses aluminum to put tuna fish in a can, you know. Or beer in an aluminum can. Or the aerospace industry uses the aluminum for the aircraft, or the construction industry uses steel. Their costs go up, right, and that undermines their profitability, their business and ultimately they raise prices too for the stuff they're producing to try to compensate. So there's lots of different ways this works, but bottom line tariffs, broad-based tariffs, will result in higher prices for consumers, lower real incomes, lower purchasing power and fewer American jobs because of the retaliation.
Speaker 3:The other thing to point out in the context of the arguments that I've heard in support of tariffs coming from the administration, is that the tariffs will incent businesses to locate in the United States, that they'll come here, american companies will stay here, foreign companies will want to come here, but I don't think any business person in their right mind would make any major investment decision, or any investment decision at all, based on these tariffs, because they can be changed at a stroke of a pen, as we've seen.
Speaker 3:You know, in the current period they're on again, they're off again and there's no clarity with regard to how long they'll be around. And you know it's called the stroke of the pen risk. There's the you know, the risk that these tariffs can be changed with the stroke of a pen. If that's the case, you can't make any kind of investment decision. So that's not going to bring jobs, it's going to cost American jobs. So you know, I can go on and on and on, but in the most immediate effect of the tariffs is going to be higher inflation, higher prices, lower purchasing power and fewer American jobs prices, lower purchasing power and fewer American jobs.
Speaker 1:The Trump administration at least the crux of their argument seems to be will increase tariffs and will create all these good jobs for Americans, and it seems to be a model of really a second industrial revolution, almost like the original industrial revolution, where these will be jobs that make things, even though many american jobs are actually in services, uh, that are sold globally I don't, yeah, I don't see this as a way.
Speaker 3:I don't see tariffs or policy as a way to create more manufacturing or jobs or agricultural jobs or you know things that in industries where we make stuff, just just the opposite. I think it raises costs, creates more uncertainty for businesses and I don't think any business person in the manufacturing industry is going to make an investment decision or an expansion decision here based on tariffs that can be can go away tomorrow. And also, you know, again, going back to President Trump's first term, there was a lot of. And also, you know, again, going back to President Trump's first term, there was a lot of exemption. So you know tariffs would be imposed. Companies that were impacted would come to the administration and say, hey look, this is hurting our business, which is a problem for national security, or it's going to drive us out of business. Can you make an exemption? And there were a lot of carve-outs. So that creates even more uncertainty for businesses. They don't know not only what the tariffs are and how long they'll remain in place, but who will they be imposed on. Will I be tariffed and then my competition not tariffed? Or you know what's the deal? I don't really know. So I just don't see this as a way to increase employment, even in the sectors that the administration is hoping to create them in the manufacturing base and agriculture.
Speaker 3:And then to your point these are small industries in terms of jobs. If you add up all the jobs in the manufacturing base, it may be 10% of the job base. At most Throw in agriculture, that might be 12% 13% of the job base. At most Throw in agriculture, that might be 12% 13% of the job base. So throw in mining, I don't know, just for sake of argument. Maybe you're up to 14%, 15%. So it's very, very small. It's not going to create a lot of jobs. And again to your point, there's a lot of other dynamics here at work that will impact employment in these industries Artificial intelligence, ai, robotics, you know those could have a big impact as well. That will make it more difficult for these industries to create, you know, jobs.
Speaker 1:I'm glad you mentioned agriculture. Obviously, farmers have to be concerned about potentially spiking prices for Canadian fertilizer spiking prices for Canadian fertilizer.
Speaker 3:You've got problems both in terms of the fact that we import a lot of food from other parts of the world from Mexico, canada, a lot of vegetables and fruits and nuts and oils, and from Canada, baked goods, meat products, a lot of seafood from China. So we're going to be paying a lot more for that food. And of course, food inflation has been a real problem for many American households, particularly lower middle-income households, which is, by the way, another issue. With tariffs, they are very regressive, right. They raise prices for imported goods. Lower middle-income households devote more of their budget to those imported products than higher-income households, so we'll pay more for food, which is problematic.
