April 4, 2025 • 36 mins
-
Tariff Announcement:
- President Trump announced a ten percent baseline tariff on virtually every country, with specific tariffs for individual countries ranging from ten to forty-nine percent.
- This is the highest rate of tariffs the United States has had in place since 1930.
-
Political and Economic Implications:
- The announcement has caused anxiety and concern among people, with Democrats criticizing the move and Republicans defending it.
- The podcast discusses the potential outcomes, including the possibility of other countries lowering their tariffs in response, which could be beneficial for the American economy.
-
Potential Risks:
- There are significant risks if other countries retaliate with their own tariffs, leading to a trade war and increased inflation.
- The impact on various industries, such as the automotive industry, is discussed, with concerns about rising prices for both new and used cars.
-
Economic Analysis:
- The Tax Foundation's analysis predicts that if the tariffs remain in effect, imports will fall by twenty-eight percent, and the US GDP will shrink by 0.8 percent over the next decade.
- The tariffs could result in a significant tax increase for American consumers.
-
Political Consequences:
- The outcome of these tariffs could influence the 2026 midterm elections, with potential repercussions for the Republican party if the economy suffers.
- Senator Cruz expresses hope for a positive outcome but acknowledges the high risks involved.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome in is Verdic with Center Ted Kruz Ben Ferguson
with it's signe to have you on this Friday morning
and Center. Everybody's waking up today. They're looking at what's
happening with these tariffs. They're looking at what's happening on
Wall Street. There's no doubt, no matter who you are,
there's a lot of anxiety, concern, angst. Those are the
words I've been hearing from friends about what's happening right now.
(00:23):
So let's break it all down for listeners and talk
about where we are and what is happening, what your
concerns are, what you think is happening, and what is
being said by your colleagues in DC as well well.
Speaker 2 (00:36):
On today's podcast, there is one topic and only one topic,
and that is tariffs. And I will say I believe
this week may well prove the single most consequential week
in the Trump administration so far, and it may be
the most consequential week in all four years of the
second term of the Trump administration. I think this week
is consequential as a policy matter, and this week is
(00:58):
consequential as a political matter. I think there are enormous
risks there is the potential for upside, but there are
enormous risks. And so what we're going to try to
do on this podcast is break it down because a
lot of people are trying to trying to figure out, Okay,
what am I supposed to think about this? What's this
going to mean? What does this mean for my job?
What does this mean for my family? What does this
(01:19):
mean when I go to the grocery store? What does
this mean when I buy goods for my family? And
the answer is a lot. And so we're going to
break it down and try to explain what it means
and what's likely to happen next. I think this podcast,
in terms of the impact on the country, I think
(01:42):
is as consequential as anything we ever talked about. So
let's start with what the news is this week. On Wednesday,
President Trump announced massive tariffs tariffs on virtually every country
on Earth, a ten percent baseline tariff on everybody, and
then specific terrafs country by country. And I'm going to
(02:03):
go through really quickly, but there are a lot of them.
