Trade Deals, Tariff Truce & Trillions in US Investments

Summary

Morning Wire Podcast Summary Episode: Trade Deals, Tariff Truce & Trillions in US Investments
Release Date: May 17, 2025
Hosts: Georgia Howell and E.J. Antoni, Public Finance Economist and Senior Fellow at Heritage

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Introduction: A Historic Week of Economic Developments

In this weekend edition of Morning Wire, co-host Georgia Howell sets the stage by highlighting a week marked by significant economic developments. Key events include President Trump's negotiation of a trade truce with China, securing nearly $2 trillion in investments from Saudi Arabia and Qatar, a surge in the stock market, and inflation reaching its lowest levels in years. Howell introduces guest economist E.J. Antoni to provide expert analysis on these developments and their implications for the U.S. economy.

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1. The Trade Truce with China: Progress or Pause?

Georgia Howell initiates the discussion by addressing the recent trade truce with China, orchestrated by Treasury Secretary Scott Besant. She poses a critical question about the deal's value for the United States.

E.J. Antoni responds thoughtfully:

“It's a step in the right direction. Honestly, it feels a bit of an overreach to call it a deal. This is basically rolling back some, but not all, of the escalation in terms of tariff rates…” (01:39).

Antoni emphasizes that while the agreement represents progress by easing tariff tensions, it falls short of a comprehensive resolution akin to the U.K.-U.S. trade agreement. He characterizes the arrangement more as a "truce" than a full-fledged deal:

“Yeah, I think that's a very good way to put it.” (02:17).

Implications for the U.S.: The rollback of exorbitant tariffs is beneficial for consumers in the short term. However, businesses, both small and large, continue to struggle with the volatility and inconsistency of tariff rates. Antoni highlights the turmoil caused by fluctuating tariffs, which complicates long-term planning and operational stability for U.S. businesses. He expresses hope for more concrete agreements and their subsequent Senate ratification in the coming weeks.

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2. Trillions in Middle Eastern Investments: A Boon for the U.S. Economy

Transitioning to international investments, Howell addresses the substantial $2 trillion influx from Saudi Arabia and Qatar.

Antoni provides an optimistic outlook:

“This is actually particularly good news. What we're seeing with a lot of these nations in the Middle East where they are essentially going to be pouring investment into this country…” (03:26).

He explains the historical context of the U.S. trade deficit and capital surplus, noting that foreign investments have historically funded U.S. growth by creating revenue streams and future income for both foreign and American stakeholders. This infusion of capital is poised to bolster the U.S. economy, supporting jobs and fostering economic stability.

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3. Stock Market Surge and Falling Inflation: Analyzing the Trends

A notable highlight of the week is the robust performance of the stock market coupled with declining inflation rates. Howell seeks to understand the drivers behind these positive economic indicators.

Antoni attributes the decrease in inflation to President Trump’s effective management of government spending:

“Trump has been very successful in slowing the rate of increase in terms of government spending. … That takes away the primary impetus behind inflation.” (04:25).

He points out that reduced government purchases and borrowing have significantly contributed to lowering inflation, a trend that has been beneficial for consumers. However, Antoni cautions that inflationary pressures may resurface if government spending and borrowing increase in the future.

Stock Market Performance: The stock market's recent surge is largely tied to the trade truce with China. Antoni predicts that the market will remain volatile, heavily influenced by the outcomes of ongoing trade negotiations:

“Markets are probably going to continue overreacting to whatever news comes out. … These markets are a beast.” (06:37).

Despite improved sentiment since April, the market remains sensitive to both positive and negative developments, reflecting its inherent unpredictability.

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4. The Future of Tariffs and Economic Policy Challenges

Georgia Howell shifts the conversation to the sustainability of Trump's economic policies, particularly tariffs, in the face of potential legal challenges.

Antoni predicts that certain tariffs may not withstand judicial scrutiny:

“There's absolutely no way they hold up things like the tariff on foreign films, for example. … the 10% baseline tariff … that's the least likely to hold up in court.” (08:01).

