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- [00:01]
Bill Simmons
Hey, it's Bill Simmons letting you know that we are covering the White Lotus on the Prestige TV Podcast and the Ringer TV YouTube channel every Sunday night this season with Mallory Rubin and Joanna Robinson.
- [00:11]
Rob Mahoney
Also on Wednesdays, Rob Mahoney and I.
- [00:13]
Roger Karma
Will be sort of diving deep into theories and listener questions. So you can watch that on the Ringer YouTube channel and also on the Spotify app.
- [00:21]
Bill Simmons
Subscribe to the prestigious podcast feed, subscribe to the Ringer TV YouTube channel. And don't forget, you can also watch these podcasts on Spotify. White Lotus Go.
- [00:35]
Rob Mahoney
This episode is brought to you by Audi the all new fully electric Audi Q6E Tron is a huge leap forward featuring effortless power, serious acceleration and the most advanced tech of any Audi ever. Experience technology that puts you center stage with a panoramic digital stage plus an optional screen for front seat passengers. The Q6E Tron is not just a new EV, it's it's a new way to experience driving. Learn more@audiusa.com always pay careful attention to the road and do not drive while distracted. This episode was brought to you by ServiceNow. We're for people doing the creative work they actually want to do. That's why this was written and read by a real person and not AI. You know what people don't want to do? Boring busywork. Now with AI agents built into the ServiceNow platform, you can automate millions of repetitive tasks in every corner of your business, it, HR and more. So your people can focus on the work that they want to do. That's putting AI agents to work for people. It's your turn. Tap the banner to get started or visit servicenow.com AI agents today Donald Trump versus the economy in the first two months of this administration, Trump has announced and then paused and then re announced and then re clarified tariffs on Canada and Mexico. The White House has said they will impose so called reciprocal tariffs on countries with large trade deficits with the US Meaning we buy more of their stuff than they buy of ours. Trump has even threatened to use a new means of economic leverage, secondary tariffs on countries that buy Venezuelan oil. Meanwhile, the administration is challenging Europe to increase its defense spending while on a separate track entirely, making noises about annexing Canada and Greenland. What are we doing here? What sort of a world is Donald Trump and the White House trying to build? What sort of a global economic order are they trying to fashion? If you stand back from the brushstrokes and take in the full mural, it is possible to see something like a grand economic strategy for the Trump administration. And one way to think of it is that he is using America's power in the 2000 and 20s to try to return us to the industrial economy of the 1950s. The White House wants to use our leverage over every country in the world to wrest concessions for American companies, or, in some cases, for Trump personally. There are several questions to ask about this economic strategy. One is whether or not it's working when tariffs are announced at 9am in the morning and amended at 3pm in the afternoon, it's hard to see this as a carefully choreographed policy. When tariffs designed to buoy auto manufacturing in the US Lead instead to hundreds of layoffs among steelworkers, as they did this past week, it is hard to see this as a cleanly effective economic policy. A very different question to ask is whether Trump's economic strategy is an economic strategy at all. Maybe what we're seeing on the international stage is best understood as an extension of Trump's personality. His proclivity for audacious promises that goes all the way back to his real estate career, his tactic of using leverage to squeeze counterparties, his preference for mano a mano deal making over coalitional bargains. Today's guests are Roger Karma, a staff writer for the Atlantic, and Jason Furman, an economist at Harvard. We talk about the New World Order Trump seems to be accelerating us toward. But we also talk about Trump himself, an unusual leader whose governance style often seems to have more to do with personality quirks and personal leverage than with policy itself. By evaluating the White House along both these fronts, the theory and the man himself, maybe we can begin to see around the corner and understand what kind of a world, what kind of a global economy Trump is trying to pull into view. I'm Derek Thompson. This is Plain Eng. Roger Karma, welcome to the show.
- [05:29]
Roger Karma
Thanks for having me.
- [05:31]
Rob Mahoney
Jason Furman, welcome back to the show.
- [05:33]
Jason Furman
Great to be here, Jason.
- [05:35]
Rob Mahoney
Let's check in with reality. Here we are two months into Donald Trump's second term. How does the pace of economic news in Trump 2.0 compare with the pace and ideology of Trump 1.0?
- [05:52]
Jason Furman
If you compare tariff policy in Trump 1 to Trump 2, both the pace and magnitude is vastly different in Trump 1. He announced an investigation into Chinese trade practices in August 2017, seven months in. The results of that investigation came back from his USTR in June of 2018, at which point he announced tariffs on $34 billion worth of Chinese imports, which didn't go into effect for another month in July 2018. So you're talking about in the first term, a year and a half, culminating in tariffs on $34 billion worth of stuff this time around. The first tariffs were announced on February 1. They went into effect within days of it, and now we're already tariffing more than $1 trillion of imports. And one way to summarize all of this is in the entire first term, the effective average tariff rate only went up by about a point and a half so far in just the beginning of this term. Just the things that have actually happened, it's up about five points, more than three times as as the entire first term. And so both the magnitude and pace of this is breathtaking. And a question is, will we continue on that same magnitude and pace, or will somehow the April 2 announcement be the end of it? Get it out of his system and he'll turn his attention to taxes, regulation, and all the other economic issues he's discussed to date.