So on China thirty four percent terraffs, on the European
Union all of Europe twenty percent tariffs, on Vietnam forty
six percent, tariffs on Taiwan thirty two percent, terrafs on
Japan twenty four percent, Tariffs on India twenty six percent,
terraffs on South Korea twenty five percent, terrafs on Thailand
thirty six percent, terraces on Switzerland thirty one percent, Teriffs
(02:26):
on Indonesia thirty two percent, terraffs on Malaysia twenty four percent,
tariffs on Cambodia forty nine percent, tariffs on the United
Kingdom ten percent, terraces on South Africa thirty percent, terraces
on Brazil ten percent, tariffs on Bangladesh thirty seven percent,
terraffs on Singapore ten percent, Tariffs on Israel seventeen percent,
tariffs on the Philippines seventeen percent, Tariffs on Chile ten percent,
(02:48):
terraffs on Australia ten percent, terraces on Pakistan twenty nine percent,
terraces on Turkey ten percent, terraces on Sri Lanka forty
four percent, terraces on Columbia ten percent, tariffs on Peru
ten percent, tariffs on Nicaragua eighteen percent, tariffs on Norway
fifteen percent, tariffs on Costa Rica ten percent on Jordan,
(03:09):
twenty percent on Dominican Republic ten percent on United Arab
Emirates ten percent on New Zealand ten percent on Argentina,
ten percent on Ecuador, ten percent on Guatemala ten percent
on Honduras ten percent on Madagascar, forty seven percent on
miandmar Or Burma forty four percent on Tunisia twenty eight
percent on Kazakhstan twenty seven percent on Serbia thirty seven
(03:31):
percent on Egypt ten percent, Saudi Arabia ten percent, El
Salvador ten percent, the Ivory Coast twenty one percent, Laos
forty eight percent, Botswana thirty seven percent, Trinidad and Tobega
ten percent, Morocco ten percent. This collectively is the highest
rate of tariffs the United States has had in place
since nineteen thirty, one hundred years. That is enormously consequential.
(03:57):
That is, as a policy matter, a huge deal, and
is a political matter, a huge deal. Now we're in
a partisan political environment where right now the world is
turned upside down. We are we are very much tribalized,
where each side is is on their team. So Democrats
(04:20):
right now are lighting their hair on fire. Democrats right
now are saying this is a catastrophe, this is destroying America.
It's the worst thing that ever happened. And a lot
of the media is echoing that. Now. That is producing
a lot of Republicans who are naturally defending the president
and saying this is great, this is fantastic, that that that,
this is that, this is a day of liberation, and
(04:43):
and and they're they are celebrating that. I will say
it's it's a fairly odd dynamic because the two worlds
are inverted. So a few years ago, Republicans were the
party of free trade. Yeah, Republican Republicans were the party
of let's lower tariffs, let's have more trade with the world.
That produces more jobs here at home, that benefits White House,
(05:07):
that benefits American producers. And Democrats were the protectionists. You
think of the Dick Gephart Democrats, the Democrats who wanted
big tariffs against other countries. And so it is a
bizarre dynamic that the two sides have switched and they
(05:28):
are essentially giving opposite talking points. My view, look, I
want to set aside the talking points. I want to
talk about what is likely to happen, the big, big
question they're two big questions. Number one, how are other
countries going to react? And number two, what is the
Trump administration going to do in response? Now there are
(05:51):
two broad scenarios. One that is very very good, one
that is very very bad. Here's the good scenario. The
good scenario is other countries freak out. That is clearly happening.
Just every country I listed is freaking out right now.
And in response, other countries come rushing to the White
House and say we want to negotiate a deal and
(06:13):
we're going to dramatically lower our tariffs to US goods
coming into our country. That may well happen. We're seeing
some of that starting to happen. It may happen in
a massive cascade. If that happens, that would be a
very good thing. Now, the second question is if other
countries dramatically slash their tariffs, Let's say other countries zero
(06:34):
out their tariffs, they say, all US goods will come
into our country with zero teriffs. Then the second big
question is what does the Trump administration do in response?
And if the Trump administration, in response to other countries
slashing their terriffs zeroing out their tariffs, if the Trump
administration responds by dramatically cutting these tariffs, lowering them dramatically
(06:57):
on this side. That would be a home run for America.
I would be thrilled. I would be celebrating, and that
could happen. Look, look, Trump is that this is throwing
a long ball deep into the end zone. And if
thirty days from now, sixty days from now, ninety days
from now, the world we're looking at is a world
where our trading partners across the globe have slashed their
(07:19):
tariffs on American goods and services, and the Trump administration
has responded by slashing these tariffs. They've just announced. That
will be a great outcome for the American economy, will
be a great outcome for farmers and ranchers and small
businesses and manufacturers and jobs and workers. I will celebrate,
And if that happens, I will say Donald Trump had
(07:41):
a vision on trade that very few people in the
world saw. And this was a friggin home run.
