We Haven’t Seen Tariffs This High Since the 1930s (w/ Jason Furman)

Summary

Bulwark Takes: We Haven’t Seen Tariffs This High Since the 1930s (w/ Jason Furman)

Release Date: July 30, 2025
Host: Jonathan Cohn
Guest: Professor Jason Furman, Harvard University

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Introduction

In this episode of Bulwark Takes, host Jonathan Cohn delves into the escalating trade tensions and the surge in tariffs that the United States is currently experiencing. Joined by esteemed economist and Harvard professor Jason Furman, who previously served in the Obama administration, the discussion provides a comprehensive analysis of the current trade landscape, historical comparisons, and the potential economic repercussions of sustained high tariffs.

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Historical Context of US Tariffs

Jonathan Cohn opens the conversation by highlighting the unprecedented rise in tariffs under recent administrations. He sets the stage by referencing the dramatic shift from historical tariff rates, prompting Jason Furman to provide a detailed comparison.

Notable Quote:
"Prior to Trump taking office, the average tariff we had on other countries was 3%. Now, we're collecting tariffs of about 20% on all imports."
— Jason Furman [00:53]

Furman contextualizes the current tariff levels by comparing them to the 1930s, particularly the era of the Smoot-Hawley Tariff Act, which significantly raised tariffs and is often cited as a contributing factor to the Great Depression.

Notable Quote:
"That is a lot. You have to go back to the 1930s to find tariffs at that rate... It contributed to the Great Depression back then."
— Jason Furman [02:26]

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Current Tariff Rates and Recent Agreements

The discussion transitions to the specifics of the current tariff structure and recent trade agreements with major partners like Japan and the European Union. Furman elucidates how tariffs have not only been uniformly increased but also tailored based on individual country negotiations.

Notable Quote:
"We have a 10% tariff on almost every country in the world, and now we're raising that to 15% for Europe, 19% for Vietnam, depending on the country and the item."
— Jason Furman [01:38]

Cohn further explores the nature of recent agreements, questioning their solidity and the practical enforcement when agreements primarily rely on the private sector's actions rather than formalized governmental commitments.

Notable Quote:
"These agreements include Europe buying a lot more energy and Japan investing more in the United States, but it's unclear how the private sector will deliver on these promises."
— Jason Furman [05:52]

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Economic Implications of High Tariffs

Jason Furman provides a critical analysis of the economic impact of the current tariff levels, arguing that while the US may appear to be "winning" in negotiations, the broader economic consequences could be detrimental.

Notable Quote:
"The US growth will be hurt more than growth in Europe and Japan as a result of these tariffs."
— Jason Furman [07:48]

Furman references studies from the Yale Budget Lab, which indicate that the elevated tariffs are likely to impede US economic growth more significantly than their effects on trade partners. He emphasizes that tariffs on intermediate inputs can disrupt manufacturing supply chains, potentially leading to job losses in certain sectors even as others may see gains.

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Impact on Different Industries and Job Markets

The conversation delves into the sector-specific repercussions of high tariffs. Furman illustrates the complex dynamics within industries such as steel and automotive, where tariffs can lead to both job creation and loss depending on the context.

Notable Quote:
"Some steel plants will gain jobs due to protection from competition, while others that rely on imported materials may lose jobs."
— Jason Furman [10:01]

He highlights the phenomenon of "economic turnover," where industries experience reallocation of resources and labor, which can be costly and disruptive. The automotive industry serves as a prime example, with certain manufacturing activities moving back to the US, while others may relocate elsewhere due to export constraints.

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Future Predictions and Areas to Watch

Looking ahead, Furman discusses the lagging effects of tariffs and anticipates further price increases as businesses can no longer absorb the costs indefinitely. He underscores that while the immediate impact may seem manageable, the long-term economic strain could become more pronounced.

Notable Quote:
"We're going to see more price increases as businesses can no longer indefinitely absorb the costs of tariffs."
— Jason Furman [13:50]

Furman also touches on the political ramifications, suggesting that the administration may be remembered negatively for the economic decisions surrounding tariffs, despite their complex nuances within GDP calculations.