- [07:34]
Rob Mahoney
Roger I'm really interested in how the Trump administration explains its economic plans not only to the public, which we can see if we look on, say, cnbc, but how it explains its economic plans to itself. Like, how do economists justify this tariff gambit? So in November, Stephen Mirren, who is the chair of Donald Trump's Council of Economic Advisors, published an essay that's been held up as a Rosetta Stone of Trump economic strategy by journalists and even by cabinet members. It proposes this grand economic bargain, a grand master plan of Trump policy that some people call the Mar A Lago Accord. What is the Mar A Lago Accord?
- [08:17]
Roger Karma
So the Mar a Lago Accord is really the culmination of this supposed economic master plan. Right. The thing that all the chaos, all the messiness of his time in office so far is supposedly building towards. And that thing is, as you reference, right. A grand geopolitical bargain that, according to its proponents, will simultaneously revive American manufacturing. It'll shrink the national debt, it'll transform the global alliance system in America's favor, going down in history as the most important deal of the 21st century. Which, you know, sounds like a piece of MAGA fanfic you might find on Truth Social. But as you said, it was first articulated in this paper by now Chair of the Council of Economic Advisors, Stephen Mirren. Parts of it have been referenced by Treasury Secretary Scott Besant. And the plan really begins with Trump's favorite word, which is tariffs, right? Not tariffs as a way to achieve some specific economic or strategic aim, but tariffs as a way to build up enough leverage to eventually force foreign countries to the negotiating table. Right. All the claims about Canadian fentanyl trafficking and Mexican cartels in this telling are a distraction. And the chaos with which the tariffs have been implemented so far is part of the point. Because the more Trump can paint himself as this unpredictable madman willing to tank the global economy, the more other countries will be desperate for reprieve. And then once they are sort of practically begging for an end to it all, according to this theory, Trump will call the world leaders to his hotel at Mar a Lago where he will offer them the terms of a deal. And we can get into more of the details of that deal. But the basic premises are that these other countries will agree to coordinate, to weaken the dollar, to strengthen their own currencies and weaken the US Dollar, which will make American goods cheaper to sell abroad. Some of them, like those with large trade surpluses, maybe a Germany, a China, might be required to make big investments in American manufacturing or industrial base. And then to top it all off, these countries will be required to swap their existing holdings of U.S. debt for these things called century bonds, which would essentially provide the US with free financing for the span of 100 years.
- [10:53]
Rob Mahoney
Jason, the plan here, in the biggest picture seems to be to use America's economic and even military power to wrest concessions from our trading partners. They have tariffs on our goods. Those should go away. They won't invest directly in American manufacturing. That should change. The dollar's been strengthened by a variety of trade and currency policies around the world. The dollar should weaken, which will make our exports more competitive. Is there a historical analog to this policy of a big, rich country using its economic and military might to push its trading partners to do its bidding?
- [11:37]
Jason Furman
Yes, there are certainly historical analogues of it. In the 19th century, American gunboats opened Japan up to trade. British gunboats not only opened up China to trade, but basically forced China to to buy their opium. There was dollar diplomacy where the United States used the power of the dollar to force things on other countries. And so historically, we have seen a combination of military might and economic might working together to lead other countries to do things that they would not otherwise have wanted to do.
- [12:22]
Roger Karma
To Jason's point, there really is a military component to this, too. The tariffs are the way to get countries to the table. But according to this plan, if the countries do not accept the terms of the agreement, they will not only face even steeper tariffs, they will also, if they are our allies, lose military protection, which means if they are part of NATO, they will no longer be protected, even if they have some kind of treaty. Or alliance with the United States, they will no longer be supported by the US Military umbrella. So it really is that sort of one two punch of economics and military might.
- [12:56]
Rob Mahoney
Jason, I want you to evaluate the Mar A Lago Accord theory strictly as a matter of economics. Is it coherent? Are there major howlers in it?
- [13:07]
Jason Furman
You know, the thing about Steve Mirren's document is it is economically coherent from beginning to end. There are very, very few, if any, major economic errors in it. And that's something because a lot of people, when they talk about tariffs, they make all sorts of claims and pretend all sorts of things that violate basic economic identities or economic relations. But the way in which it makes things better for the United States while being economically correct, is it assumes an enormous amount of power for the United States. And in particular, you can understand his document of if the United States could control the economic policies of every other country in the world, then can we engineer something to make ourselves better off? And his answer to that is yes. The question, of course, is that premise, you know, if the United States could take Greenland and Canada, would it be better off? The answer to that question might be yes, but that doesn't mean it's a good plan to try to take Canada and Greenland.