Speaker 1 (07:47):
So the best case scenario is to see more headlines
like we saw tonight, which is, for example, Communists Vietnam
panics over Trump tariff. Sin's deputy Prime Minister to Washington,
DC with emergency delegation and our go to a Trump
family member. Eric Trump put out an interesting tweet where
he said, those that get here quickly and get a
(08:08):
deal done will get the best deal, and those left
at the end, it's gonna hurt. And so it's pretty
clear that's the strategy that you also just mentioned can
be in theory, best case scenario.
Speaker 2 (08:20):
Look, and if that's what happens, hallelujah, that is a
great outcome. And listen, we've all seen Donald Trump's negotiating
style is frequently to pick up a two by four,
smack someone in the head with it, and then negotiate
down from that. And so if that's what's going on,
yesterday was a two by four, it was unquestionably a
(08:41):
two by four. And virtually every trading partner partner of
America is reeling right now. If the result is everyone
cuts tariffs and we have massive more American exports and
farmers are sending our crops and and our livestock abroad,
and manufacturers are sending our goods abroad, and service providers
are setting our services abroad. That's great. Now, let me
(09:05):
give you the downside. There's another way this could play out,
which as other countries get pissed off, and they jack
up tariffs, and they impose retaliatory tariffs on American goods,
and the tariffs Trump put in place remain in place.
And I got to say, if we're in a scenario
thirty days from now, sixty days from now, ninety days
(09:25):
from now, with massive American tariffs and massive tariffs on
American goods in every other country on Earth, that is
a terrible outcome. It's terrible for Texas, which obviously I
care about deeply, and it's terrible for America. It will
hurt jobs and hurt America. And there is a very
real risk of that. In the past we have seen
(09:46):
when one country jacks up tariffs, it can provoke a
trade war where each country accelerates tariffs, and the result
would do a couple of things. Number One, it would
destroy jobs here at home and do real damage to
the US economy if we had tariffs everywhere. Number two,
and this is a virtual certainty inflation. This is going
(10:09):
to have a powerful upward impact on inflation. And let's
take for example, all right, let's take cars. You know,
Trump has announced a twenty five percent across the board
tariff on cars. Yep, what does that mean. That means
if you go and buy a new car, you're going
to pay a hell of a lot more for that
new car. And and by the way, if you buy
(10:31):
a used car, you're going to pay a lot more
for the use car because when new cars go up,
used cars go up too. Because because that that that
that will impact the pricing across the market. Now, now
what is interesting, You might say, well, wait, wait, wait,
this is just a tariff on foreign cars. So what
do I care if a bunch of fancy foreign cars
their prices go up? Well, you know what, a lot
(10:53):
of Americans choose to buy foreign cars. So if you're
choosing to buy a foreign car, your prices are likely
to go up. They may not go up exactly twenty
five percent, but they'll go up pretty close to twenty
five percent. If you look at what happens when a
tariff is imposed, who pays it is dependent For those
of y'all who remember your your econ class, it's dependent
(11:14):
on price elasticity. So sometimes the burden of the tariff
is paid by the company, and by the way, if
it's if it's paid by the company, depending on the
price elasticity. That means the company's making less profits, and
they may well be letting workers go and ending jobs.
But for many goods it will be paid by the consumers,
(11:35):
and the immediate impact will be prices going up. But
let's take cars again. It's not just foreign cars that
will go up. All the American cars, their prices are
going to go up too. If all their competitors' prices
go up twenty five percent. And it's not quite that simple,
because it will be less than twenty five percent, but
it will be in that neighborhood, you're going to see
every other car price go up that much as well.