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US Trade Agreements with Key Countries: Europe, Japan, and Others

The dialogue shifts to recent trade agreements with Japan and the European Union, examining their structure and the challenges in their implementation. Furman expresses skepticism about the enforceability of these agreements, given their reliance on private sector commitments rather than robust governmental actions.

Notable Quote:
"These agreements are not fully formalized, making it unclear how effectively they will be implemented."
— Jason Furman [05:52]

Despite these concerns, Furman is optimistic that the involved parties will find ways to honor the agreements, albeit with some ambiguity in the operational details.

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Challenges with Major Trade Partners: China and India

A significant portion of the conversation addresses the ongoing trade standoff with China and the stalled negotiations with India. Furman emphasizes China's unique leverage over the US due to its critical role in global manufacturing and supply chains.

Notable Quote:
"China has more leverage than any other country in the world vis a vis the United States and is willing to use it."
— Jason Furman [15:14]

He laments the lack of a unified approach with allies, such as Japan and Europe, which could potentially strengthen the US's negotiating position. The breakdown of talks with India further complicates the global trade environment, leaving major trading partners outside the framework of these high tariffs.

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Concluding Remarks

In wrapping up the episode, Cohn injects a moment of levity by posing a lighthearted question about Major League Baseball, predicting the Boston Red Sox's playoff chances. This moment underscores the diverse range of topics covered and the approachable nature of the discussion.

Notable Quote:
"Wild card? Absolutely. 100% certain. No error bands around that one."
— Jason Furman [17:03]

The episode concludes with mutual acknowledgments, emphasizing the depth and breadth of the trade issues discussed.

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Key Takeaways

• Tariff Surge: The US has increased average tariffs from 3% to approximately 20%, marking levels not seen since the 1930s.

• Historical Parallels: High tariffs reminiscent of the Smoot-Hawley era, contributing to significant economic downturns.

• Economic Impact: Elevated tariffs are projected to hinder US economic growth more than that of its trade partners, despite appearing advantageous in negotiations.

• Industry Disruption: Sectors like steel and automotive will experience both job gains and losses, leading to economic turnover.

• Trade Agreements: Recent deals with Japan and the EU lack full formalization and depend heavily on private sector compliance.

• China and India: Ongoing challenges with China’s leverage and stalled negotiations with India remain significant hurdles for US trade policy.

• Future Outlook: Expect continued price increases and economic strain as the impact of tariffs materializes over time.

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This episode of Bulwark Takes offers a nuanced exploration of contemporary trade policies, providing listeners with a thorough understanding of the complexities and potential long-term effects of the current tariff landscape. Jason Furman's expert insights underscore the delicate balance between protecting domestic industries and maintaining robust economic growth in an interconnected global market.

Transcript

[Jonathan Cohn]

Hey, everybody, it's Jonathan Cohn at the Bulwark. We are going to talk about trade today. So much has been happening. New agreements with Japan, with the EU. We've got the August 1 deadline. Our guest today is Jason Furman, professor of economics at Harvard University, also served in the Obama administration, one of the smartest economists I know. I'm so happy to have Jason here. Jason, thanks for coming on the show.

[Jason Furman]

Great to be with you, especially with those kind words.

[Jonathan Cohn]

So let's just jump in this. I mean, I think a lot of our listeners, readers, they've sort of followed the trade story, but there's been so much happening. I mean, Trump came in, he said he was having these big tariffs, then he pulled them back, and he said he's making agreements with this country and that it's quite hard to actually keep up with what's going on. Where can you just, like, set the stage for us relative to where we started? Where are we now on trade? You know, what is our posture? How has it changed since Trump took office?

[Jason Furman]

Yeah, so prior to Trump taking office, the average tariff we had on other countries was 3%. Now, obviously, some things higher, some things came in with no tariff at all. It averaged about 3%. Right now, we're collecting tariffs of about 20% on all imports. How did we get from 3% to 20%? First of all, there is a 10% tariff on all. Almost every country in the world. I say almost because it does not include Russia, Belarus, and North Korea. That's a whole other story. We don't import a lot from them either, but.

[Jonathan Cohn]

Right.

[Jason Furman]

The symbolism is a little. Little odd to me. Anyway.

