← The Bulwark Podcast
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- [00:00]
Tim Miller
Foreign. Hello and welcome to the Buller Podcast. I'm your host, Tim Miller. We are going deep on tariffs in the economy today. If you want my thoughts on some of the other issues of the moment. I have been a podcast slut lately. I was on Breaking Points today. Breaking Points is kind of the Horseshoe podcast between Bernie and MAGA types. And so that's interesting. We got to talk about the Newark airport, David Hogg, the DNC drama, the Biden book, my political journey. So that could be interesting if that's not your cup of tea. I was also on with Scott Galloway. I was guest hosting Raging Moderates and so you can check out that, too. And we talked about all the stuff. So Raging Moderates, Breaking Points. I'm on both of them. But up next on this show, we've got professor of public policy and economics at the University of Michigan. He's also a senior fellow with the Brookings Institution and at the Peterson Institute for International Economics, co host of the podcast Think like an Economist and audio course in economics, it's Justin Wolfers. Hey, man.
- [01:14]
Justin Wolfers
Hey.
- [01:15]
Tim Miller
You're Aussie.
- [01:16]
Justin Wolfers
I take it you could tell just from the word hey, just from the amazing. You have an ear for an accent.
- [01:21]
Tim Miller
I do, I do. Well, you know, I know the difference between the dingoes and the Kiwis and all that. I'm wondering, how are you feeling about things down there? We had a good election victory. Can we talk about that first before we get to the sad stuff?
- [01:34]
Justin Wolfers
Yeah, sure. One of my very dearest friends is part of the Labor Party government that was just re elected. Very interesting election for Americans to hear about, partly because they suspect there's not been a lot of reporting. So you go back four months ago, and the opposition Conservative Party was in the lead in all the polls. The leader of that Conservative Party, a bloke by the name of Peter Dutton, decided he sort of run as a bit of Trump lite. He in particular, sort of anti woke. And then he sort of started leaning into it. He started woke.
- [02:07]
Tim Miller
Is that Australia? I didn't know that. Woke's gone down under.
- [02:10]
Justin Wolfers
Oh, mate, it's everywhere.
- [02:11]
Tim Miller
Okay.
- [02:13]
Justin Wolfers
People have seen it as an electoral strategy. He attacked the media, which used to be out of bounds in America and still is in most serious democracies. And Australians didn't react very well to that. He decided that he'd include a Doge like element in his election platform and he still was in the lead. And then Trump got elect. Not only Trump got elected, Trump started his term and the utter chaos that MAGA implemented was enough. The Aussies looked at it and all of a sudden said they didn't want this. So they nicknamed this bloke Timu Trump. And he really only went 10% of the way down the Trump agenda. But it was enough that the Australian electorate was like, we're not having any of this. And so the left wing party, the Labor Party, ended up not only getting reelected, which by the way, remember we're on a run of incumbents getting booted out of office all around the world, but also an enormous swing towards them.
- [03:16]
Tim Miller
So you assess that. I sometimes wonder, I mean, as Americans, we're solipsistic and as a never Trumper, I've got tds, so sometimes I'm like projecting that it's more about Trump than it is. But you assess that it was really quite a bit about Trump.
- [03:29]
Justin Wolfers
It was about an Australian running on a Trumpist agenda at a moment where that didn't appear. Well, look, Tim, I worry about the same thing about me seeing things poorly from over here. So I consulted experts on this, which was my family group chat.
- [03:43]
Tim Miller
Okay.
- [03:44]
Justin Wolfers
And they were quite convinced. And it is actually the standard story now in Australia is running as Timu Trump turned out to be a mistake. And so right now, Trump has determined two major international elections, Canada and Australia. And so even as he moves the US to the right, he's moving the rest of the world to the left.
- [04:04]
Tim Miller
Yeah, it's a cold comfort, but we'll take it where we can get it. Do you have any, I don't know, what's your stat? You have any concerns that you're going to get hassled at the airport coming back in and out?
- [04:12]
Justin Wolfers
Lots of people tell me that I should be worried. I happen to be dumb enough, blond enough and humble enough to think that there's other people far more worth hassling. But they are sort of hassling everyone these days. I'm actually in a very fortunate situation. I hold two passports and I have tenure and I'm not relying on federal government spending. So I haven't spent 10 minutes thinking about it.
- [04:37]
Tim Miller
That's good. I appreciate that actually, because I think that it's important to contextualize the threats. Right. Like the threats are real but not to panic people. Right. And so I like having folks on that are clear eyed about, you know, the degree to which you have some protections that maybe other folks don't. I was the other YouTuber, kind of the more lefty YouTuber Hassan Piker claims that he was. I don't mean to Be skeptical of that. He says, I haven't seen the full evidence of this yet that he was. Had spent two hours in the airport getting hassled about his views. Now he's been much more pro Palestine and all that, and that has been this kind of initial target group, so who knows? But he ended up being fine.
- [05:16]
Justin Wolfers
Tim, I'm just gonna tell you a story just for fun and you should edit this out if you feel like it, okay?
- [05:21]
Tim Miller
No, absolutely not.
- [05:22]
Justin Wolfers
Long time pre Trump. So crossing the border as a foreigner is the worst experience imaginable. Basically, you understand that this is an institution that understands itself not to be democratically accountable to you because you are not American and you do not count. So this is true. 20 years ago and I was returning from Australia with my girlfriend, I just started dating my now long term partner, Betsy Stevenson, and we go to cross the border and the bloke pulls me aside and it's a terrifying experience. And he pulls me into the little room, pulls Betsy with me too and says, you know, ask me about myself. And then at some point he goes, you planning on marrying this woman, mate? I'd just been dating her for like three months. And I think he saw this look of fear on my face and I'm like, no one wants to talk about this at three months into a relationship.
- [06:11]
Tim Miller
Sweaty palms.
- [06:12]
Justin Wolfers
Yeah. And I actually think that total look of fear is the point at which he gave up and he realised, no, I was just coming back to finish my degree and if things work out with this Sheila, so be it.