(11:57):
And there are weird impacts given how the American supply
chain works. So, for example, I was talking with one
of the major US car manufacturers yesterday. You think of
sort of the poster child. If you ask, you know,
(12:18):
just the guy on the street, who's benefiting from all
these tariffs, they'd probably say They're immediate answer, they'd say
American car companies, GM, Ford, Chrysler. They're going to do
great well. One of the big three told me last
night that the impact of these tariffs will be the prices.
The average prices of all of their cars will go
up four five hundred dollars that when you go and
(12:40):
buy an American car from a big American company that
you will pay. They said, probably starting in June. And
I asked why June, and they said, well, there's some
lag in the supply chain. So they've made cars that
they've sold to their dealers, and so it will be
the cars they're selling to their dealers. It'll be about
June when the prices go up. But they were predicting
last night forty five five hundred dollars is what the
(13:01):
price of a car will go up. And what is
interesting also, so this is I said, was one of
the big three car makers. They said they thought this
would end up hurting them more than it helps them.
That's what they told me last night, in part because
if you look at the current supply chain of how
a car has made so many cars, many cars. The
(13:22):
big three companies make cars in America, many of them
make them in Texas. But if you look at the
supply chain, it's very odd. But the way it works
right now is that parts, say the drive train or
the chassis or different parts of the car will go
back and forth across the Mexican border. So they'll build
part of it in America, They'll send part of it
to Mexico and build, they send part of it back
(13:44):
to America, and it goes sometimes three, four or five
times back and forth before they fully complete a car.
Every time it crosses the border from Mexico, those terrafts
are stacking on top of each other. So this US
car company told me they actually thought that foreign car
companies would benefit more than they would because if you
just build the car in Germany or Japan and you
(14:05):
send it over here, you pay one tariff, whereas these
guys are getting hit on each part that is going
over and back and over and back on the supply chain,
and they thought they would end up. It's why they
were talking about they're having to raise prices forty five
hundred dollars each. One of the undeniable impacts of these
tariffs is the prices that Americans are going to pay
(14:25):
are going to go up significantly, and that is painful. Now,
what are some of the good outcomes? Because President Trump
is acknowledged he said, look, there may be some pain,
but it's worth it if we end up in the
outcome I started with, which is foreign countries slash their
tariffs on American goods and we in turn lower the
tariffs that the Trump administration just announced. That's a great
(14:47):
outcome and we will see a big economic boom from that,
and so I'm hoping for that. I'm rooting for that.
I will celebrate and praise the administration if that's the outcome.
But if it's not, here's one thing to understand. And
I think I'm seeing a lot of sort of Republican
cheerleaders that are kind of reflexively defending what the White
(15:09):
House is doing. And listen, I love President Trump. I'm
his strongest supporter in the Senate. I think he's doing
incredible things as president. But here's one thing to understand.
A tariff is a tax, and it is a tax
principally on American consumers. So when I read out all
those percentages, I said, you know, x percent on this country.
That actually gets it wrong. So when I said, for example,
(15:35):
twenty percent on the European Union, it's not actually the
EU that pays that, it's you, Ben Ferguson. If you
go buy anything from the EU, as the consumer, you're
paying that tax. And so the effect of this is
trillions of dollars of increased taxes on American consumers. If
these if these tariffs stay in place, this is the
(15:57):
biggest tax increase we have seen in a long long time.
I got to say, I am not a fan of
tax increases on American consumers. I'm not a fan of tariffs.
And so if this is leverage to lower tariffs, great,
But if the outcome is tariffs stay in place forever,
that is going to do a lot of harm in
(16:18):
the American economy.
Speaker 1 (16:20):
So let's talk timeline here. And you obviously have had
a lot of conversations with the administration but also with
your colleagues. Is there any guess of what this timeline
could look like? Is it truly dependent on the other
countries that you mentioned. I mean, I go back to
that headline of Vietnam and then rushing to DC. They
(16:43):
obviously know that this is something they don't want to
deal with for a long time. And here's the reason
why Vietnam is among the world's most trade dependent nations.