[Jonathan Cohn]

An interesting collection of countries. Yes, interesting. Go ahead, go ahead.

[Jason Furman]

10% on every country in the world. And now we're going country by country and reaching agreements that we will have a tariff rate generally above 10%. It's 10% for the UK 15% for Europe, 19% for Vietnam. Just depends on the country that's higher. In addition, we also have separate tariffs on things like steel and more potentially in the works. But basically, the bottom line is it looks like we're settling in at sort of roughly, on average, a 20% tariff on things coming into the United States, you know, ranging from 10 to 50, depending on the country and the item.

[Jonathan Cohn]

And just put that in historical context. I mean, is that a lot? Is that a little. I mean, what is that? It's 20%.

[Jason Furman]

That is a lot. You have to go back to the 1930s to find tariffs at that rate. We raised tariffs a lot in the 1930s with Smoot Hawley. It contributed to the Great Depression back then, but frankly, all economists always knew that, that that was, you know, probably one of the smaller contributors. Definitely a negative, but not the cause of the Great Depression, more caused by the Great Depression, leading countries to lash out against each other. So raised tariffs a lot back in the 1930s. And then we basically spent the next 75 years lowering those tariffs steadily through global agreements, through one on one agreements with different countries. That process basically started to reverse in 2018 with Trump's first term, the first time he raised tariffs and then just massively, massive reversal of it now.

[Jonathan Cohn]

Now there were some tariffs in the Biden administration, right. I mean, I remember I followed the auto industry pretty close that we had some auto industry tariffs and such, but those were different in nature.

[Jason Furman]

Or I mean, Biden had criticized Trump's China tariffs. He then ended up keeping all of them and adding to them, including for things like electric vehicles. But again, you know, I don't remember the exact numbers, but let's say the average tariff rate was something like 2% before Trump's first term. But with everything Trump did in his first term and everything Biden did, it went to 3%. Now it's gone from 3 to 20. And those numbers might be a little bit off. It might have gone from 2.5 to 3, I'm not sure. But, you know, it's about a percentage point move before. It's about a 17 percentage point move just in the last few months. So just. Yeah, that's pretty different scale.

[Jonathan Cohn]

Yeah, yeah, yeah, no, for sure, for sure. Okay, so we got these two agreements in like the last week, right? We got Japan, we got the eu, two of our bigger, biggest trading partners. Do we know, first of all, they were announced, but, you know, we've all learned, right. With the Trump administration, the fact that was announced, you know, even it was announced by a government official doesn't necessarily mean it happened. Or we know that. What do we. Are these agreements actually. Do we know the details or do we know just in the broader broad shape, are we, what's the, you know, what do we. What do we know right there?

[Jason Furman]

Definitely. And you saw this with Vietnam as well, where the different parties to the agreement had a different understanding. You know, one went out and said we agreed to blank. And the other's like, no, I thought we actually didn't tell you that we would do blank. So we've seen that with all of these economies. There's also, the agreements include Europe buying a lot more Energy for the United States and Japan, investing a lot more in the United States. But European governments don't buy that energy and the Japanese government doesn't allocate, you know, that investment. That's the private sector in both of those economies. So how exactly you make a deal and agreement and enforce things that the private sector will do is a little bit murky. So these are not remotely written out, formalized, everything locked in. That being said, I think the different sides are motivated enough that while they could fall apart as they, you know, put it down in, you know, pencil and paper and have a document that can be signed, my best guess now is, you know, that they muddle through and figure out how to paper over all, all the different understandings.

[Jonathan Cohn]

Yeah. So it seems like, and tell me if I got getting this wrong, but it seems like with both the European and the Japanese agreement, the basic shape of it is they agreed to tariffs on some, on most of their exports. And then there's a certain categories of goods that are carved out here and there. There is, as you said, and I think in both cases, right, there's this promise to purchase something from the United States, although it's not clear, as you just said, who's doing that purchasing. And the US doesn't seem like it has to give up a lot in this. There's not new tariffs on our imports. First of all, do I have that right? Did I sketch that out roughly correctly?