He advocates for converting the 10% tariff into a border adjustment tax, which would streamline taxation and allow the government to offset reductions in personal income tax rates. This strategy, according to Antoni, would provide a more stable and legally defensible framework for managing trade-related taxes.

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5. Tax Bills and Legislative Prospects: Prioritizing Economic Growth

Discussing the ongoing budget bill in Congress, Howell inquires about Antoni's preferences for its provisions.

Antoni emphasizes the importance of:

• Rate Reductions: Lowering tax rates to stimulate economic activity.
• Expensing Provisions: Allowing businesses to deduct the full cost of significant investments immediately rather than over multiple years.

He underscores the need for these growth-oriented measures to become permanent fixtures of the tax code:

“I would love to see things like that, the most pro growth parts of this tax bill become permanent.” (09:41).

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6. Economic Outlook: Recession on Paper vs. Reality of Wealth

In concluding the discussion, Howell asks Antoni about his economic projections for the coming quarters.

Antoni differentiates between headline GDP figures and actual economic well-being:

“Well, you continue down that trend of shrinking government purchases … that's a sign of wealth. It's exactly the opposite of what happened during the Biden administration…” (10:31).

He argues that while official metrics may show a recessionary trend due to reduced government spending, the true indicator of economic health lies in the purchasing power of the average American. Under Trump’s administration, Antoni notes an improvement in Americans' standard of living and purchasing power, expecting this positive trend to continue.

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Conclusion: A Positive but Cautious Economic Landscape

Georgia Howell wraps up the episode by expressing appreciation for Antoni’s insights, leaving listeners with a nuanced understanding of the current economic landscape. The episode underscores the complexities of international trade agreements, the significance of foreign investments, the interplay between government spending and inflation, and the challenges facing economic policy in a fluctuating market environment.

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For those seeking further insights and analysis on the latest developments in politics, culture, education, and more, tune in to Morning Wire daily.

Transcript

[Georgia Howell]

It was a historic week of dealmaking and positive economic news. President Trump and his team hammered out details of a trade truce with China, secured nearly $2 trillion in investment from Saudi Arabia and Qatar, and the stock market surged and inflation hit its lowest levels in years. In this episode, we speak to public finance economist and senior fellow at Heritage. E.J. and Tony for some perspective on those sweeping investments and the health of the US Economy. I'm Daily WIRE executive ed with Georgia Howell. It's Saturday, May 17th, and this is a weekend edition of Morning Wire.

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[Georgia Howell]

Joining us now is economist E.J. antoni. E.J. thank you so much for coming on.

[E.J. Antoni]

My pleasure. Thank you for having me.

[Georgia Howell]

So look, we saw this week how tariffs, the stock market, inflation are all interconnected really dramatic fashion this week with all these trade deals, inflation numbers. Let's look at these separately at first. The first thing we saw is the big trade deal with China hammered out by Treasury Secretary Scott Besant. What did we see there? Is this a good deal for the United States?

[E.J. Antoni]

Well, I would say it's a step in the right direction. Honestly, it feels a bit of an overreach to call it a deal. This is basically rolling back some, but not all of the escalation in terms of tariff rates that we've seen for the last several weeks since April 2nd. And it essentially is an agreement not so much to do anything concrete but to continue talking. So again, that's a step in the right direction. I don't mean to pooh pooh it and say this represents no progress whatsoever. I just don't want to overstate the case and make people think that this is somehow tremendous progress and we have anywhere near the same kind of deal that we do with the UK for example.

[Georgia Howell]

So more of a truce than anything else.

[E.J. Antoni]

Yeah, I think that's a very good way to put it.

[Georgia Howell]

Well, that said, I mean, is this good news for the United States to have rolled back these really exorbitant tariffs?