- [06:24]
Tim Miller
Got it. So you're saying that it's not everything necessarily about Trump. Customs agents have been assholes across administrations time immemorial.
- [06:33]
Justin Wolfers
I have so many stories. You really do learn that you don't count.
- [06:37]
Tim Miller
All right, well, that's sad. For me, that goes against my idealist view of what America should be. But we'll keep monitoring it.
- [06:44]
Justin Wolfers
I'm going to share one more with you. I remember once I had to go to an embassy to renew my visa and for security reasons they said you can't bring your cell phone in. And of course they hadn't warned you in advance. And of course they didn't have lockers. So, like I'm there with hundreds of other immigrants who are literally running back outside and climbing trees to hide their cell phones.
- [07:06]
Tim Miller
That's crazy. Where was this?
- [07:07]
Justin Wolfers
I'm trying to remember which country I was in at the time. I honestly can't remember. But I mean, I was there. This happened.
- [07:15]
Tim Miller
Yeah, right. I believe you. I believe you.
- [07:18]
Justin Wolfers
And you know, I eventually went up the road and a local newspaper seller said he'd hold onto my phone for me for 10 bucks.
- [07:24]
Tim Miller
That's a good deal.
- [07:25]
Justin Wolfers
So this has been a. It's an administration, it's a part of the federal government, whether it's Democratic or Republican, which doesn't believe in customer service.
- [07:34]
Tim Miller
Indeed not. Okay, that's enough down under talk. We've gotta get into the economics. That's why you're here. So we have, I guess, a deal. We have some relief from the China embargo at least. Why don't you just give us a big picture state of play, both of how you see our status with China, but also just globally.
- [07:55]
Justin Wolfers
Okay, so let me actually begin the story at the beginning because I think it's kind of important. It gives you a sense of the incoherence of the policy approach. Trump comes to power. First thing he does, having run on tariffs, having not mentioned the word Canada through the entire campaign, the first thing he does is puts tariffs on Canada and Mexico. No one had that on their bingo cards. Our two either closest enemies or closest allies, depending on your perspective. Those tariffs were originally put on to prevent illegal immigration and then to prevent fentanyl to and fro. They're on, they're off, so on. Then there's a lot of talk, what should we do with tariffs? Oh, we need tariffs because we need the revenue. So tariffs. We're going to have an external revenue service raise lots of money. Then the administration decide, there's a lot of talk about, no, we need tariffs to onshore manufacturing and. Or for national security reasons. Then we get Liberation Day. Or it turns out the way we onshore manufacturing is we put tariffs on absolutely everything, including non manufactured goods. Or the way we defend national security is by putting a tariff on leather saddles, not just on steel. Or we put a tariff on bananas, which is something we're never going to grow. So liberation day comes. There's two parts to that. It's a 10% across the board tariff on the whole world, plus an absurd formula that yields what the administration calls reciprocal tariffs. They've been saying, if you tariff us, we're going to tariff you. So you would think what you would do is go and measure how much other countries tariff us, but that's too much work. Literally too much work. They just never did it.
- [09:30]
Tim Miller
They could have asked Grok to do that.
- [09:33]
Justin Wolfers
They could have asked Grok. They could have asked any number of trade economists on earth. Honestly, I would have done it for free for them in an Afternoon. But they didn't. What they did instead was they looked at the bilateral trade deficit, which is the most boring, inane, uninteresting thing on earth, and I'm happy to return to it, which yields this absurd formula where we have now a 50% tariff on Lesotho, not because Lesotho has important tariffs on the United States, but because Americans like buying diamonds and that's what they have. We have a very high tariff on Israel, which has no tariffs on the United States. And so on. A week passes, the markets crater, everyone starts forecasting a recession. A week passes and the President says, just kidding. The point of the tariffs was not to reduce bilateral trade deficits and it was not an across the board tariff. It was to give me leverage in negotiations. 90 day pause. I'm going to negotiate with 192 countries in the next 90 days. 30 days pass and nothing happens. It becomes a bit of a drumbeat. You know, guys, looks like you're not getting your work done. And so they come out and announce a special trade deal with Britain. What's utterly clear about that trade deal is they'd actually been working on it before, months before. And it's utterly clear that what happened was the President just called Starmer and said, yeah, I know we're probably about a third of the way through this negotiation, but we're announcing tomorrow, you win. We know that because Starmer actually wanted to watch the Arsenal football game on a Thursday night, right. On Friday, the press said to him, did you expect to be here today doing this? And he said, no. So you might think, well, if we have to announce a deal that we actually haven't negotiated, what is it we're announcing? There were very different announcements in the US and the uk. In the us, Trump calls it a comprehensive, wide ranging agreement. In the uk, Starmer is mildly more honest. Here's what that deal was, though. The Americans walk into the room and say, we're doing a 10% across the board tariff. You've got 10%. So what I want you to do is now just think about one big sheet of paper with the word 10% written in 96 point font. Then they put an asterisk next to it. The * in six point font. The asterisk is, now, we'll do you a deal. So this 10% that was officially going to be the leverage and the bargaining power is no longer being bargained with it all. The end of the deal actually says, this is not a binding legal commitment.
- [12:04]
Tim Miller
Classic Trump.
- [12:05]
Justin Wolfers
It's a deal to make A deal. But it does have a couple of commitments in it. The Brits are going to buy American ethanol, which serves a particular American constituency, albeit not the American worker. And the Americans are going to allow a certain amount of steel and aluminum in at a lower tariff. And 100,000 British cars are going to come in at a reduced tariff, lower than if it were coming from other countries. Do you know what British cars we import into this country, Tim?
- [12:34]
Tim Miller
Probably Rolls Royces, Jaguar, Land Rover, Bentley.
- [12:38]
Justin Wolfers
Aston Martin and actually the Mini. So there's something there for the upper middle class too. So I just want you to imagine the meeting in which someone says to the President, the voters are revolting. They don't like the distributional implications of these tariffs because they hurt the working and middle class. And Trump says, you know what I'll do, I'll carve out British cars and engines.
- [13:04]
Tim Miller
I think it was some of the engines for the planes too. Didn't they get carved out?
