Odd Lots Podcast Summary Episode: Brad Setser on the Damage From Trump's Gigantic Tariff Shock
Release Date: April 5, 2025
Host/Author: Bloomberg's Joe Weisenthal and Tracy Alloway

Introduction

In this compelling episode of Bloomberg's Odd Lots, hosts Tracy Alloway and Joe Weisenthal delve deep into the economic ramifications of former President Donald Trump's aggressive tariff policies. With the help of esteemed guest Brad Setser, a senior fellow at the Council on Foreign Relations and a seasoned trade expert, the conversation uncovers the intricacies, impacts, and broader implications of the tariff shock orchestrated during Trump's administration.

The Central Story: Trump's Tariff Shock

Tracy Alloway sets the stage by emphasizing the unprecedented nature of the current trade situation, comparing it to the Great Financial Crisis of 2008 and the economic shock of the COVID-19 pandemic in 2020. She notes the persistent market volatility triggered by Trump's latest tariff announcements on April 2, 2025, describing investor reactions as "pretty much panicking since then." (02:33)

Joe Weisenthal reinforces the gravity of the situation, highlighting that banking crises typically follow established playbooks aimed at stabilizing the economy. However, Trump's tariff strategy diverges significantly by attempting to "completely reorient America's relationship with the rest of the world and reorient the internal economy." (02:34 – 03:46)

Guest Insight: Brad Setser on Tariff Strategies

Tracy Alloway introduces Brad Setser, recalling their previous interactions and setting the stage for a deep dive into Trump's tariff maneuvers. She questions how the reality of Trump's tariff actions aligns with initial expectations, eliciting a detailed response from Setser.

Brad Setser outlines Trump's campaign promises centered around hefty tariffs—initially advocating for a "10% across the board tariff and prohibitive tariffs on trade with China." He points out that while some in the administration viewed tariffs as negotiating tools rather than economy-altering measures, the final announcement signaled a full commitment to aggressive tariff implementation. (04:57 – 06:30)

Impact on Global Trade and the US Economy

Joe Weisenthal references Setser's long-standing critique of the US-China trade relationship, emphasizing the consequences of fragmenting an "open trading bloc" meant to counterbalance China. He probes the consequences of distancing the US economy and trading relationships from global partners. (06:30 – 07:26)

Brad Setser explains the complexities of US trade deficits, particularly with China. He highlights China's substantial trade surplus, noting that China's exports have surged while its imports have remained relatively stagnant. Setser argues that the Trump administration's "America alone" policy imposes high costs by severing beneficial trade relations with allies like Canada and Mexico, ultimately forcing both the US and its trading partners into economic strains. (07:26 – 10:05)

Navigating Tariff Arbitrage and Economic Strategies

Tracy Alloway brings up the strategic shifts in production due to previous tariff implementations, such as the move from China to Vietnam and Mexico. She questions whether there's still flexibility ("wriggle room") for the US to reorient its imports amidst new export limitations and tariffs. (11:10 – 12:03)

Brad Setser identifies two potential arbitrage opportunities under the current tariff structure:

1. Reorienting Supply Chains: Shifting production or final assembly to countries with relatively balanced trade with the US, thereby incurring only a 10% tariff instead of the steep 34% imposed on Chinese goods. However, this shift risks unbalancing bilateral trade relationships over time. (12:03 – 14:36)

2. USMCA Compliance: Utilizing the United States-Mexico-Canada Agreement (USMCA) to maintain lower tariffs by ensuring compliance, especially in sectors like electronics where tariffs were previously zero. This strategy, however, may become more challenging as USMCA terms evolve. (12:03 – 14:36)

Critique of Tariff Formulation and Implementation

Joe Weisenthal probes the logic behind the uniform application of tariffs based on trade surplus ratios, questioning the intellectual foundation of taxing countries like China at 34% due to their significant trade surplus. (14:36 – 15:46)