- [14:11]
Rob Mahoney
Roger One question to ask about this Trump economic strategy is whether it's factually coherent. A very different question is whether the document actually explains the White House at all. This administration is not, it seems to me, quite governed by policy papers or white papers. You have Donald Trump, whose character I want to touch on in a second, but you also have these factions within the White House, the Bannon Wing, Musk and Doge, Vance, Besant. Mirren, do you have a clear sense of whether these factions are at war over economic policy, or is your sense that they're all somewhat pulling in the same direction?
- [14:49]
Roger Karma
So we can get into the sort of different factions? And whether they, the different factions, whether it's the tech right or the more sort of nativist right, whether those factions disagree over this set of policies. But, but let me just try to give you the sort of steel man case for how these, this Mar A Lago accord represents a sort of intellectualizing around some of Trump's very real impulses. So one of Trump's longtime obsessions is the scourge of the strong dollar. He has constantly railed against the strength of the dollar as being responsible for the decline of American industry and attacked countries like China and Japan for manipulating their currencies to them. And so let me, let me sort of explain this Right. So the dollar is. And Jason, you can, you can jump in and correct me if I get any of this wrong. So the dollar is the world's reserve currency, which means that a lot of it basically means that a lot of international trade is done in dollars. Right. A lot of commodities like oil are sold in dollars. And that means that demand for dollars around the world is very high. And like any good, lots of demand means higher prices. So the global demand for dollars makes them more expensive relative to other currencies. Generally, that's the strong dollar piece. Well, what happens when the dollar is strong? When the dollar is strong relative to other currencies, it makes goods you buy from foreign countries relatively cheap. Right. Any American who has traveled abroad will know this. It is great if you are buying French pastries or Italian coffee for the dollar to be strong. It's not so great if you're an American company trying to sell your goods abroad because they're now relatively more expensive than their competitors and you are now at a disadvantage compared to them. And if you are, say, you know, an American car company trying to sell Fords to Europe, maybe they'll, you know, switch over to BMWs instead, which are, which are relatively cheaper. Trump and the people around him believe this dynamic is intentional. Right. Other countries are engaged in this maybe semi coordinated plot to weaken their own currencies to benefit their own industries at the expense of America. And they do believe this is largely responsible for the long decline of American manufacturing. Right. The first big section of Mirren's paper is titled, quote, the roots of economic discontent lie in the dollar, unquote. The idea being that it is putting our companies and our economy at a systematic disadvantage. But if you could reverse that dynamic, if you could force other countries against their will to strengthen their currencies and weaken the dollar, then you could bring American manufacturing back. That. I think it's worth pausing on that piece because I think the pursuit of the weaker dollar is something that is very central to the administration's thinking. And I'll just say, not only with the Mar A Lago accord, right? The administration has actually floated the idea of a sovereign wealth fund in which the US Would take some of its surplus wealth and use it not necessarily even to make a big return, even though that's one common purpose of a sovereign wealth fund, but to intervene in foreign currency markets to push down the value of the dollar. Right. The reciprocal tariff prop that Trump plans to formally implement on April 2, that involves putting sort of individual tariffs on each country based on their trade barriers. And one thing they say they will target with those tariffs is currency manipulation. So whether it's the Mar A Lago Accord or a lot of other things the administration has proposed, this central, this, this project of weakening the dollar to restore American manufacturing is central.
- [18:30]
Rob Mahoney
Jason, in Raje's answer there, I'm hearing both a conceptual claim and a specific claim. The conceptual claim is that a weaker currency is helpful for one's industrial base for a country's manufacturing economy. And this seems to me to be a lesson of the last 50, 70 years of developmental economics. When you look at how South Korea and Japan and China and Taiwan got rich, it was often because of export controls and currency controls and a plan to both grow the manufacturing base while restraining the value of the currency so that those products would be competitive in international markets. That's conceptual claim that I think is very interesting. There's also a specific claim which is that because of high demand for the world's global reserve currency, the US Dollar is more expensive than it would otherwise be. And all that. At the same time, we've allowed other countries to slap tariffs on our goods without trying harder to punish them for it. And all of this makes American exports more expensive, which puts American companies at a disadvantage, which incurs the possibility of social ills that come from deindustrialization, whether it's fentanyl or disemployment. How would you evaluate this claim? Is there reason here?
