Podcast Summary: Fresh Air – "Trump's 2nd Term & The Economy" Release Date: December 4, 2024 | Host: Dave Davies | Guest: David Wessel, Economist at Brookings Institution
Introduction: Trump's Rapid Policy Moves
In the episode titled "Trump's 2nd Term & The Economy," host Dave Davies delves into the swift actions taken by President Donald Trump following his reelection. Trump’s immediate policy implementations include towering tariffs, significant tax cuts, and appointments that have stirred both support and controversy. The conversation centers around understanding the economic implications of these moves with economist David Wessel from the Brookings Institution.
Section 1: Tariffs – A Return to Mercantilism?
Timestamp: [02:00]
Davies opens the discussion by referencing Trump's historical inclination towards protectionist policies. He questions the efficacy of high tariffs in revitalizing domestic manufacturing jobs, drawing parallels to mercantilist practices of the past.
David Wessel responds by acknowledging the mixed legacy of trade liberalization post-World War II, which benefited both the U.S. and global economies. However, he also notes the adverse effects of globalization, particularly with the surge of imports from China, which harmed American businesses and communities. Wessel emphasizes that while tariffs can encourage some domestic investment, they often lead to higher consumer prices and limited job creation in highly automated industries.
“Tariffs are like medicine. If you have a little bit, it can cure you, and if you have too much, it's poisonous.” – David Wessel [05:28]
He critiques Trump’s approach, suggesting that excessive tariffs could harm the U.S. economy by increasing costs for consumers and disrupting integrated supply chains established under previous trade agreements like the USMCA (United States-Mexico-Canada Agreement).
Section 2: The Impact of Trump's Tariffs in the First Term
Timestamp: [05:41]
Davies probes into the tangible benefits of tariffs imposed during Trump's first term, questioning whether they led to significant increases in domestic production.
Wessel concedes that while there were some benefits, they were minimal. He points out that many tariffs targeted industries with limited domestic presence, merely raising costs without substantial gains in manufacturing output. Additionally, Wessel warns against “across the board tariffs” that can inflate prices for essential goods, such as food, posing economic risks beyond mere trade disputes.
“President Trump, if he does what he has threatened to do, will end up with the kind of poisonous tariffs that raise costs in the United States.” – David Wessel [07:13]
Section 3: Tax Cuts and Fiscal Deficit
Timestamp: [14:00]
The conversation shifts to the economic ramifications of Trump's tax policies, particularly the 2017 Tax Cuts and Jobs Act. Wessel elaborates on how these tax cuts have exacerbated the federal deficit, projecting an additional $4 trillion over a decade if the expiring provisions are renewed.
“Most of the corporate tax cuts in the 2017 act are permanent. The ones that are expiring are the ones that affect all of us, all individual income taxpayers and some businesses.” – David Wessel [14:00]
Wessel critiques the assumption that tax cuts will sufficiently spur economic growth to offset their cost. He highlights that while corporate tax cuts can encourage investment, individual tax reductions do not reliably translate into significant economic expansion.
Section 4: Plans to Cut Government Spending
Timestamp: [22:24]
Davies examines Trump’s innovative yet controversial plans to slash government spending by appointing Elon Musk and Vivek Ramaswamy to lead the so-called Department of Government Efficiency. Wessel analyzes the feasibility of such an advisory group achieving substantial cost savings without legislative backing.
Wessel expresses skepticism about the group’s ability to effect immediate, large-scale changes due to entrenched political and bureaucratic obstacles. He underscores that past commissions with similar mandates have struggled to deliver meaningful savings without Congressional cooperation.
“They have an ally at the Office of Management and Budget in the White House, Russ Vogt, who has taken the unusual position that when Congress appropriates money, that's kind of a ceiling on what the president can spend and they don't have to spend it all.” – David Wessel [22:52]
Section 5: Key Appointments – Scott Besant and Howard Lutnick
Timestamp: [31:27]
Davies introduces the key figures in Trump's economic team: Scott Besant as Treasury Secretary and Howard Lutnick heading the Commerce Department.