- [13:07]
Justin Wolfers
There's a little bit of a carve out for plane parts as well. Yeah, but for consumers, the only consumer facing good, the only thing that consumers got a break on was British cars, the cheapest of which is a Mini.
- [13:20]
Tim Miller
Very popular in MAGA America too. The Mini. You see a lot of, you see a lot of Minis at SEC tailgates.
- [13:26]
Justin Wolfers
You do, you do, you and I go to the same football games. So the most important thing is, despite all the rhetoric, it's 10%, tiny asterisks and this is with one of our long term allies. So the press reported this as if it were a walk back, but actually I think they got it wrong. This is the administration during the 90 day pause doubling down on the 10% tariff with the rest of the world. Basically everyone's now been told and they've become increasingly explicit. Every country is getting a 10% tariff, full stop, not a negotiation. So now here's the part I want you to see going full circle. We impose this tariff, causes total chaos. So then he says, just kidding, it's just leverage for negotiations. We go into the negotiations and he refuses to negotiate over it, says, just kidding, it's a baseline for everyone. So within 35 days we're full circle. The difference is I think the PR has been somewhat better for the President this time. Then we move into China. So China just escalated quickly, which is the President appears to believe it's a political winner to tell China to go fuck itself. China says fuck you. Two bullies in the schoolyard and things just escalate. Well, I'm Going higher. I'm going higher, I'm going higher. And then China at some point says, you're at 145% tariff. That's crazy. I don't even need to go higher. Basically we're not trading already. We gave up. I mean we could keep going to infinity percent, but what's the point? This causes huge economic disruption in both countries because basically any company that uses any input from China is being told you're not getting it. That's what 145% tariff is. And the Chinese have the same problem to a slightly lesser extent. So this is sort of like Covid, right? Remember Covid suddenly couldn't get stuff.
- [15:23]
Tim Miller
Right.
- [15:24]
Justin Wolfers
So we have now a White House caused Covid supply shock. It's bad for both countries. So they decide that what they'll do is negotiate. Now it turns out the most punishing thing was that the White House was imposing a 145% tax on Americans who imported from China. You don't need to go to Geneva to cut taxes on Americans. You can do that from the comfort of your own home.
- [15:53]
Tim Miller
Yeah, right.
- [15:55]
Justin Wolfers
Maybe you need to go there for political cover. So we all go over to Geneva and now tariffs on China. The Trump caused tariff hike on China is down to 30%. We actually had 8% left over from Trump won Biden and history before that. So now the average tariff on China is 38%, which is in any other era we would have said is incredibly high, but thank goodness it's a whole lot lower. And so percent comes out and says we have got in the room with China. And China, by the way, has cut its tariff to 10%.
- [16:28]
Tim Miller
So is that right? The 8%. I thought it was 30 all in. It's 38 is actual.
- [16:33]
Justin Wolfers
It's 30%. Trump tariffs got it. Which loaded onto what we previously had.
- [16:39]
Tim Miller
Got it.
- [16:41]
Justin Wolfers
In the language of the nerds. It's stackable.
- [16:44]
Tim Miller
Sure.
- [16:45]
Justin Wolfers
And part of the problem is everything keeps stacking. So China reduces theirs to 10%. There's a point in which I've been on half a dozen TV programs where. God bless you, Tim. You haven't done this. The host leans in and says, so who won? America or China?
- [17:00]
Tim Miller
God love all our cable friends. Nothing against you, but it's just. It's a different animal.
- [17:04]
Justin Wolfers
Yeah, yeah. I want to rehearse the answer for your viewers so that they know how to yell when it comes up in their conversations. So trade. The big intellectual mistake people make is they think trade is about competition, that it's a Fixed pie. And if I win, you lose. That's not true. The beauty of economics and of international traders. My field studies cooperation. We study how we can make each other better off. I looked at my dinner plate last night. It had salmon that some Norwegian farmer had decided I might want to eat. It had quinoa, which proves I'm a liberal. But some Peruvian salmon.
- [17:48]
Tim Miller
I was gonna say, look at you, fancy pants, with your quinoa. Did you have some kale? Did you have some arugula?
- [17:53]
Justin Wolfers
Of course we had arugula. That was a religious sacrifice. At the beginning of the meal, we. We lit it up, actually, and said three Hail Obamas. So I had quinoa. Very nice gentleman in Peru thought I might want quinoa. There was some dill that went with my salmon because I am fancy. Look, when it's in season, I buy it from America. When it's not in season, rather than go without, it comes in from Israel. My dinner plate was just. It was the product of so much beautiful cooperation from people around the world who want me to eat well and healthy and balanced, and I am so grateful to them in return. I woke up the next day and I worked on revisions of my economics textbook, which is sold all around the world. That Peruvian farmer's daughter might be learning economics from me. Maybe I'm better than the local economics professor in the local village. Maybe I'm not. The point is we cooperated and made each other better off. Tariffs prevent cooperation. They make it expensive for me to do business with the Peruvian farmer. So we won't do it. His daughter won't buy my textbook. I won't buy his quinoa. So whenever we get rid of tariffs, we create more cooperation in the world. Who wins? Both sides. So who won out of the de escalation? Who won out of the fact that the Americans reduced the. The extent to which the American government taxes American people for buying from China? Americans because we can now buy more things and cooperate more easily. And Chinese people, who wins from the fact that the Chinese reduce their tariffs? Chinese and Americans. So both sides won. It's a beautiful moment, and I hope the Trump administration understands this as being one of their great achievements.
- [19:44]
Tim Miller
I don't think they are going to see it like that. I will say, just to share the burden. My version of the cable news question is, when Trump says something crazy, they ask me, do you think this will have any impact on his voters? I'm like, I don't know. And for starters, it's May 2025, and they're not going to have to vote again until 2026. And God willing, they might never have to vote for Trump again. Fingers crossed. You know, if they are voting for Trump again, probably isn't going to be a free and fair election. So it's kind of an irrelevant question. But, you know, anyway, that's. Everybody's got to do their business.
- [20:18]
Justin Wolfers
You.