Speaker 3:And then it hurts our farmers because other countries we export a lot of agricultural products soybeans and corn and wheat and all kinds of product and that will be tariffed. That's the one way that, the one key way that foreign countries will respond to our tariffs, the kind of the retaliation, the tit for tat. China's did that in President Trump's first term. They're doing it again and so farmers get hit that way as well. So really, tariffs will complicate things enormously for the agricultural industry and just make food much more costly for us and hurt our farmers.
Speaker 1:I think I'm going from memory here, but I think it was JFK that said that farmers buy retail and sale wholesale. So they may be paying higher retail costs for fertilizer from Canada and selling wholesale on a global market where they're tariffed. You know, you mentioned tariffs in Trump's first term and the other thing we had, of course, in Trump's first term was the COVID pandemic happened over the last 40 years. With the free market model is these very, very interconnected supply chains where products and parts go back and forth, for example between Canada and Michigan for cars, before the final car is built. So each time, you know, if this tariff is imposed this way, unless they do something, each time that part across the border it would be tariffed COVID. Obviously that interrupted global supply chains. It seems almost like these tariffs may create a similar situation to what we had on those supply chains being a bit broken up. In that case it was because transportation was impacted by global pandemic. But could it have a similar effect? The tariffs?
Speaker 3:Well, it complicates things enormously for the global supply chain, right, because you'll see efforts by countries that are facing the higher tariffs look for ways to get the product to the United States through different routes. And, going again back to Trump won in those tariffs. What happened was a lot of the manufacturing moved from China down to Southeast Asia Countries like Vietnam or Mexico, and the product came in that way and so the supply chains got scrambled. You have to figure that out and build out those supply chains so that adds to costs, slows things down and complicates things enormously, and I suspect that's what's going to happen here.
Speaker 3:You know, one kind of tangential point is some of the tariffs that President Trump may be imposing here is an effort to shut off that effort by China to circumvent the tariffs that were put in place in Trump 1. So he's putting a lot of pressure on Mexico, and I wouldn't be surprised if he put pressure on some of the Southeast Asian countries. I don't think Canada I could be wrong, but I don't think a lot of Chinese product was diverted into Canada. I'm not sure, but that may be another motivation behind what President Trump is doing with Canada and Mexico is an effort to kind of cut that off, but broadly you're right, it scrambles the supply chains. They're going to all be redone and rewritten and reworked and that just has caused delays and potential shortages.
Speaker 1:When you talk about Chinese products coming through Mexico, is that actual manufacturing, perhaps in Mexico with Chinese ownership, or are those just products that are imported to Mexico and then re-imported to the US?
Speaker 3:I think both. It was also China's set-up shop in Mexico. It has been making a lot of investment in Mexico to be able to bring the product over into the United States. So I think both things have been going on since President Trump's first term.
Speaker 1:Now you talked about products, now consumer goods, which is a huge part of the US economy, of course, becoming more expensive. I can't help but think of Scott Bessette, the US Secretary of the Treasury's comment recently that quote access to cheap goods is not the essence of the American dream. To which I have to ask has Scott Bessette ever met an actual middle-class American? Because it seems like a lot of them feel very much that access to sort of cheap, or at least affordable, consumer goods is a part of the American dream.
Speaker 3:Yeah, I also think he said that you know the American dream is about opportunity. You know, being able to achieve things through hard work and playing by the rules, and I agree with that. I mean I think that is the American dream. But I also think, you know the American dream is about achieving a higher standard of living, being able to, you know, live better. And you know obviously, tariffs and higher prices for imported goods isn't consistent with that. So, yeah, I mean, the American dream is importantly broadly defined, but it also includes, at the end of the day, that we are all better off economically and financially. If we're going to raise tariffs yeah, see higher prices for imported product that's moving in the wrong direction. At least it might be well, hopefully.
Speaker 1:The american dream for most people is is broader than consumerism, but it seems like living better than your parents or your grandparents is a part of it you know, of course, if someone has a higher level of education and, you know, a better paying job than their parents, then then that makes sense.