- [19:46]
Jason Furman
So being the world's reserve currency has been called exorbitant privilege. And it has some big benefits and some costs. And Roger did a terrific job of laying out the benefit it has for consumers of being able to buy more. And by the way, it's not just if you're traveling to Paris, it's if you're buying things here in the United States. A lot of things we buy are made all over the world. And that's especially true for low and moderate income consumers, but it hurts exporters. There's a second piece of exorbitant privilege which is it allows us to borrow more cheaply. And borrowing more cheaply is both for our government, lets it run a bigger deficit, do more either investing or things for consumers and also for businesses allows them to actually borrow and invest more. And that's one of the key pieces of the Mirren version of the Mar A Lago Accord is he is trying to get the benefit of a cheaper dollar for exporters without losing the low interest rates. And that's where the piece of forcing the other countries to buy our debt and to basically lend us money at low interest rates comes in because it wouldn't happen naturally anymore in his framework. So he's trying to have one good piece, which is keep the low interest rates, the other good piece, which is to help American exporters. But there's no way around that third piece, which is what it means for consumers. So if you're focused on inflation, for example, when the dollar weakens, that means in part, import prices go up. That means inflation goes up in terms of the overall coherence of it, definitely. Donald Trump has long wanted a weaker dollar, but a lot of the policies actually are stronger dollar policies. Increasing deficits, for example, strengthens the dollar tariffs. Unless you can force other countries to behave exactly the way you want them to behave, they strengthen the dollar as well. And so this gets to your question of how coherent the plan is for all the different parts of government. It doesn't seem like every part of government is doing things to make the dollar weaken. Some of them are doing things that go in the opposite direction. So finally, I didn't actually answer your question, Derek, which is, could this work? Yes, a cheaper dollar, lower exchange rates has been part of the development strategy of a lot of Asian countries. It hasn't really been a big part of a development strategy elsewhere. And I guess I would think when you're transforming from poor and trying to develop a set of industries from scratch, that's maybe a bit different from a more mature economy where you're starting to care about what the benefits of your economy are for your consumers.
- [22:35]
Roger Karma
One framework you might put around this is that the weaker dollar policy was almost perfectly designed in response to the political economy of the 2000 and tens, but is not as responsive to the political economy of the 2020s. So if you think about what the core economic problems were when this sort of vision of the weak dollar was gaining currency, pun intended, it was that we were in this slow, halting economic recovery. Unemployment was high, wages were not growing very fast. The problem in the economy was persistent lack of aggregate demand. Our exporters were not doing as well. That was the sort of set of problems in which people in and around Trump world started coming up with this idea. And not just Trumpists, but there were a lot of people on the left too that started to come up with this idea of, well, maybe the problem is that the dollar is too strong and if it was weaker, our manufacturers, our companies become more competitive and solve these problems that had then metastasized, especially by 2016, into really core Political problems, things like the China shock, et cetera. But you fast forward to the 2020s and the problems that the weaker dollar policy was supposed to solve. A lot of them are looking a lot better. Unemployment is very low. Wage, nominal wages are growing very fast. You know, manufacturing structures, investment is up. What people are really upset about is high prices. They're really upset about inflation in a world where inflation was low and the problem was demand, the problem was export competitiveness. It sort of made the weaker dollar theory sort of made sense as a response to the political economy problems of our time. Now those problems are very different. Consumers are really upset about high prices and a weaker dollar would make a lot of the things they pay for more expensive. And so it's interesting that the sort of weaker dollar theory is gaining so much traction now when in a lot of ways it was much more responsive as a problem, I think to the sort of macroeconomic and political issues that were surfacing in the 2010s.
- [24:57]
Rob Mahoney
Raje in his paper, Mirren discusses a so called narrow path to success for the Trump administration. And I just want to quote him now so that he's not misunderstood. There is a path by which the Trump administration can reconfigure the global trading and financial systems to America's benefit, but it is narrow and will require careful planning, precise execution and attention to steps to minimize adverse consequences, end quote. Roger, how would you personally evaluate the degree to which this administration's economic policy so far has included elements such as careful planning, precise execution, and the minimization of adverse consequences?