[Jason Furman]

Yes. And I would say two things. One is I am surprised that these countries have been willing to give things to the United States, not in exchange for everything. That is not something that I expected democracies to be capable of doing. I wasn't that surprised with countries like Vietnam that are very asymmetric in their dependence on the United States and where politics doesn't matter as much, but democracies. I was surprised, first of all. Second of all, it's really, really important to understand that the US Tariffs on these countries are not just like on these countries, they're hurting us. So a lot of the language of who gives what, who gets what, etc. Has built into it almost all false premise. I mean, where these tariffs hurt the United States and they hurt Europe, they hurt the United States and they hurt Japan. In fact, some of the better macro modeling suggests that US Growth will be hurt more than growth will be in Europe and Japan. And so even though we're the winners in the negotiation, we could well still end up being the losers economically.

[Jonathan Cohn]

So wait, why would growth in the United States decline more than it would in Europe if theoretically, we got at, you know, again, the better end of the deal.

[Jason Furman]

Well, if you look at estimates from the Yale Budget Lab, they show that US Growth goes down and European growth they actually think would go up as a result of this. I would put a large error band around their findings, not through any fault of theirs, just because the world's an incredibly complicated place and we don't even know all the details of how all these agreements would work out. But directionally, that the United States should be hurt more, I find quite plausible. Why is that? Well, first of all, a lot of these tariffs are on intermediate inputs that we use to help us make stuff and to create jobs and higher wages and all of that. So it could be on equipment that's used in a manufacturing firm. It could be on the steel that's used by an auto company. And so it can end up hurting a number of different manufacturing industries. Second of all, the United States is going to end this with tariffs on the entire world, whereas the rest of the world is still freer trade. And so we're getting the accumulated harm, in some sense of all of that, whereas Europe only has something going on with us right now. And then the final thing is just the direction of the US Economy will be to import a little bit less because of the tariffs. But then there's a strange thing in economics that when you import less, you end up exporting less as well and roughly keeping about the same trade balance. That's because the trade balance is determined more by macroeconomic factors like how much you save and how much you invest as a country. So I expect this to result in less imports because they're more expensive, but also less exports. And so that means we're just a little bit less of a specialized economy taking advantage of comparative advantage a little bit less and, you know, lose out on the better export jobs and replace them with, you know, jobs making the things we used to import that weren't quite as good as those.

[Jonathan Cohn]

So can you. Can you give, like, an illustration of that? So, like, what kind of jobs are we going to gain, lose? I mean, what does that look like in price?

[Jason Furman]

I mean, you know, the steel industry, generally, it'll be good, but there's some turnover there, as some steel plants actually use a lot of imported inputs. You'll see some steel plants losing jobs, some steel plants gaining jobs. And by the way, that's a really important factor here is, you know, one of the problems with the China shock was it just increased the number of winners and the Number of losers and.

[Jonathan Cohn]

That type China shock being the sort of China 2000.

[Jason Furman]

Yeah, from 2000, the big import increases from China. And one of the things there wasn't that it sort of did net harm, but that the gross flows became larger. There were big winners, there were big losers, and the US Economy didn't handle a lot of that turnover well. So the biggest thing that we're going to have going forward is more turnover. So some steel plants will get built here because, you know, they're protected from competition, but other steel plants that might be part of a supply chain where they're taking some, you know, raw material, foreign steel in and refastening it into something here, those jobs will go away. Within the auto industry, you're seeing some stuff move back here if it's making things for Americans. But there are other plants, parts or auto plants that were actually making things for export, and you're not going to want to locate those in the United States. So some plants move here, some plants move away. And so the biggest thing is that this will actually speed, you know, be like a shock to the economy that leads to a lot of reallocation, and that itself can be costly.

[Jonathan Cohn]

So let me just, I just want to set expectations a little bit. I feel like when we started the year and Trump first started, you know, talking big on tariffs, we heard a lot of predictions of calamity. Obviously, a lot has happened. He's pulled back on a lot of his threats where we are settling in at a much lower level than he originally said. Although, as you know, pointed out earlier, still much higher than we've had historically. I suspect people are walking around and they're saying, well, yeah, my groceries, maybe they're a little more expensive, but that much more. I mean, I don't. It doesn't feel like a catastrophe at the moment. And you were just saying it might not be a catastrophe for a while. What does this potentially look like in a year or two? Or maybe the question is, what should we be watching in a year or two to see what kind of impact the tariffs are having?