Brad Setser critiques the tariff formula as poorly conceived, likening it to a hastily prepared term paper. He points out the arbitrary and ineffective targeting of countries like Sri Lanka and Bangladesh, whose exports pose minimal threat to the US economy. Setser emphasizes that while bilateral trade patterns can offer insights, the current approach lacks strategic coherence and disproportionately penalizes countries without substantive trade grievances. (15:46 – 18:54)

Tracy Alloway echoes Setser's frustration, highlighting the irrational targeting of insignificant exporters like the fictional country "Nehru" and questioning the overall purpose behind such arbitrary tariff impositions. (18:54 – 27:34)

Potential Paths Forward and De-escalation

Brad Setser outlines possible routes to de-escalate the ongoing trade tensions:

• Phenomenal Deals: Achieving significant trade agreements with major partners like China, Europe, Japan, Mexico, and Canada to rollback some of the imposed tariffs.
• Focused Trade War: Concentrating efforts on China using targeted tools like the Section 301 tariffs while maintaining a more standardized tariff approach with other nations.

However, Setser remains skeptical, noting the Trump administration's commitment to fundamentally restructuring US trade relationships, which may lead to prolonged economic disruptions and retaliatory measures from other nations. (20:24 – 24:52)

Tracy Alloway expresses her concerns about the arbitrary and destructive nature of the tariff strategy, questioning the long-term viability and strategic intent behind such policies. (24:52 – 27:34)

Conclusion and Reflections

The episode concludes with a mix of frustration and intellectual intrigue from the hosts. Joe Weisenthal shares a personal anecdote about his unsuccessful interview with Brad Setser in 2007, underscoring Setser's reputation for rigorous economic analysis. Tracy Alloway reflects on the irrational aspects of the current tariff strategy, emphasizing the missed opportunities for cohesive and effective trade policy reforms.

Brad Setser reiterates the historical significance of Trump's tariff policies, suggesting that they represent a more profound break from established global trade systems than previous economic crises. He warns of the long-term economic costs and the challenges in restoring balanced trade relations. (25:00 – 26:43)

Key Takeaways

• Aggressive Tariff Strategy: Trump's administration pursued a punitive tariff approach aimed at drastically reducing the US trade deficit, particularly with China, without strategic differentiation among trading partners.

• Global Economic Impact: The blanket tariff impositions have strained relationships with key allies, disrupted global supply chains, and introduced significant economic uncertainty, potentially more impactful than past financial crises.

• Arbitrary Implementation: The tariff formula applied appears arbitrary and poorly constructed, leading to punitive measures against countries with minimal impact on the US economy.

• Limited Arbitrage Opportunities: While there are ways to navigate the tariff landscape through supply chain adjustments and USMCA compliance, these options come with their own sets of challenges and may not fully mitigate the adverse effects.

• Path to De-escalation: Potential routes include renegotiating trade agreements and focusing on targeted actions against China, but the entrenched nature of the policy makes de-escalation complex and fraught with economic risks.

Notable Quotes

• Tracy Alloway (02:34): "The story of the tariffs, the market reaction, the global reaction is the central story of our time, one of the biggest stories of our entire career."

• Joe Weisenthal (03:46): "Banking crises happen they happen around the world... This is different because this is a policy choice purposely aimed to completely reorient America's relationship with the rest of the world."

• Brad Setser (04:57): "Trump did campaign on an agenda that was tariffs and more tariffs... what the announcement on Wednesday showed is that the decision of the administration, not surprisingly, was to follow President Trump's instincts."

• Brad Setser (15:56): "It was done late at night because we ended up tariffing islands that only produce penguins."

• Tracy Alloway (27:34): "We have chosen this weird wish list of things that we want that don't seem to be based on anything, like, rational."

Final Thoughts

This episode of Odd Lots provides a thorough examination of the tumultuous tariff policies under Trump's administration, shedding light on their far-reaching consequences and the complex interplay of economic strategies on a global scale. Brad Setser's expert analysis offers valuable insights into the flawed implementation and potential paths forward, making this episode a must-listen for those seeking to understand the profound shifts in international trade dynamics.

For more in-depth discussions and analyses, tune into Bloomberg's Odd Lots podcast every Monday and Thursday.