[E.J. Antoni]

Well, it's certainly going to be good for the consumer in the short run. But when we talk to producers, in other words, when we talk to businesses, what we find, regardless whether they're small or large business, is the exact same thing. They're all really struggling with the volatility that tariffs have created. And it's not simply that we're having a discussion about tariffs or that tariffs were put in place. It's that the tariff rates have not been consistent. They have not been steady. They've gone up, they've gone down. So this on again, off again movement has essentially made it impossible for a lot of folks to do business. So that's created, unfortunately, again, a lot of turmoil. And we hope to have that resolved in the coming weeks as we get concrete deals and then as we get them ratified in the Senate.

[Georgia Howell]

Now, more concrete are the deals from the Middle east. We saw $2 trillion we worth of arrangements there. What is happening there again, is this good news for the United States?

[E.J. Antoni]

Yeah, this is actually particularly good news. What what we're seeing with a lot of these nations in the Middle east where they are essentially going to be pouring investment into this country. You know, this is where the, the we got to remember the capital surplus is the flip side of the trade deficit for literally every year, except for seven from colonial times through 1870. That was the arrangement that the United States essentially had with the rest of the world where we were buying more from abroad than they bought from us, but they were investing much more here than we were investing abroad. And that not only created those investments that is here in the United States not only created revenue streams, in other words, future income for foreigners, but it also created future income for for folks here in the United States, whether that was an American investor or the American worker.

[Georgia Howell]

And we saw extremely good numbers in both the stock market and inflation data. Why are inflation numbers down? Let's start with that.

[E.J. Antoni]

A lot of that has to do with the fact that Trump has been very successful in slowing the rate of increase in terms of government spending. We saw, for example, with the first GDP report that government purchases actually declined in the first three months of this year compared to the last three months of 2024. That's great news. Doge is working. It's having an effect. But at the same time, the government has also been up against the debt ceiling. And so even the spending that they've been doing, they haven't been able to borrow. They've been having to go through cash at the treasury. They're down about $500 billion or so. So that means that essentially the government is not only spending less, but they're borrowing less. This takes away the primary impetus behind inflation. So most of that price pressure is, is now gone. It is going to return, unfortunately, at some point. So we have to hope that this tax bill is not only cutting taxes, but cutting spending, too.

[Georgia Howell]

You say it's going to return. Is this connected to the tariffs? I mean, we still have 10% on most countries. Is that the issue that's going to drive prices up?

[E.J. Antoni]

No, I don't think so. I think it's primarily going to be the issue of the government spending, borrowing and then printing too much money to pay its bills. And in terms of tariffs, we actually really haven't even seen those effects yet because when we look at something like the Consumer Price Index, that comes from a survey which is conducted three times a month, the beginning, the middle and the end, to try to eliminate any temporary spikes within a particular month. Well, when we look at the price increases that we saw in the month of April, for example, that were related to tariffs, they didn't arrive until the very end of the month, the last week. So only one of the three surveys in the, in that month in terms of prices would have picked up any of those increases. We're much more likely to see the impact of tariffs in May, even though that, even though those tariffs were first introduced back in April.

[Georgia Howell]

Let's look at the stock market next. We saw really surging market, all of them looking really, really positive this week. And this was because of this trade truce with China's at least the most direct correlation. Do we expect the stock market to stabilize some in the coming weeks or do you think it's still going to be very erratic?

[E.J. Antoni]

Well, unfortunately, that's going to depend largely on how these trade deals shape out. Because like we were just saying, they aren't really deals in the sense of we don't have anything concrete, not just in terms of these things haven't been ratified by their respective governments, but they don't even have concrete details in them in the case of something like China. So markets are probably going to continue overreacting to whatever news comes out. In other words, if a piece of good news comes out, we'll see that big bull run. But if a piece of bad news comes out, it'll go the other way. Markets overreacted in the days after April 2nd, and frankly, they're overreacting now. Again, that's just the nature of the market. These markets are a beast.

[Georgia Howell]

And how have they settled out in the last few days. Are we back even before the Liberation Day announcements?