Right their export equivalent to about ninety percent of their
economic output. And guess what, the US is the most
significant customer. So they've got to fix this. We have
(17:04):
a lot of leverage I think with Vietnam, that's why
they're rushing to America.
Speaker 2 (17:09):
Okay, so you're right about that, And listen, we're trying
an experiment that hasn't been tried in really one hundred years.
The last time we really saw this tried in earnest
was the Smoot Holly tariffs and the Smoot Holly tariffs. Look,
history has not been kind to the Smoot Holly tariffs.
They were a major contributor to the Great Depression. And
(17:30):
what happened in response to the Smooth Holly tariffs is
is my scenario to the bad scenario, which is other
countries put retaliatory tariffs in place, you had a trade war,
and it ended up hammering jobs and driving up inflation. Now,
I will say we're in a very different world from
nineteen thirty. Nineteen thirty was one hundred years ago or
ninety five years ago. Today, the American economy is the
(17:55):
largest economy in the world, so we have massively more
level ridge than we did one hundred years ago. What
that means is that if we have a tariff, another
country has a tariff, the tariff we're imposing will hurt
the other country in all likelihood more than it hurts us,
because our market is a bigger deal, and so foreign countries,
(18:19):
foreign companies facing massive tariffs, will get hurt more. And
so one of the positive consequences of the tariff announcement
is that we will see more foreign companies announcing new
plants in America, saying we're going to build in America
because the easiest way to get around the tariffs is
build your products in America. That's a good thing. I'm
(18:40):
all for bringing manufacturing back to America. Now, I will
say the process of building a new plant is slow.
It can take years. It can take years just to
get permitted, to find the land to build the plant,
to build the factory, that can take years. And in
the meantime, everyone's prices go up. So we are seeing Look,
(19:02):
we're seeing new factories being announced to the United States.
I think that's great. I want as much manufacturing as
possible coming back to America, coming back to Texas. But
none of that happens quickly. You simply can't build a
car factory in a couple of months. It it doesn't
work in most places. You can't even get the damn permits,
(19:23):
uh in less than that than a couple of years
much less poor the foundation, build the factory, put the
machines in, and hire the workers. So so there is
real time involved. But an unquestionable benefit of this will
be more manufacturing in the United States. Now, look, let
me give you another basic economic principle and and and
(19:46):
this is this is right at the heart of the
debate between protectionism and free trade, and it deals with
there's a school of economic thought called public choice theory,
and it looks at how political decisions are made and
and the basic principle of protectionism. If you put big
tariffs to protect an industry, let's say steel terraffs big
(20:07):
tariffs to protect steel, you have concentrated benefits, which is
steel manufacturers steel in the United States get real benefits
from that. And you often have diffuse harms. In other words,
lots and lots of people are hurt, but they're hurt
less acutely than the beneficiaries are benefited. Now, as a
(20:28):
political matter, let me tell you how politicians respond to that.
If you have a bunch of people that are benefited intensely,
they're really motivated and they care about supporting you, and
they're really excited because they're like, Wow, you just gave
me a huge, huge benefit. And the people who are harmed,
Like with steel tariffs, the people who are harmed is
everyone who's buying steel. So oil and gas, you're putting pipelines,
(20:52):
you're drilling wells, railroads, you're putting railroad ties. Building manufacturers,
you're putting steel in building. You know it's soda and
beer manufacturers you're putting either aluminium or steel, depending on
what the cans are made of. But everyone who's using
steel is the companies are paying more, the consumers are
paying more, but it is diffuse across a lot of people.
(21:14):
So public choice theory will tell you that politicians will
care more about the concentrated benefits than the diffuse harms,
even though if you measure the aggregate harms, there are
in many instances much much larger than the concentrated benefits.