- [25:43]
Roger Karma
I'm really glad you pulled out that quote because I think it is the single most revealing line of the entire paper. I think the way I would summarize it is if that is all true, that no one appears to have told the guy in charge, right, you can go through this sort of one by one, right? Careful planning. A lot of the tariffs so far have been focused on Mexico and Canada, two countries that do not hold vast reserves of dollars that aren't sort of implicated very much in this set of problems and not on countries like Japan or Saudi Arabia or Taiwan that tend to hold a lot of dollars. The one exception here is, but you would think Mexico and Canada wouldn't even be a huge part of the conversation if this is a well planned effort to weaken the dollar, for instance, precise execution. The Canada of Mexico tariffs themselves were, and I have to make sure I get this right, announced, paused, unpaused, given sector specific exemptions, and then semi repaused in the span of just six weeks. The process of implementing these has been so chaotic that Trump's own advisors often don't know what he'll do next. The example that that stands out in my mind is that the, the Mexico Canada tariffs the second time were set to go into effect on Monday night of March 4th at midnight. And on March 3rd, the day before Treasure, Commerce Secretary Howard Ludnick gives an interview where he's asked if the President will go through with them. And he basically says he has no idea. He says, I think, quote, it's a fluid situation. The President will decide tomorrow, which is just wild. And then the probably the funniest part of this all might be the line about minimizing adverse consequences. This is a huge theme throughout the Mirren paper, like, we have to make sure other countries do not retaliate. This, this won't work if other countries don't capitulate. And then you look at what's happened and basically every country we've put tariffs on has retaliated. The Chinese retaliatory tariffs are substantial, but I think the most telling response has been the response of a country like Canada. Right. Jason started out this conversation earlier by saying that, like a lot of this works if you assume that everyone we can control the economic policies of other countries. If there was any country that you'd expect would capitulate in the face of US Coercive power, it would be like a country that is both America's neighborhood, relies on us for a bunch of trade, and is like, known stereotypically as like the most deferential, nicest people ever.
- [28:18]
Rob Mahoney
Shot fire to Canada. Poor guys.
- [28:22]
Roger Karma
They're great. I love Canadians. Like this is, I think, a positive. And they've responded to the threat of tariffs with a groundswell of anti American nationalism so strong that it has literally upended their domestic politics. They're furious. Their provincial leaders are feuding with Trump. And so I think when you just tick down this list, I do not think the administration is actually following the Mirren guidelines to their word.
- [28:46]
Rob Mahoney
Jason, I think the most popular criticism of exercises like the one you and me and Roger are going through right now is that we are fundamentally sane washing Donald Trump that his economic agenda is not so much an economic agenda as it is a manifestation of his personality, quirks and details that is reflecting itself on the global scene, but does not express any kind of long term plan for the US And I want to read from friend of the pod, Michael Sembalist, the dean of investment analysis at JP Morgan, because he had a really nice quote on this point. He writes, I could be convinced that the US Needs painful short term adjustments, a detox period, as Treasury Secretary Bessant describes it, to reduce chronic deficits in traded goods. But it's hard to trust economic management by an administration that A spends time and energy on a strategic crypto reserve, something that only materialized after the crypto sector's generous political contributions, and B is now attacking the chips bill despite massive US Reliance on Asian semiconductor exports. End quote. Jason, one thing that I interpret Michael to be saying here, that I think is really important is that it's very hard to see Trump's economic agenda as being about economic principles when his presidency is so manifestly about interpersonal power. He's against crypto, and then crypto billionaires give him money and now he wants a crypto strategic reserve. He's against TikTok, then a TikTok investor gives him money. Now he's willing to stay the company's execution. He's for high tech industrial policy, but Biden passed a law to support computer chip manufacturing, so now we have to gut high tech industrial policy. It does feel to me like economic policy from this White House is an attempt to explain Trump's day to day personality rather than a coherent long term strategy to change the geopolitical paradigm of America's trading and currency regimes. Does that seem to you like a fair critique?
- [30:56]
Jason Furman
That does seem to me like a fair critique, especially in something like trade. Why are we doing the tariffs? They're temporary bargaining leverage over fentanyl. No, they're a permanent revenue source. No, they're about changing American manufacturing. No, they're about restructuring the entire global economy. I mean, the rationales for the tariffs keep changing. Many of those are contradictory. You can't re industrialize if you're not raising the prices of the things that we're getting from abroad. You can't use something as temporary leverage and also use it to permanently raise revenue. So a lot of the conversation has centered around this document by Steve Mirren lately, because it is, if you're steel manning the case, the only internally consistent version of the policies. But as we've all discussed, it only works subject to an extraordinary set of assumptions, which so far there's no evidence that they're happening. It only works if you implement it in exactly the way the designers of it wanted to implement it. And by all accounts, Treasury Secretary Scott Bessant's way of wanting to do tariffs is not what the advice the President followed. And he's not doing what his treasury secretary wanted him to do. And it only works if you do other policies that are consistent with it, like investing in American manufacturing directly, not raising the deficit, which hurts the currency and the interest rate and investment and the like. So yeah, I do think this is most likely sane washing. I think it's an exercise that's worth going through. I don't reject the idea of Steel Manning, but wouldn't end with the discussion of steel Manning.