- [20:18]
Tim Miller
Know, I gotta tell you, when you get a new house, among all the things that is the most annoying to purchase, the surprise for me is blinds. Blinds at the top. You're like, oh man. Like this is a bird. You gotta. There's a lot more options than you think. And it can get expensive and you need, you need the blinds. You need some privacy. You know, you never know what you're doing in the living room. You know, sometimes I like to walk around in my underwear. That's allowed, right? Not if you don't have any blinds. And so that's why you gotta turn to our sponsor today, which is three day blinds. It's 2025 and I'm guessing some of your blinds are still from 2005. There's a better way to buy blind shade shutters and drapery. It's called three Day Blinds. They are the leading manufacturer of high quality custom window treatments in the U.S. and right now, if you use my URL 3dayblinds.com thebullwerk. They're running a buy one, get 50% off deal. We can shop for almost anything at home, so why not shop for blinds at home too? Three Day Blinds has local, professionally trained design consultants who have an average of 10 years experience to provide guidance on the right blinds for you. Plus, the Expert team at 3 Day Blinds handles all the heavy lifting. They design, measure and install so you can sit back, relax, and leave it to the pros. I was checking out the material they had over on their Instagram and I got to tell you, they've got some good stuff. You can look at this. How about this for technology? You can tie the blinds to Alexa so you've got smart blinds can go up and down. You know, when you're on vacation, you want to make sure folks don't know, you know, it's not a home alone situation where folks know you left the house blinds up and down. Sun, rain, you never know. So the Alexa blinds something to look into. With three Day Blinds, you choose from thousands of options that fit any budget or style. And with actual samples, you won't be guessing about what your blinds will look like. Right now, get quality window treatments that fit your budget with 3 Day Blinds. Head to 3dayblinds.com thebullwork for their buy one, get one 50% off deal on custom blinds, shades, shutters and drapery for a free, no charge, no obligation consultation. Just head to 3dayblinds.com thebullwerk one last time. That's buy one, get one 50% off when you head to the 3D a Y blinds.com blind the bulwark. Now we're here. That was a great table setter. And the tax and tariff situation is much worse than it was back in last November. That said, it's much better than it was yesterday. So the stock market's gone up. I'm wondering, like, what who you think is impacted by this right now? It's possible maybe that the stock market is sanguine. It's possible that maybe these just these big corporations are insulated from this a little bit and other people will be hurt. Like, what do you make of the current status quo?
- [23:02]
Justin Wolfers
Okay, let me take that in two parts, which is, what is the stock market telling us? And separately, how is this affecting people's lives? There's a lot of stuff where people like, oh, the stock market rise, therefore Trump is good, or the stock market's not as low as it once was, or blah, blah, blah, blah, blah. There is one fact that's absolutely true. It's unbeaten since January 20th. Every time Trump moves towards imposing more tariffs, stocks fall. Every time. Every time he backs off from tariffs, stocks rise. So whatever you want to say about the overall level of the market, it is absolutely clear that the market as a whole thinks Trump's tariff policy is terrible. Now, that's actually kind of surprising because the first people that should be helped who's traded in the stock market, it's not the happiness of the working class. These are bets on the profitability of American business. If anyone is helped by Trump's tariffs, it's reducing the competitiveness markets here, allowing them to jack up their prices or to continue to exist even when they're inefficient. So it can hurt moms and dads, yet help American business. But in fact, the stock market's betting it hurts American business. So if it hurts American business to the extent that there are any gains from tariffs, they're all downstream from helping American business. If you help American business, they might hire more workers, bring in manufacturing back, blah, blah, blah. If you don't even help American business, you get no benefits and you get a whole bunch of costs. And so every time Trump Announces he's doing more Trumpy stuff. The market bets. That's going to hurt American business and so therefore hurt everything downstream of that. That fact, I think is absolutely undefeated. That says no one on Wall street and no one in the economics profession thinks that this is a constructive policy. That's how to think about financial markets. Now, I actually been talking more about financial markets than I normally do. And it's not because I care about stocks. It's because I think this is a very informed betting market where people are betting on the profitability of American business. And that tells me about the downstream effects. Now, of course, there are, I hear quite a lot from retirees. They're worried because their 401ks are going up and down like crazy. And that's also the American stock market. So then let me come back. Who does this help or hurt in the longer run? It hurts consumers. And who are consumers? Consumers are all of us. What we are going to see, and we haven't yet seen much of it, is higher prices on stuff we import. So instead of eating gorgeous Norwegian salmon, I might end up having factory farmed salmon. It's kind of okay. I'll live. I know you feel for me.
- [25:54]
Tim Miller
I do. Salmon prices are already kind of going up. You know, they've gone up quite a bit over the last five or six years. Just based on my. I'm also a salmon consumer, particularly the smoked salmon. Those little packages, they've gone up significantly.
- [26:08]
Justin Wolfers
Costco.
- [26:10]
Tim Miller
Well, you know, my husband does the Costco shopping, so it's possible they're cheaper at Costco. My local rouses, they've gone up quite.
- [26:15]
Justin Wolfers
A bit, so my partner does our Costco shopping too. So.
- [26:22]
Tim Miller
Okay.
- [26:23]
Justin Wolfers
I guess the good thing about being in a two bloke household is no one can call you sexist when your husband does the shopping for you.
- [26:30]
Tim Miller
There's a lot of good things about being in a two bloke household. You know, a just very chill Mother's Day. I watched some basketball, got to hang out. No pressure, you know, sharing clothes. Clothes sharing is nice. You know, there are a lot of benefits.
- [26:44]
Justin Wolfers
Yeah, okay. I'm gonna think about that.
- [26:46]
Tim Miller
Okay. Never too late.
- [26:51]
Justin Wolfers
It's true what they say about the gay agenda. Trying to convert people here.
- [26:54]
Tim Miller
Tim, I am. I'm grooming you right now. Watch out, Ron Desantis.
- [27:00]
Justin Wolfers
You know that most of my interviews don't go this way.
- [27:03]
Tim Miller
Well, I'm a little different.