Speaker 1:But at least until now decades many people who had a similar level of education, similar or maybe even the same job that their parents held. They did have a little better standard of living because goods that used to be available primarily to the upper middle class were more widely available, such as having a glass of wine with dinner. If Trump does put a 200% tariff on wine, that may be out of reach of some households, just like building a new wood deck in your backyard may become more expensive if Canadian lumber is tariffed. So I don't know if there's an economic way to look at what this means for social cohesion.
Speaker 3:Are there any indexes, consumer confidence or something I mean I think it's fair to say look for most lower middle-income Americans when they think about their budget, what they spend their money on and what they need to spend their money on. A lot of that goes to food and a lot of it goes to housing to rent, if they don't own their own home, if any don't.
Speaker 3:And the tariffs make that much more costly. We talked about food earlier, but housing also, because think about all the things that go into building a home or an apartment building. In many cases you need lumber that comes from Canada. That all is based on higher tariff. In many cases, you need lumber that comes from Canada. That will face a higher tariff. You need various electrical equipment, tools, nails, building materials. A lot of that comes from Mexico. You need appliances and fixtures. A lot of that comes from China.
Speaker 3:So the cost of actually constructing a home- again whether that be for homeownership or for rent is now higher, so your rent is higher. Your house price is going to be higher. It's going to be more difficult for home builders to build homes that are at lower price points that are affordable to the typical middle-income.
Speaker 3:American household income American household. So you know, I think the tariffs go directly to. You know the standard of living, the cost of living for typical American, the lower middle income America. You know even oil, I mean even like a lot of oil from Canada it depends on. He imposed a smaller tariff on oil and natural gas from Canada so far, but a lot of that oil goes to refineries in the Midwest. They're refined and so if there's a tariff, that means higher oil costs, therefore higher. It costs more to fill your gas tank and that's the other thing that's really critical for many American households. So when you think about what people need, I mean there's just no question. They got to fill their gas tank, they got to be able to put food on the table and they got to live somewhere, they got to pay rent or something. All those things are going to cost more as a result of the terror, just by definition.
Speaker 1:There are different justifications that the Trump administration has been giving for the tariffs. Most often, I think, it's been that they want to protect American jobs and businesses, but also sometimes it's been talked about as a tax. In that sense, are the tariffs sort of like a value-added tax, a VAT tax, that they are really a consumption tax, a regressive form of consumption tax that is spread across the entire economic strata?
Speaker 3:You can sort of think of it that way. Yeah, absolutely. I mean it's going to raise the prices for things that people consume imported product goods that are consumed and it does raise revenue. I'm not sure it's going to raise as much revenue as one might think because I think if you raise the tariffs to the kind of degree we're talking about here and as broad basis we're talking about here, it's going to do a lot of damage to the broader economy and that will reduce other tax revenues and also raise government spending because there's all kinds of income support programs, that kind of kick in. So you know it's not going to help you out.
Speaker 3:If this is about raising revenue and addressing the nation's fiscal problems, which I think need addressing, I don't think you're going to get very far with this and you're doing it in a very regressive way. You're doing it in a very regressive way. Again, the incidence of this, the burden of this, falls more heavily on lower middle income households because they just devote a higher share of their budget to things like food and rent and gas and those things that are going to face the higher tax For the well-to-do, high income, high net worth households if they buy a washing machine or a car, they're going to have to pay more too, but it's just a much smaller share of their budget. It doesn't matter nearly as much. So it's a very regressive way to raise revenue. And again, I don't think you're going to raise as much revenue as you think you're going to raise.
Speaker 3:And, by the way, you know, again it's off, again, on. Again. I mean, can we count on this? How long can we count on the tariff remaining based on the revenue? So should you, as a prudent planner, budgeter, rely on those tariffs when making your long-term fiscal plans? I mean, in fact, the Congressional Budget Office, the CBO, the folks, the nonpartisan group that are budgeting for a living, won't count the tariffs done through executive order as revenue, because I think my sense is, one reason is because they can't count on it. They don't know how long those tariffs are going to be around, so they're not even included, nor should they be, you know, in kind of the budgeting that the government needs to do.