- [32:52]
Rob Mahoney
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- [33:16]
Bill Simmons
This message is brought to you by Apple Card. Apple Card is a no fee credit card that gives you daily cash back every day. That's 3% back at Apple and 2% back on every purchase made with Apple Card using Apple Pay. Apply for Apple Card and the Wallet app on your iPhone today subject to credit approval. Variable APRs for Apple Card range from 18.24% to 28.49% based on creditworthiness rates as of January 1, 2025. Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch terms and more at applecard.com this episode is brought to you by the Home Depot it's starting to look like spring, and spring starts with savings at the Home Depot. There are savings for every project, whether you're starting with a clean slate with convenient cordless power like a new pressure washer or leaf blower, or starting to love the yard again with colorful flowers and fresh mulch. Start your spring with early savings at the Home Depot. Shop now@homedepot.com Roger our boss, Jeffrey Goldberg.
- [34:16]
Rob Mahoney
Recently made big news when texts from Trump's advisors about whether to attack the Houthis were accidentally leaked to him on a Signal group chat. And I bring that up not to join the incredibly loud discussion over this particular news item, but rather to point out that I don't think it's particularly partisan to observe that this administration is extremely ad hoc, not only if in its efforts to bomb the Houthis, but also in its efforts to implement any kind of economic strategy. You have tariffs, as you said, announced and then unannounced and then reannounced and then re unannounced and then promised to be reannounced again, which I think raises a very important question here. As long as we're trying to attach the theory of Trumponomics to the person of Donald Trump himself, what evidence do we have, Roger, that Trump the president, has any deep interest in executing the plan described by Mirren and Treasury Secretary Bessen?
- [35:21]
Roger Karma
The short answer, Derek, is we don't. Donald Trump is not someone who is typically shy about, you know, previewing the big deals he's going to make. If, you know, Ukraine is an example. He's not someone who, you know, shies away from proposing crazy things like he has with, you know, turning Gaza into a resort. And yet he has not mentioned the Mar? A Lago Accord once in public, at least that I know of. And, in fact, he's taken some actions that would, like, directly undermine it. So earlier this year, it was rumored that the BRICS countries, Brazil, Russia, India, China, and South Africa, might create a new currency for international trade, which is the exact kind of move that would weaken the dollar, which is what Trump's team says they want. And Trump's response was to threaten them with 100% tariffs for threatening, in his words, the mighty US dollar. So I think we don't have a lot of evidence that Trump is interested in this. What I will say, here's my case for taking some of this stuff seriously, even if not literally. And it is that one of your early questions, Derek, was about the factional fights within the administration. I don't really see this as a fight between different factions around Trump. I see it as an attempt by the people around Trump to try to wrestle his often inchoate impulses into proposals that can achieve the goals they want to achieve. And so I mentioned earlier, it is not just the Mar? A Lago Accord. They're throwing out ideas like a sovereign wealth fund, which is supposed to help weaken the American dollar. They're doing reciprocal tariffs, all of those, right? Think about reciprocal tariffs. This is like classic a policy that is classically built around Trump's impulses around fairness around countries ripping us off. But if you listen to Scott Besant talk about it, the way he frames it is actually most of these tariffs won't go into effect because other countries will back down and they will open up trade to us so we won't have to propose these tariffs in the first place. And that there's another word for that. It's called a free trade agreement, where countries mutually decide to lower trade barriers. But it is trying to do this through sort of a mechanism that takes advantage or at least goes alongside Trump's very real impulses. And so I think These things, like weakening the dollar, like making sure sort of America's allies aren't, quote, unquote, free riding on America, et cetera, the way to understand them as things that the people around Trump are trying to do. Trump himself is the obstacle, and they are trying to mold their theories and policies in a way that allows them to achieve their goals while also satisfying the guy in charge, even if he himself doesn't have much coherence to him. Maybe that's too much sanewashing.
- [38:18]
Rob Mahoney
I don't think it's sane washing. I think the fundamental fact of Donald Trump's personality as it relates to policy is that he does not and has never believed in the concept of positive sum interactions. And if you don't believe in positive sum interactions, you cannot believe in trade. Trade is the ultimate positive sum exchange. I love French wine, they love money. So when I spend $50 on a left bank Bordeaux, and Bordeaux gets my $50 and I get their blend, then I'm happy and they're happy. But in Trump's imagination, what happens is America's lost $50 in this exchange. We've run a deficit and we've lost that $50. He doesn't believe in the concept of positive sum interactions existing. He never has. He brags about the fact that he doesn't believe in positive sum interactions. In the art of the deal, his whole strategy is make absurd, grandiose statements, use those statements to strike the fear of God into people, force them to the bargaining table, pick up the phone, work something out mano a mano, and then feel like you've won the exchange. And if you adopt that framework onto global trade systems, what you get is an enormous enthusiasm for announcing dramatic tariffs, using those announcements to scare our trading partners to the proverbial negotiating table. Spending all afternoon, picking up the phone, being able to talk to the heads of Mexico and Canada and countries throughout Europe that are bending the knee and saying, I'll give you this on fentanyl, I'll give you this on the border, I'll give you this on lumber, I'll give you this on some other material. And feeling, therefore, like you have wrested some element of power and status out of those interactions. So in many ways, while, yes, this exercise could absolutely be construed as an attempt to put a sweater on a tiger. Right. The underlying personality is just pure id. So why are we dressing it up? We're dressing it up, I think, because we're trying to understand how a personality type like Donald Trump put into the White House makes manifest these ideas about interpersonal domination that have characterized his entire business career. I think it's very interesting to think how those personality quirks affect global trade. And right now I think we're very much seeing it works with threats and interpersonal negotiations. So end rant Jason, I'm interested if you think I'm off base. But just as important, I want to know what you're looking at to evaluate whether the White House is getting what it wants from the world. On the one hand, Reuters has reported that India has offered to reduce its tariffs to avoid the wrath of Trump. That frankly sounds a bit like Trump policy succeeding. On the other hand, there are plenty of indications that foreign trading partners are planning to just leave the US behind or retaliate with tariffs of their own. If we want to evaluate Trump's economic agenda objectively, what should we look at?