- [27:05]
Justin Wolfers
I'm noticing. Okay, so how's it gonna affect people? Here's a real simple thing. I Think your audience should try. If your grandma and grandpa are alive, call them. And if not, call your parents. And if they're not alive. I'm sorry, Ask them how many toys they had growing up. And then if you're a parent, go and look at how many toys your kids have. And if you're not a parent, go and look at your nieces and nephews or your God kids or I'll lend you my kids.
- [27:32]
Tim Miller
I can send you a picture of my child's room. And it is a bounty. A bounty no child has ever seen before.
- [27:39]
Justin Wolfers
Are your parents still with us?
- [27:41]
Tim Miller
They are, yeah.
- [27:42]
Justin Wolfers
Ask your mother how many toys she had.
- [27:44]
Tim Miller
Yeah, I will do that.
- [27:45]
Justin Wolfers
My grandmother had like three. That's not a joke. That's like literally serious. They're wooden toys, they're beautiful and they last forever, but that's it. Like, go play with your blocks.
- [27:57]
Tim Miller
Yeah.
- [27:58]
Justin Wolfers
What changed? What changed is the price of toys. Where do our toys come from? China. So it's very fashionable in left wing circles to be anti China or to be anti cheap plastic stuff. It's also become fashionable in right wing circles.
- [28:17]
Tim Miller
Now I'm anti China, but pro cheap plastic stuff. So I'm a man of contradictions, but we can continue.
- [28:25]
Justin Wolfers
So for the purposes of this conversation, all I care about is that you're happy that your kid has more toys.
- [28:30]
Tim Miller
Yeah.
- [28:32]
Justin Wolfers
And the cause of that? There have been very few forces raising the material living standards of the working class, but actually trade with China is one of them. And it's not just toys. Right. The president uses dolls as a metaphor, but actually almost all our baby equipment comes from China. But it's not just that, the furniture. I mean, I am sure that you buy Scandinavian mid century modern furniture because I assume that's what gay men do.
- [28:58]
Tim Miller
Sad to live up to the stereotype there, but yeah, go ahead, continue.
- [29:01]
Justin Wolfers
Is it actually true?
- [29:02]
Tim Miller
I mean, not Scandinavian, but I've got some pretty. I don't know, we've got some fun furniture, you know, Tell me about your nice. We got some Eames chairs and we just got a new. We actually, we got a nice new kitchen table that was made right here in New Orleans. So I didn't import that. That's a table from a local artisan here in New Orleans, Dopp Antiques. Check them out if you're in New Orleans. They did great work.
- [29:24]
Justin Wolfers
Right. So people who cannot afford that, who don't have your exuberant lifestyle. Tim, they're buying furniture from Wayfair, which has great prices. All of that furniture is from China. So when you walk into a working and middle class family and you can see that they can afford a material standard of living that folks a generation ago couldn't, it's actually trade with China. That's where all of this hits. Working middle class families, that's the first thing. Second, I'm going to try and think about it the way a macroeconomist does all of that saying tariffs are what we economists call a supply shock. They raise the cost of doing business. Stuff becomes more expensive. And as we rearrange things that may cause unemployment to rise, the second thing that's happened is just a massive rise in uncertainty. So high. My guess, Tim, is that you prefer not to talk to economists if you can help it.
- [30:20]
Tim Miller
Okay, you're not at the top of my list, not at the bottom.
- [30:23]
Justin Wolfers
It's nice to hear many journalists prefer not to talk to economists right now. They are. Why is that? Because they understand that all of our lives feel very much up in the air right now. Should I buy an air conditioner or not? Is my job safe? What's going to happen to prices? Should I try and buy stuff ahead of the tariffs? On and on and on it go. That uncertainty is paralyzing. That uncertainty means. Let me take the business side of this because it's easier. If you're the CEO of any kind of company right now and your staff came to you with expansion plans or they wanted to break ground on a new factory or open a new outlet, you might say to yourself, I don't know what the future looks like. Let me wait three to six months for the air to clear. That's what an uncertainty shock does. Uncertainty leads to a decrease in demand. And so I think we're in the midst of that. And that's what's led to a lot of the recession talk. That in turn could lead to a rise in unemployment, fall in income and lower wages. So that's how it hits everyday, folks.
- [31:27]
Tim Miller
Let's look at the recession talk. Steve Bannon's co host, I'm on the Bannon show yesterday was chastising the media for not noting that on Kalshi the predictions of a recession has gone down significantly, down to 40%. Now I don't know if it's been updated since the show yesterday, but somewhere around there. And so you know, because I'm not the fake news, I'm happy to address this. The recession, the self imposed recession that Trump was going to gift us concerns about that have have been downgraded somewhat among the public. But I assume you're not betting on Kelshi. You're an economist. How do you assess the recession fears today versus last week versus last year?
- [32:08]
Justin Wolfers
Actually, I think checking Kalshi is a pretty good idea because the problem with talking to one economist is you don't know if the guy you're talking to is honest, is left wing, is right wing, is in the pocket of big something or other.
- [32:19]
Tim Miller
Well, I'm trying to only have honest people on the show. So if you're telling me that that should be a concern here, we can stop.
- [32:25]
Justin Wolfers
Well, no, I'll give a different answer then, which is there's a lot of research showing the average of many economists is better than any individual economist.
- [32:32]
Tim Miller
Okay.