Speaker 1:Business people making long-term decisions about how to allocate their capital, including small business owners. They don't like uncertainty. None of them like uncertainty. Now it sounds a bit like a pivot from tariffs, but it is kind of related to that which is the Doge bros are also injecting a fair amount of uncertainty at the same time as we have the uncertainty about tariffs. So I don't know how that's affecting business decisions and investment decisions in C-suites and small businesses.
Speaker 3:Yeah, I mean, I think it's just one more thing up, fiscal thing, policy thing up in the air. There's a lot of policy balls in the air. We obviously the trade war and the tariffs, the doge cuts to government jobs and funding, you know, immigration funding, immigration policy, what's going on with tax and spending negotiations in Congress. We haven't even talked about the Treasury debt limit, but that is going to be an issue here in the not too distant future. So your business person or consumer looking at all this, you know, makes you quite nervous, understandably so, and you can see it in the surveys of consumers, you can see it in the surveys of businesses and, of course, investors. The stock market's been pretty fragile since all this got going, and so the investor sentiment is also very weak. So, yeah, I think it certainly plays a role.
Speaker 3:I mean, in terms of the numbers, the dollars and cents, it's still pretty small. I think. You know, in the case of the job cuts, there's 2.3 million non-military federal government employees, and I think it's hard to do the accounting here. But maybe so far, talking about tens of thousands of federal government employees that have lost their job, don't get me wrong. That's a big deal, obviously for those families and those communities where people live. But you know the economy employs 150, 160 million people, so it's small in the grand scheme of things so far. And the funding cuts creating havoc in different businesses and communities that cater to the federal government, provide goods and cater to the federal government, provide goods and services to the federal government or rely on government funding nonprofits and universities and that kind of thing, but from a broad national macroeconomic perspective, still pretty small in terms of its impact, in terms of the dollars and cents.
Speaker 1:Again for those kind. A lot of them are small businesses. These contract these government contractors.
Speaker 1:That creates a lot of uncertainty and maybe some communities that are hit but it's just really the inconsistency, the fact that workers in critical jobs have been fired and rehired by doge because they didn't realize they were involved in nuclear security, you know, or that sort of thing. It's more the uncertainty factor, yeah, and also, interestingly, some of these jobs have been in research and technology, you know, NIH or universities. So if that were to continue, I don't know again if there's an economic way to measure this the competitiveness, that edge that the US has in research and technology jobs and retaining the best talent.
Speaker 3:Yeah, it's a tough one. I mean, I'm all for cutting waste and fraud, no problem. You know, and I think it's very therapeutic to examine what the federal government is doing and make sure it's doing it as efficiently as possible. But that doesn't feel like what's happening here. It feels more haphazard and you know you run the risk of so-called unintended consequences. You know, cutting jobs, that people are really doing important things that are going to be critically vital at some point, people are really doing important things that are going to be critically vital at some point, and everything from NOAA to the FAA, to the FDA, to the FTC, to the SEC, to Fannie Mae and Freddie Mac, and you go on and on and on. It does feel like you're taking a big chance here that you might break something that you know really matters to people, like you know, cleaning up after a natural disaster.
Speaker 3:Now I don't want to take it too far, but obviously that's something we need to be concerned about, given the seemingly haphazard nature and scale of the job cuts that we're seeing here and the funding cuts. So there's near-term consequences. Again, the arithmetic here is that they're pretty small. They do have impacts on people's collective psyche, given the uncertainty in the way this is being done, but there's also longer-term consequences as well. I don't think this is costless. I don't think most of the government workers are being cut or doing things that just weren't useful or important. I think they were, but hard to know what the impacts will be along the run. But it's certainly a risk, for sure.