- [41:37]
Jason Furman
So I'll answer your question, but let me just build on what you were saying before it and then I'll get to the answer to your question. Trump is you're absolutely right that Trump sees the world as zero sum imports are a way of taking advantage of the United States, and he is completely wrong about that. One thing he is right about though is the United States does have a decent amount of leverage because these gains from trade actually are asymmetric. So when we put tariffs on Canada, we talk about it taking a couple tenths off the growth rate in the United States but potentially causing a recession in Canada. Same thing with Mexico. Same thing with China. The US Tariffs on China are going to hurt the Chinese economy more than they hurt the United States. So there are these gains from trades or in this case there is a loss to both sides from reducing trade. But that loss is asymmetric. And so there might be some way to get something in exchange for that. We haven't gotten anything from Canada so far. In fact, just the opposite. But they have an election on April 28. What happens after the election? Do they stare a recession in the face and want to give more concessions to the United United States? Maybe they do. Not what I would do. I think it's a risky way to accomplish this goal. But he's not crazy in thinking there's an asymmetry in some of these gains, especially with countries that care more about the United States than the United States does about them. In terms of the US Economy, the Atlanta Fed has this GDP now tracker and a couple weeks ago it went from predicting positive growth to predicting really negative growth in the first quarter. And lots of the left on Twitter Got really excited and it's like, oh, look, Trump's already caused a massive recession. That tends to not be the way economies work. Economies are like supertankers. They only start changing slowly. Trade is only 10% of US GDP trading goods, which is what's being affected by these tariffs. And by the way, it's not like we're ending trading goods. We're saying if you want a good, it's now going to cost 20% more, 25% more, something like that. And so if you put what's happened so far into macro models, you tend to get numbers like it'll hurt economic growth by a quarter of a point or half a point. You know, maybe growth was going to be 2.2, now growth will be 1.7. That's a lot. That's $1,000 for every family in the country, just putting it in a bonfire and setting it on fire. So I don't think it's a particularly good thing, but it's not particularly dramatic. So what does one want to look at? One wants to try to discern whether the known knowns here are where you get that half point. That's the higher tariffs, the bigger numbers, and the possible recession. And recession, by the way, is always a possibility. Come more from the unknowns. How much does uncertainty matter? How much does pessimism matter? These are hard to really quantify and be certain about. But where might it show up? Consumers say they're terrified. Do they actually stop spending? And there's a lot of measures of consumer spending. Businesses say they're really uncertain. How much are they actually changing their capital plans. So far we're seeing the negatives more in the so called soft data, which is confidence and expectations for the future. When do we start seeing it in the hard data, the actual decisions that consumers and businesses make?
- [45:30]
Rob Mahoney
Roger, Jason's saying that as of now, we're not exactly seeing clear evidence in the hard data, that is to say hiring, spending, revenue, investment, that this chaotic and certainly relatively unprecedented global economic strategy is having any effect in the US Economy. What are you seeing, however, in your reporting? Talking to economists, talking to businesses, looking at little ways that we might be able to see how tiny changes now might lead to larger changes later. Is there any evidence that Trump's economic strategy is beginning to have an effect on the US Economy?