- [32:33]
Justin Wolfers
So it's almost never worth saying, what is your forecast, Justin? What you should say is, Justin, what is the consensus of economists? Calshi is sort of like that. It's a prediction market. So, in fact, Steve Bannon's point is an excellent one. I tweeted 15 minutes ago that Goldman Sachs has cut its recession odds to 35%. Goldman's at the bottom end, but it's absolutely true that the odds of a recession have fallen since the China deal. Now, let me come back, and I want to repeat a point I made earlier, but saying it slightly differently. Every time Trump steps into tariffs, everyone puts out new research notes saying that the odds of recession have gone up. And every time Trump retreats, they reevaluate and they say the odds have fallen and the bigger the retreat, the bigger the revision. So what this says is, yes, the chances of recession have retreated. They've retreated because Trump has retreated from Trumpism. If he kept doing that, we'd be in great shape. About three months ago, I gave a forecast that I think is a useful rule of thumb. Maybe it was two months ago if Trump fully retreated. Actually, let me give the pure background. As of January 20th, I would have said the chances of a recession with a normal American government would be 10%. It's actually lower than normal. Normally get a recession roughly every seven years. They said it was a 1 in 10 chance because the global economy wasn't going haywire. There didn't look to be a pandemic coming. Oil prices weren't going crazy. Like things look good on January 20th. Then Trump did a lot of stuff and Elon did a lot of stuff and people got very upset and consumer confidence crashed. Then at that point, I said, if Trump were to fully retreat from the full Trumpism, the chances of recession would be 25%. And if Trump were to Fully lean in, the chances would be 75%. And just think of that as a spectrum and then think where we are on that spectrum. And it's basically going to be some average of those two numbers. So if you think we're halfway between the full Trump and no Trump, then you think there's a 50, 50 chance of a recession. If you think the China back down is actually even bigger than that, you might say it's a 40% chance of recession. That's roughly a useful way of thinking about this.
- [34:48]
Tim Miller
And some of the recession, I assume the potential recession, I assume could be in part because of, again, still, we've increased sales taxes essentially on Americans substantially over the last year. That's one. Meanwhile, the federal government's firing people. So that is contributing. And then I guess the third contributing factor would be something you referenced earlier was the kind of supply chain issues. And so I'm just wondering kind of how you assess that. Like, I guess Larry Summers was on with my colleague Bill Kristol a couple of weeks ago, and he was like, look, if nothing changes, we're really going to see supply issues mid to late May. So Trump pulled out before that. But it takes ships a lot longer to get across the ocean. So are we still going to see some of that, do you think? And then on top of that, I saw some chatter yesterday that the inverse could now happen where people are trying to get ships across as quickly as possible in case Trump changes his mind and we could have a backup, you know, at the ports. What do you assess just generally on all that?
- [35:45]
Justin Wolfers
I think the most helpful answer I can give you is it's really freaking hard to know. Yeah, that's actually really important because now put yourself in the shoes of a business person whose economist tells them, I have no freaking idea. So, a couple of things about the China pause. The China tariff pause is 90 days. Tim, what you should do, let's say that you manufacture lawn chairs. Call your Chinese supplier this afternoon and asked them how long it would take them to manufacture 10,000 lawn chairs and then to get them on a ship to the United States and have them clear customs in both ends.
- [36:17]
Tim Miller
89 days. I'm hoping it's the answer.
- [36:18]
Justin Wolfers
89.8 days. Yeah. And the problem is the pause was announced yesterday. So that means you're gonna miss by 0.8 of a day.
- [36:26]
Tim Miller
Yeah.
- [36:26]
Justin Wolfers
At one level, you might think, let's get him in before he changes his mind. That means you have to load up the ship this week.
- [36:32]
Tim Miller
Yeah.
- [36:33]
Justin Wolfers
So it could mean there's gonna be a queue at the ports in 89 days. The other thing is, we know from today for the next 30 days because the ships have already started sailing or not sailing is actually it's a really good time to be at the ports because there's nothing going on. Like you could pull out your phone and just really improve your score on your favorite, you know, Angry, Angry Birds.
- [36:55]
Tim Miller
Sure.
- [36:55]
Justin Wolfers
The other thing is, if you believe the rhetoric coming out of the administration, they're now engaged in fruitful talks with China and they don't want to decouple our economy, in which case you might forecast that our China tariff is going to come down to 10%. China does a couple of things on fentanyl. They'll get the same tariff as the rest of the world. If that's the case, then now I want to sit for 90 days doing.
- [37:21]
Tim Miller
Nothing, wait to get those lawn chairs in right before Christmas.
- [37:25]
Justin Wolfers
Yeah. Right. So I'm genuinely unsure whether everyone's rushing to. To the ports right now or the 90 days means that they're going to wait and rush in 90 days. Genuinely unsure about that. And then you've got one more problem. The half life of a Trump trade policy is approximately one Scaramucci. So today we feel good that Trump is walking back from tariffs. But remember, it was only, I think, seven days ago when Trump woke up in the middle of the night and realized that he liked American made movies and tweeted he was going to impose a 100% tariff on all foreign films.
- [38:08]
Tim Miller
Oh, I thought you were talking about the time he was watching the movie about Alcatraz and then decided we were going to reopen Alcatraz.
- [38:13]
Justin Wolfers
Another excellent idea. I'm trying to stick to trade policy because that's the thing I know something about.
- [38:20]
Tim Miller
Got it.
- [38:20]
Justin Wolfers
Okay, I've been to Alcatraz. But if there's just some random chance on any given day that the President just starts tweeting out the tariff button again. I mean, honestly, if I wanted to bet, what's the bet that this china thing lasts 90 days?
- [38:38]
Tim Miller
Who could even come up with odds for that? Yeah, I don't know. 50. 50. I just guess I'd say it's a total coin flip. Who the hell knows, right?
- [38:44]
Justin Wolfers
Right. So given that, does that mean I'm going to rush to the ports or does that mean I'm going to wait?
- [38:50]
Tim Miller
Yeah.
- [38:51]
Justin Wolfers
And if you and I feel paralyzed as commentators or economists, imagine how businesses are feeling.
- [39:00]
Tim Miller
And I guess if you're a business that has stuff that's been sitting over There, you know, because you didn't want to pay the 140, you're going to want to rush that over because it's already been made. And that is the thing that I guess I would say that seems the most logical.
- [39:14]
Justin Wolfers
Maybe. But if you believe the White House, we're on path for productive talks. And if you believe China, they have no particular interest in sending fentanyl over here, in which case we could be set for 10% tariffs in not very long.
- [39:30]
Tim Miller
What do you think China wants out of this? That's the other side of this. Do they want it to be lowered at some level? The chaos over here has been a boon to them. Other markets are opening up. I was on with Scott Galloway yesterday and he's pointing out that Asia broadly and Europe broadly are bigger trading partners with China than us. We are as an individual country, but as a group. And those markets have been reopening to them recently, or at least there's been talks of these fucking crazy Americans. Let's talk about doing more business. Their motivations are also kind of unclear to me.