Speaker 1:Something you mentioned that earlier that cut my attention was the competitiveness factor the fact that the last time Trump was in office and I don't know if you have exact data on that the steel and aluminum industries became less competitive because they were protected. I mean, I'm thinking of even the big tech stocks, which are clearly global companies or car companies, ev that's obviously a big point of competitiveness between countries now, and you know electric vehicles if protectionism could make them less competitive, and do you have any data looking at that?
Speaker 3:I mentioned that study that was done, careful study that was, I think it was in New York in the bed system with regard to productivity in the steel and aluminum. It was a good case study, right, you know you had a kind of a controlled experiment where you could take a look and kind of disentangle things. But I think there is, you know, generally and I don't know the literature well, but I think generally the literature, the economic literature would say, and I think it's intuitive if you have less competition you're going to have less incentive to invest in things to improve your productivity. You become more complacent, you know you just don't have that competition.
Speaker 3:Competition is a good thing for many reasons. One of the reasons is it kind of hones the business. The business is focused, uber focused, on how do I make what I make better more efficiently so I can compete against that competition. So if I don't have the competition, I just don't have that same sense of urgency and I don't invest as aggressively. And I do think there's a lot of evidence that broad-based tariffs, you know, undermines competition, undermines, therefore the innovation and investment and productivity that results from that competition long run. Now that's something that plays out over an extended period of time. You know it doesn't matter next quarter, maybe not even matter next year, but over a period of a decade or two, you know it matters, it makes a difference. But in you know, in that study done on steel and aluminum, that was 2018-19, and here we are it's not even 10 years in, and there is clear evidence that it reduced competition and therefore reduced innovation, investment and productivity growth.
Speaker 1:Perhaps the most global commodity that the United States has is its bonds. Could this ultimately have any impact on US bond markets? It's connected with interest rates and central banks and how attractive our bonds are to others. But I'm just wondering here.
Speaker 3:Maybe I mean I do think you know one way countries can respond to higher tariffs is to not buy US bonds. Well they're not buying as many goods.
Speaker 1:I mean, isn't one reason they have bonds? Because they do a lot of trade with the us as as well?
Speaker 3:yeah, I mean they're willing to take the bonds in in payment for the imports, the trade deficit. But what I was going to say is you look at who owns treasury bonds. China is a pretty large owner of bonds, uh, and they are. They're not selling bonds At least that's not my sense of what they're doing they're just allowing them to roll off, kind of mature. They're not making new purchases and so they're slowly becoming a much smaller player in the market and, all else being equal, that puts upward pressure on interest rates.
Speaker 3:Some other buyers come into the market to replace the bonds that the Chinese are not buying, and so that does put, all else being equal, upper pressure on interest rates. And I suppose if you got into a knockout, full-blown kind of trade war, that could become more of an issue. Global investors and central banks may not be as interested in buying you know US bonds as they have in the past. So something to worry about, but potentially but that's more. Second, third order, fourth order effect. I think at this point We've got other, bigger things to worry about. That's true, I think, at least initially.
Speaker 1:Yeah, no, the bond market is always there lurking in the background. I always remember that. James Carville quote that if reincarnation is a thing you'd like to come back as the bond market, it's intimidating, yeah.
Speaker 3:I remember that.
Speaker 1:We talked about automobiles, but obviously Boeing, the defense sector. Are investors and businesses starting to sort out who might be the winners and losers if these Trump tariffs take full effect?
Speaker 3:You know I haven't looked at equity prices or bond spreads to know for sure. I mean I do think it's a lose-lose. I think everyone ultimately loses. I mean you might have some near-term winners I mean the steel and aluminum industry wins in the near term but, as we just discussed, they're losers in the long run and any company that is buying steel and aluminum is an immediate loser. And if the tariffs are broad enough, high enough and remain in place long enough that they push the economy, economic growth down or even push us into recession, which is possible given potential retaliation, that's good for no one, even including the steel and aluminum industry. So I don't really see winners here. It's just different degrees of losing and more of timing than anything else. I think tariffs are just a problem for everyone at some point, some sooner rather than later, for everyone at some point, some sooner rather than later.