- [46:13]
Roger Karma
So I wrote this piece a few weeks ago that was titled the Labor Market Is Frozen. And that piece was about this trend where unemployment is very low. And usually when unemployment is very low, hiring is very strong. But instead over the course of the last few years, the hiring rate has actually fallen to around where it was in 2013, 2014 range, the lowest in over a decade. And I was trying to piece together in that piece, like, what is going on, what's happening, because doesn't the economy strong? And one thing I heard repeatedly from employers I talked to was that it's uncertainty, uncertainty, uncertainty. In 2023, the big question was, is there going to be a recession? And so there was like a pullback on, oh, well, maybe we shouldn't open that new factory, maybe we shouldn't go forward with these plans. In 2024, there was all this uncertainty around the election and there was a lot of built up sort of, well, who's going to win? If Trump wins, we'll get tariffs. If Harris wins, there'll be something different. And so businesses were in this sort of constant, perpetual state of uncertainty that made them less willing to lay people off, less willing to hire, and therefore workers less likely to quit. The thing that employers were saying all through 2024 was that that was going to be the last year of uncertainty. That like there was all this uncertainty building up in the system when it comes to hiring. But like the motto was just survive until 2025, because 2025 was the year we'd finally have a breakthrough and we'd have a new administration. It would be clear that the economic outlook would be clear, the Fed would begin lowering interest rates, everything would be great. And then 2025 comes and they're just as uncertain as ever, if not more uncertain. You have the off again on again tariffs, you have doge and how that's going to affect all every single employer who interacts with the federal government. What Trump has done is just injected an incredible amount of confusion and uncertainty into a labor market that was already on pause, that was already experiencing a slowness of hiring. And I think Jason ended on the right question, which is right. Uncertainty, in my view, is like cancer for an economy. It just will metastasize over time and eventually you are going to see it show up. The question is when? And so I think Jason ends it on the right point. The question is, when is this going to hit? How much is it going to hit? I think there is some question about whether, like the extent to which employers are serious about the level of uncertainty. But also I think there's a real way. It has already shown up in a lot of the labor market data that we've seen in terms of at least hiring and quits. And I just worry that if you keep prolonging this, if you keep extending the uncertainty, eventually something bad is going to happen. And so that's my sort of, from talking to employers and talking to folks, that is my worry. The big question is, do we get some kind of policy certainty, even if it's, I've talked to employers that I rather just get a tariff policy that, like, I know and can respond to than the constant whiplash. And so I think that is the question, do we get some kind of policy consistency? I think based on what we've talked about in this conversation, the answer is probably no.
- [49:37]
Rob Mahoney
I'm really glad we ended there because I think that answer helps, at least for me, to connect two major themes of this conversation so much. The first half of the conversation was an effort to present a good faith argument for the upside of uncertainty. The idea that Trump's madman strategy will bring trading partners to the table and change the currency regime and force people to invest directly in American manufacturing and change the terms that have defined American international trade for the last 50, 70 years. But that's seeing a very narrow possibility that uncertainty will only lead to positive outcomes. Uncertainty can also, maybe even more plausibly lead to negative outcomes, not only because our trading partners, all the countries around the world, will make up their own mind about how to respond to Trump's tariff policy, but also because while some people are focused on how Canada and China and Mexico and India are reacting to our economic policies, there's also the retail sector and the housing sector and healthcare and the federal government, these players inside the US Economy. And they don't respond to uncertainty by coming to the table and making concessions with the Trump administration. They respond to uncertainty by freezing, by not hiring, by not investing, by holding onto their cash and saying, I don't know what's going to go, what's going to happen in the next year. I need this as potential insurance in case there's going to be a recession. And so I think what that answer really helped to clarify is that a policy of maximal madman is not just a policy of scrambling the status quo in order to improve America's economic standing abroad. It's also potentially, and maybe even more plausibly a unintended plan to really freeze the US Economy at a time when it could be a little bit more wobbly than it should otherwise be. Jason Furman, Roger Karma, thank you guys so much.
- [51:45]
Jason Furman
Goodbye. And thanks so much for this great conversation.
- [51:48]
Roger Karma
Thanks for having me.
- [51:50]
Rob Mahoney
Many thanks to Roger Karma and Jason Furman. One point I want to land on here is that I tend to see the world through theory. I tend to use this show to ask big questions about the world and derive theories about it. What are our phones doing to us? What's the future of health? What's the future of technology and economic growth? But sometimes theory misleads us. Maybe looking at white papers and reading essays like Stephen Mirren's about Trump economic strategy, maybe that's the best way to understand the future of this White House. But I'm willing to consider the possibility that Trump is more a personality than he is a vessel of policy, and that maybe to understand the future of the White House and of our economy, it makes more sense to focus on his personality quirks, his disbelief in positive some interactions, his skepticism of trade, his skepticism of alliances that don't include the US his preference for working out individual deals with leaders over the phone rather than working through large coalitional channels. Maybe those personality details are more useful for evaluating our economic policy than going white paper first. I just want to end by saying that I recognize that and understanding this man and this White House is a difficult thing. And one thing that I want to do next when I research this issue on the show is talk to people frankly from the White House. I want to hear from the horse's mouth. What are you trying to do? How do you defend your terror strategy? How do you defend your seeming abandonment of our allies? What do you think is in it for the average middle class American family? More on that soon, I guess. Thanks for listening and we'll talk to you soon.