[E.J. Antoni]

Not quite, although we are vastly improved since the infamous Jim Cramer said we're going to have another Black Monday event that turns out that that was probably the market bottom. But, you know, again, for the most part, if we look at a lot of different, a lot of different things, not just equities, you can look at the treasury markets and others. We're basically back, not quite, but we're basically back to where we were on April 1st.

[Georgia Howell]

Trump's economic policies are likely to be tested in the courts. Do you expect the tariffs and some of these other policies he's had, he's implemented to stand up to scrutiny?

[E.J. Antoni]

Well, I'm known, I'm no attorney, but the attorneys that I have talked to on certain tariffs say there's absolutely no way they hold up things like the tariff on, on foreign films, for example. I mean, it just has nothing to do with, with the emergency powers that, that he is citing for, for why he's able to do this. You know, another One is that 10% baseline tariff. I've heard from a lot of legal minds that say that's the least likely to hold up in court. You're much more likely to see things like the individual rates on particular countries hold up in court. So a 35% rate on China versus a 25% rate on Canada, whatever the case may be, the individual rates are much more likely to hold up than the 10% across the board. But frankly, that's all the more reason why you should put that 10% rate rate into statute. Don't do it as a tariff, do it as a border adjustment tax. So that way you're not doing things like double tax taxing an item that crosses a border more than once. That happens a lot in the automotive industry as parts go back and forth before they turn into a final assembly. The other really nice thing about that is the fact that one, once you have enshrined that into statute, now you can actually use the revenue from something like a border adjustment tax to offset the lost revenue for reducing personal marginal income tax rates. I think that's a win win because you're helping to shift some of the tax burden overseas.

[Georgia Howell]

Yeah. You know, you mentioned the tax cuts and we've got this budget bill that's working through, it's working its way through Congress. What do you hope survives in that bill?

[E.J. Antoni]

Certainly reductions in rates, also the expensing provisions where you're not going to force a business that has to buy a large item like a factory today to then take the tax deduction over multiple years. If they're outlaying the cash today, they should be able to take the full deduction today. Now, although that is in the bill, the problem is it's not permanent. It's only going to last for a few years and then we just have to go through this whole rigmarole all over again to try to get that provision renewed once more. So I would love to see things like that, the most pro growth parts of this tax bill become permanent. And as always, I would like to see even further reductions in terms of those marginal tax rates.

[Georgia Howell]

A final question, looking a little longer term, where do you think our economy is heading in the next few quarters?

[E.J. Antoni]

Ooh, you know, I would not be surprised if on paper, and this is an important distinction here, if on paper you do see a recession and we can look at the first quarter GDP print as evidence for that, you saw the headline number drop about 3, 10 of a percentage point. Well, government spending, the reduction there in government purchases contributed a quarter percentage point decline. In other words, it accounted for almost all of the decrease. Well, you continue down that trend of shrinking government purchases, reducing government spending, what's going to happen to headline gdp? It's going to continue to go down, but that's not a sign of impoverishment. That's a sign of wealth. It's exactly the opposite of what happened during the Biden administration where we continue to get these apparently blockbuster official metrics, if you will. All the while Americans standard of living went down and their cost of living went up. So I care much less about what these again quote unquote official numbers look like. I care much more about what the average American can actually buy with his or her weekly paycheck. And so far under the Trump administration that figure has gone up, not down and it's recovered about a quarter of the losses under Biden that I expect to continue for the quarters ahead.

[Georgia Howell]

I'm sure a lot of people will be glad to hear that. E.J. thank you so much for coming on.

[E.J. Antoni]

Oh, my pleasure. Thank you for having me.

[Georgia Howell]

That was economist E.J. antoni and this is been a weekend edition of MORNING wire.

[E.J. Antoni]

This is Dr. Jordan B. Peterson. Watch Parenting, my new Daily Wire plus series, May 25th.

[Georgia Howell]

We're dealing with misbehaviors with our son.

[E.J. Antoni]

Our 13 year old throws tantrums.

[Georgia Howell]

Our son turned to some substance abuse.

[E.J. Antoni]

Go to dailywireplus.com today.