- [40:11]
Justin Wolfers
So number one, they didn't start this tariff war.
- [40:15]
Tim Miller
Yeah.
- [40:15]
Justin Wolfers
Obviously it's entirely from Washington. Number two, if Washington acts in such an idiosyncratic fashion, they have a huge interest in being steady. If they show themselves to be the steadiest trading partner, they become the more attractive trading partner. And I see that happening around the world. Number three, it would be interesting. I actually read the China Daily yesterday or an English translation thereof.
- [40:41]
Tim Miller
Okay.
- [40:42]
Justin Wolfers
It was state run media explaining their perspective on the tariffs and it was amazing. If I had excerpt the right paragraph from the Chinese and the right paragraph from the White House and they said one of these came from a pro capitalist country and one came from a communist country. Could you guess which one is which? You would have guessed wrong.
- [41:07]
Tim Miller
Yeah.
- [41:08]
Justin Wolfers
They are using rhetoric that kind of looks like my Economics 101 textbook. And I don't know if that's good or bad for me or them.
- [41:18]
Tim Miller
Good for them. Certainly bad that Donald Trump is sounding more like he's wanting to run a state managed economy, but he is.
- [41:27]
Justin Wolfers
I mean, I think this is. I mean, I would love to see you talk more about this because I think it's so interesting if you watch the way he manages, even in the first term, he'd bring in a particular company. I remember there's one called Carrier and he'd talk to that company and then they'd go out and do something. It's like he's still running the Trump Organization. A bunch of guys, they come in and then my organization does well. And he seems to think of the economy as being sort of like a bunch of companies and he calls them and he feels very proud that he's on a first name basis with many CEOs. While I can be a center left economist, I'm also a market oriented economist. And I think that the healthiest I'm not pro business, I'm pro market. It's markets and the forces of competition that deliver. And if that's the case, the role of government is to put in place a set of rules that help competition thrive. And if that's the case, the healthiest president is one who doesn't know the name of any CEOs. We've seen the opposite. This is very, very centrally planned economy right now.
- [42:36]
Tim Miller
I'm sorry I interrupted you though, on the China thing. Do you have any other observations from reading China Daily yesterday?
- [42:42]
Justin Wolfers
Just that their rhetoric sounds like Reagan.
- [42:45]
Tim Miller
I saw somebody tweet another clip from them, not China Daily, but some other state run spokesperson where basically their position was we gave up nothing. Like Trump backed down and we gave up nothing. And so we'll see how the conversations continue.
- [43:03]
Justin Wolfers
Okay, so I'm gonna insist on my rule, Tim. Let's stop scoring this as who won and score.
- [43:09]
Tim Miller
But I'm just saying there was no negotiation. Like they didn't.
- [43:12]
Justin Wolfers
My point was this is the point that Trump can cut taxes on Americans from Washington. He doesn't need to go to Geneva.
- [43:18]
Tim Miller
Right, Right.
- [43:19]
Justin Wolfers
And the only reason that the Chinese government imposed taxes on the Chinese people was in retaliation. So it was almost obvious if he walked back, they're going to follow. They have no interest in imposing larger import taxes on the Chinese people.
- [43:38]
Tim Miller
Simultaneously to all this trade stuff. We have the budget coming out of the Hill and we can all play our roles here. I'm not asking you to kind of weigh in on what is the Kremlin ology of the House Republican Caucus. That's my turf. But just as just looking globally at the economy from a macro level, as we mentioned earlier, the Doge cuts were happening and so that has impacted the economy in some ways. This trade nonsense is impacting the economy in some ways. Now we have this budget coming out and essentially what it is is tax breaks for tipped income, overtime pay, private school tuition gets another break, seniors get a break. The state and local tax deduction gets added back in here. The Trump tax cuts get extended. There is some budget tightening on healthcare benefits for the poor, but pretty substantial for the poor. That will lose the healthcare. But just as part of the broader budget package. It's small in comparison to the cuts. And so you have Republican Chip Roy who assessed that all in this would add 20 trillion to the debt over the next 10 years. Current debt's about 33 trillion. So I'm just wondering how you like, let's just say this happens and they put through a bill such as this. Tax cuts across the board. Extending tax cuts for the rich, extending tax cuts for corporations. Huge deficit number. Combine it with what we're seeing in the other areas. What do you make of that? Economic environment.
- [44:59]
Justin Wolfers
Yeah. So I have I think two observations. One is about the budget deficit and what we used to call fiscal responsibility. Here's a basic fact. Over the last 50 years the average revenues of the federal government have been about 16% of GDP. Over the last 50 years, outlays have never been 16% of GDP or lower. So you kind of see the problem. We're spending more and there's never been an appetite for raising the revenue. So you could think. I think you would think about that as a revenue problem. There has never been the political taste to get outlays down anywhere near the 16% of GDP that we take in. And now they're looking to cut that. That seems ass backwards. Let me say the whole thing a different way. Budget deficit's currently 6.4% of GDP. To say that in English. Large. A basic rule of thumb might be what you want to do is during good economic times suck a bit of money away either to pay down the debt or so that. Or to make sure it stops expanding. And also so you've got a bit more money to add to the pot when things go wrong. Like during the COVID era. 6.4% is the sort of budget deficit you'd have if things were going wrong. And then they're going to take that and cut taxes. So none of this makes sense. Right. That's the first point. Which is I'm not really a budget hawk. I'm not the center for Responsible Federal Budget. My personal budget's a mess. It takes a lot to get me worried about the federal budget. I'm worried about the federal budget. I just think at some point if unemployment's 4% but you've got a deficit this large and growing. It's absurd.
- [46:53]
Tim Miller
Yeah. Or are paying huge interest on the debt too. It's just another side of it right now.