Regarding Scott Besant, Wessel describes him as a "safe pair of hands" reminiscent of traditional Republican appointees, emphasizing his Wall Street background and financial acumen. However, Besant lacks extensive political experience, which could pose challenges in navigating Trump's unconventional leadership style.
“Scott Besant is a money manager. He's Ivy League. He went to Yale. He got famous in his late 20s for helping George Soros make a huge billion-dollar bet against the British pound that paid off.” – David Wessel [33:44]
Howard Lutnick, on the other hand, is portrayed as a more volatile and outspoken figure with strong ties to Trump. His aggressive stance on trade policies, particularly tariffs, suggests potential tension within the administration as he pushes for more protectionist measures.
“Howard Lutnick is a much more volatile figure. He's done a lot of...he's been very generous to the college. He runs Cantor Fitzgerald. He's very outspoken.” – David Wessel [34:00]
Section 6: Federal Reserve – Independence Under Scrutiny
Timestamp: [35:54]
The discussion turns to the Federal Reserve's relationship with Trump's administration. Wessel predicts continued friction, especially if the Fed does not align with Trump's preference for lower interest rates. He anticipates that while Trump may vocally criticize the Fed, the institution will maintain its independent stance to fulfill its mandate of maximum employment and stable prices.
Wessel highlights the upcoming opportunity for Trump to appoint a new Fed chairman in 2026, underscoring its significance in determining the central bank's future direction and its resistance to political pressures.
“If the people think that he's appointed a Fed chair who has no spine, who will tend to bend to what the president's will is, that will lead to them to build up the interest rates they demand when they lend money to the US Government.” – David Wessel [38:25]
Section 7: Coherence of Trump's Economic Policies
Timestamp: [39:17]
In assessing the overall economic strategy, Wessel critiques the lack of a coherent, growth-oriented plan within Trump's agenda. He argues that the policies—high tariffs, tax cuts, deregulation, and spending cuts—are not synergistic and may, in fact, counteract each other. The focus on protectionism benefits specific industries while potentially stifling broader economic growth and innovation.
Wessel also points out the administration’s apparent disregard for pressing issues like climate change, which undermines long-term sustainability and competitiveness.
“They have a clear strategy of trying to protect manufacturing jobs in the United States. But if you look across the country... they don't see climate change as an urgent issue.” – David Wessel [39:17]
Conclusion: Assessing the Future Economic Landscape
Timestamp: [41:04]
As the episode wraps up, Wessel underscores the potential economic turbulence stemming from Trump's aggressive tariff policies and tax cuts. He warns of rising consumer prices and a strained federal deficit, which could lead to higher interest rates and diminished economic stability if not managed prudently.
Overall, the conversation paints a picture of an administration pursuing economically protectionist and fiscally expansionary policies that may offer short-term political gains but pose significant long-term risks to the U.S. economy.
Notable Quotes:
- David Wessel [05:28]: “Tariffs are like medicine. If you have a little bit, it can cure you, and if you have too much, it's poisonous.”
- David Wessel [07:13]: “President Trump, if he does what he has threatened to do, will end up with the kind of poisonous tariffs that raise costs in the United States.”
- David Wessel [14:00]: “Most of the corporate tax cuts in the 2017 act are permanent. The ones that are expiring are the ones that affect all of us, all individual income taxpayers and some businesses.”
- David Wessel [33:44]: “Scott Besant is a money manager. He's Ivy League...”
- David Wessel [38:25]: “If the people think that he's appointed a Fed chair who has no spine...”
Final Thoughts:
David Wessel provides a comprehensive analysis of Trump's economic policies, highlighting the complexities and potential pitfalls of his administration’s approach. The episode serves as an essential guide for listeners to navigate the intricate landscape of Trump's second-term economic strategies and their broader implications on the U.S. economy.
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