Speaker 1:And energy markets. Obviously Trump famously has the campaign slogan drill, baby drill. If importing oil becomes more expensive, do you think that might lead to a boom here?
Speaker 3:Again, I think it's more third, fourth order effects.
Speaker 3:I mean, I think the price of oil is determined in a broader global marketplace based on a bunch of different stuff, and I think that's one area where you might get carve-outs, meaning if it's starting to do some damage that gets on the administration's radar screen, they can carve out certain things and they've already carved out. For example, they imposed I'm simplifying, but they imposed 25% tariff on Canadian imports, except for oil and I believe natural gas that's a 10%, maybe it's 15% tariff on lost track. So they've already carved it out to some degree. So I think if it looked like it was going to raise oil prices, we would see a carve out. So and again, given the uncertainty here and given the stroke of the pen risk and everything else we talked about earlier, I don't think any of this means that a fracker or integrated energy oil producer is going to invest any more based on this, because they just don't know what the tariffs are going to be and how long they're going to be in place and who they're going to be on.
Speaker 3:So I just don't see them making any kind of big investments. And drilling for oil natural gas is very capital intensive, requires a lot of capital, very committed to long-term capital. So you've got to be pretty sure you know the rules of the road before you make that investment, and that's the last thing you're going to get out of these tariffs. There's very uncertain what the rules of the road are.
Speaker 1:I think that's the theme of our conversation and the theme of the moment. Before you go, I'd like to end on a lighter theme.
Speaker 4:Yeah, sure, fire away.
Speaker 1:Yeah, yeah, I don't have anything as cool as your stats game. Yeah, what classic film. Classic however you define. A classic movie reminds you of the era that we're currently living through. Oh wait, give me one.
Speaker 3:What would you say?
Speaker 1:Most of mine are science fiction. If it's a gloomy day, it's a really dystopian science fiction.
Speaker 3:Terminator yeah, yeah, terminator Really, no. No, mine's a really dystopian science fiction in the background. Yeah, yeah, sort of no no, mine's a little lighter.
Speaker 1:Today it's forbidden planet. Do you know that? One from the 50s? I don't know that so in the future of space travel, they go to another planet. There were ancient beings that populated the planet who, uh, invented this really high tech technology, which actually sounds a lot like a blend of the internet and artificial intelligence. But in the end, the human jealousy and greed meant that they had this beautiful tech. They made ill use of it let's go take a look yeah it's really loosely based on Shakespeare's the Tempest.
Speaker 3:I think, more hopeful, I'd say maybe Groundhog Day.
Speaker 1:Oh, I love it.
Speaker 3:I love that film, Doing it over and over again and maybe somehow we'll get it right. Bill Murray got it wrong. It feels like this might be one of those times.
Speaker 1:But in the end they do get it right. Yeah, they get it right.
Speaker 3:Yeah, yeah. So let's end on that high note.
Speaker 1:Let's end on that high note. So you've broken the mold of the dismal science of economics. You are the optimistic economist.
Speaker 3:I'll go for it. I'm on board with that.
Speaker 1:Mark, thanks so much for your time today. It was a lot of fun.
Speaker 3:Thanks, alex. Take care now, alex, you too. Best of luck.
Speaker 1:Thanks, bye-bye, bye-bye.
Speaker 4:And that's it from the Delegates Lounge. We'd like to thank our esteemed guests, who've graciously allowed us to share their hard-earned insights into what really matters. And then there's you, our listeners, who we hope are sufficiently edified to clamor for more of the same. Do drop in for a weekly episode on Thursday, or, from time to time if we're on the road, for special events, in which case there'll be a bonus episode. Subscribe wherever you listen to podcasts and if you like what you've heard, please take a moment to rate or review the show, as it helps others who share your abiding interest in world affairs to find their way to the delegates lounge. You can connect with us on many popular social media platforms or reach out to us directly at info the delegates loungecom. We're a small team so we can't respond to every message, but we will read them. Our show this week was written and produced by the host and by yours truly executive producer, frank radford. Next time, keep calm and curious.