- [46:58]
Justin Wolfers
And we've had the so called sell America trade happening recently in which the rest of the world has started to understand or believe that investing money in America is no longer the safest bet in town. As a result, the interest rates was a big story four weeks ago. It's less of a story now. But if you have an irresponsible budget, it's going to zoom back into the headlines. If you feel that you can no LONGER Trust the U.S. government, then the interest they charge us goes up. And for your listeners, just if you've ever done the calculation, what would happen to your mortgage payments if the bank were to raise the interest rate by half a percentage point? Do that math, but do it with trillions of dollars of debt. It's terrifying. The second thing to say about this budget is just the extraordinary redistribution involved. Bobby Kogan, who's one of the best budget wonks I know, says this may be the largest redistribution from the poor to the rich in American history. The gains to the top 0.1% of the income distribution, the 1 in 1,000Americans, their gains in total add up to slightly more than the gains to the poorest 50% of Americans. Maybe you're okay with that, but I'm not. And I do think we are going to be just absolutely baffled with bullshit. These debates are complicated and there's so many acronyms, SALT and deduction this and carried interest that, and they're inaccessible. But they come down to two things. Should we be spending more money than we're taking in right now? And do we want to take from the poor and give to the rich? That's it. And if someone's not speaking in that language, it's probably because they don't want you to understand. So when you hear the blah, blah, blah, realize, blah, blah, blah, I'm speaking in words above your head. That's actually code for fuck you.
- [48:58]
Tim Miller
Yeah, no, I mean the budget is a big fuck you. It's fuck you to a lot of people within the Republican conference, by the way. I mean, it's fuck you to the people that the Hawleys of the world that are concerned about working class, to the people that care about the debt. I mean, maybe it's just Chip Roy left and Rand Paul. Maybe they're the only two people left that still care about it. But to the two that do care about is prepostero to put forth this budget and to claim that you're doing this doge effort to cut the deficit. And that was actually one of the tariff rationales earlier too. The tariffs were going to pay for the deficit, which by the way, also.
- [49:32]
Justin Wolfers
Means the working class pay for it, because tariffs are a sales tax. Who spends a bigger share of their income? The working class.
- [49:40]
Tim Miller
It's a good flag. All right, before I lose you, can we, can we just pick on the a Democratic run state for one second too?
- [49:47]
Justin Wolfers
Let's do that.
- [49:47]
Tim Miller
I had a news item this morning. It's really all the, you know, the climate issues and the way that states run. In California, obviously in la, we've seen the devastation from the fires. It's going to have a big economic impact. They launched a new website yesterday that helps you track how many new building permits the county is approved for rebuilding. They've approved seven so far. So at a pace of one new building permit every two weeks, they'll be able to rebuild Pacific Palisades in 461 years. So I think that's pretty encouraging progress by the mayor of California. I don't know if there are any economist thoughts on all that.
- [50:32]
Justin Wolfers
Yeah. So it's profoundly disappointing. And it's not just profoundly disappointing, it's an outrage. Let me try and bore your audience by turning that into economics and then come back and be pissed off with you.
- [50:44]
Tim Miller
Okay, great.
- [50:45]
Justin Wolfers
So you might be upset about high house prices. High house prices are gonna make it hard for my kids to be able to afford to get into the market. They make it hard for people to move to the most lovely places on earth. Of course, I live in Michigan. And if you wanted to buy a place in Flint, they're going pretty cheap. Bring your own water.
- [51:01]
Tim Miller
Some benefits and detriments. Between Pacific Palisades and Flint, there are some slight differences.
- [51:10]
Justin Wolfers
So house prices are a problem. Just say it. Because of that, they really take a huge chunk of your spending power. So how do we make housing cheap? There's two classes of solutions. Politicians love things that stimulate demand. Why don't we give first home buyers a break? Why don't we provide subsidies? Why don't we have a mortgage interest deduction? The mortgage introduction basically means that folks who buy bigger houses, spend more money on their houses, get bigger tax breaks than folks who buy smaller houses. And as a certified member of the upper middle class, thank you to the working class for paying for my house. But as someone who cares deeply about distribution, this is a horrible way of doing it. The problem is, if you think about our housing problem, if you make it easier for some folks to buy a house, that just means that the way we sell houses in Australia is usually by auction. It means more people turn up on auction day. Is that helping your kids? No. What you want is more houses so fewer people turn up on auction day. So anything that's demand focused is looking at the wrong side of the market. So all of the easy solutions are if we build more houses, there'll be more houses and they'll be cheaper.
- [52:35]
Tim Miller
Seems good.
- [52:36]
Justin Wolfers
Fantastic. So anything that we can do on the supply side can make everyone better off, except maybe real estate speculators, and I don't care about them. So the story you tell is one of the most important supply side constraints, which is it's just too freaking hard to get a housing permit. And then my favorite example. And the left are huge sinners here. My favorite example is, I believe, Robert Reich, the former labor secretary. It became a matter of public record that he wrote to the Berkeley local government to oppose an apartment building going up on his block because there was a beautiful tree that he really liked. The result is Berkeley became more unaffordable. Robert Reich is part of the reason for higher housing prices. I like to use a simpler language here. Pacific Palisades is a beautiful place to live. Berkeley's a beautiful place to live. If you don't allow people to build apartment buildings, you're just saying it's beautiful. And I'm not sharing. Okay, but realize you're a selfish prick. You don't want to allow that beauty to be enjoyed by young couples, by working class families, by middle class families. And so this is the case against NIMBYism. It's a powerful case. But we have this disease afflicting government, local government, that if one person feels it's bad, we probably shouldn't proceed. And one does see this, particularly in liberal areas.
- [54:07]
Tim Miller
Indeed. Well, Justin, it's been wonderful. It's been a delight. Thank you. Do you have any Aussie phrases you want to share? You want to leave us with any kind of little colloquialisms?
- [54:16]
Justin Wolfers
Mate, the ones I can think of right now are so dirty, I'm not even going to say them on your podcast.
- [54:20]
Tim Miller
Okay, well, we can do it in the green room then. Thank you so much to Justin Wolfers to come back again soon. Everybody else will be back here tomorrow for another edition of the Bulwark Podcast. Peace. The Bulwark Podcast is produced by Katie Cooper with audio engineering and editing by Jason Brown.