[Jason Furman]

Yeah. So, you know, question a lot of people have right now is, you know, everyone said these tariffs are so terrible. Doesn't look so terrible to me. And I think there's three parts of it, some of which you had implicit in your question. One is, you know, we pulled back from the craziest of them. At one point, we had 145% tariffs on China, and we didn't, we didn't do that. And even the tariff negotiated Levels of are below where Trump was in April. So one is we've pulled back some. Two is that there are lags. I'm reasonably confident that we're going to see more price increases. Again, let's talk about the auto industry. Not just because you're from Michigan. It's important American industry. They were very reluctant to raise prices because the president is staring at them and would get very angry at them. General Motors just reported a big loss for the second quarter. They can't not raise prices forever. So a lot of businesses are sort of waiting a bit to see how long the tariffs will last, try to absorb some of it, wait for the eye of Sauron to be directed elsewhere. But they can't. They can't absorb, you know, they can't have literally like sell cars at a loss for the rest of time and they can't sell cars at a profit without raising their prices to reflect at least some of the tariffs. I think we're going to get more pass through in the future for a variety of reasons. But then the last part of the answer is something where you know the economic models, you know, if you look at what the investment banks and others were saying, they were saying things like this will take a percentage point off growth, percentage point off growth. You know, most people aren't going to exactly notice it, but then you have to remind yourself that's $2,000 a household and that's like taking $2,000 and like bringing it to the National Mall and lighting it on fire. And the President that ordered everyone to do that would be remembered for the rest of time as one of the dumbest, you know, self, self owns in history. But because it happens through GDP and stuff like that, it's not noticed as much. So the bottom line is I do expect some of the issues to grow, especially on the inflation side, but I don't think there's any reason to think they're going to grow to be incredibly noticeable. But that doesn't mean they're not incredibly real.

[Jonathan Cohn]

One more question on trade. I don't know if you have thoughts on this, so feel free to take a pass. But when I look at the countries we've made agreements with and who we haven't made agreements with to really jump out as big trading partners of us that we haven't made agreement, one is China. In fact, just I think I saw and it crossed my social media feed like literally as I was logging on for this, that I think those talks have now suspended again or they've broken down and Then India, which is obviously a huge trading partner also. How important are those to our sort of future and trade? I mean, those are, those are two very important countries.

[Jason Furman]

Yes, yes, absolutely. I mean, China, we haven't reached a deal because China has more leverage than any other country in the world vis a vis the United States and is willing to use it. We're an important customer for them. But in some ways it's nice to have. They are an input to our manufacturing with things like rare earths. That is like a must have. And so they have quite a lot of leverage. That's why they're the only country that in this whole process you've seen Trump back down on and why, you know, we haven't been able to dictate terms. India, I'm a little bit less sure. There was so much optimism early on that that was going to be one of the very first agreements that would be reached. Both sides really do have a lot of motivation and I'm less sure why it hasn't happened. I should say, though, on the China thing, though, China is the country in the world where we do have the most legitimate trade issues and trade problems. And it worries me that we don't have as much leverage as I'd like us to have vis a vis China. The way to have that leverage is to get together with others and make our approach to China joint with Japan, Europe, etc. And that's very hard to do the way we've conducted all of this. So I wished we had focused all of this on China and done it together with allies.

[Jonathan Cohn]

Yeah.

[Jason Furman]

Yeah.

[Jonathan Cohn]

Well, one last question. I know economists don't like to make firm predictions, but I want to put you on the spot. Very important. We're recording this at 3, it's about 3:30 on Tuesday. We're less than a half hour away from the Major League Baseball trading deadline, so we don't know how that's going to shake out. But what is your prediction? Will the Boston Red Sox make the playoffs?

[Jason Furman]

Wild card? Absolutely. 100% certain. No. No error bands around that one.

[Jonathan Cohn]

Well, folks, you heard it there. Jason, thanks so much for coming on and visiting us at the Bulwark.

[Jason Furman]

Thank you.