But the aggregate harms are spread out over a ton
of people, whereas the benefits are concentrated in a much
(21:36):
smaller group of people. That's the economics behind what's going
on here. The consequences of this. I think what happens
on these tariffs, let's talk about politically, is going to
be probably the single biggest determinant of what the twenty
twenty six mid term elections look like. If these tariffs
(21:57):
result in massively higher prices result and driving up costs
for US companies, result in job losses, and put us
into a recession. And to be clear, there, that is
a if the tariffs remain in place and we have
retaliatory tariffs, that is a very possible outcome if we
(22:17):
go into a recession, particularly a bad recession, twenty twenty
six in all likelihood politically would be a bloodbath. You
would face a Democrat House, and you might even face
a Democrat Senate. Look, we've got a fifty three to
forty seven majority in the Senate. But if we're in
the middle of a recession and people are hurting badly,
they punish the party in power. And to be clear,
(22:39):
if that happens in twenty twenty seven, in January of
twenty twenty seven, the Democrat House that gets elected will
immediately impeach Donald Trump, and we would spend the next
two years of twenty twenty seven and twenty twenty eight
with constant impeachment battles, constant investigations, constant political attacks, all
of the weaponization that we saw in the first term.
Speaker 1 (23:00):
Deja vu, that's under.
Speaker 2 (23:02):
Steroids, not even deja vu. Take the first term, and
and and and put it on steroids, and and so
the political consequences of getting this wrong this was this
is a high risk play. The upside massive, but the
downside could be massive.
Speaker 1 (23:22):
Is this the highest risk play so far from Trump's
first term second term combined so far?
Speaker 2 (23:28):
Not not even close by far? Yes?
Speaker 1 (23:33):
All right, So then I got to ask you this
question behind the scenes, What are the conversations with your
colleagues are on a score one to ten, how concerned
are they over the scenario that you just described forty two?
Speaker 2 (23:49):
Okay, Look, there's another point that I think is important
to understand. So so you and I did a podcast
I think last week where we talked about tariffs, and
and I talked about I said, listen, the president uses
tariffs for two principal purposes. One is leverage as an
incentive to incentivize other countries to enact policies that benefit America.
(24:11):
And the clearest example of that is the threatened tariffs
against Mexico and Canada unlessen until they help us secure
the border. Now, using tariffs's leverage for something like that
is very effective. The President uses it really well, and
particularly using them to push securing the border. I am
emphatically in favor of that. Is it has proven successful.
(24:34):
It worked incredibly well in the first term. It produced
to remain in Mexico agreement with Mexico. It produced the
lowest rate of illegal immigration in forty five years, stopping
the border invasion of the last four years. As an
acute national security and public safety imperative, it is a
mandate from the last election. It is massively important for Texas.
(24:54):
So I'm all for using the thread of tariffs's leverage
to get good policy that benefits America. But there's a
second component, and this is an important thing to understand,
which is Donald Trump and much of his administration believes
in tariffs as an economic policy. We've all heard Donald
Trump say tariff is the most beautiful word in the
English language. And I do think the business community so look, look,
(25:20):
we had the stock market plummeted, we saw massive losses
in the stock market. We may well see more massive
losses than the stock market. I think the business community
was shocked by the magnitude of these communities of these tariffs,
by the breadth of them. Look, as we talked about
in our earlier podcast on tariffs, what I've urged the
(25:43):
President's two things. Number one, focus on China, because delinking
our economy from China is emphatically an America's national security
interests and economic security interests. And number two, focus on reciprocity.
And the reason I've said focus on reciprocity is the
upside scenario I just talked about, which is, by focusing
on reciprocity, if you incentivize other countries to lower their
(26:03):
tariffs and we lower ours, that's a win win for America.
But the thing to understand, I believe the business community
has systematically underestimated how much President Trump and the Trump
administration views tariffs as an ongoing, permanent feature of our
economic policy. I can tell you virtually every time I
(26:24):
talk with the President, I talk with the President frequently,
he goes on at length. Have you seen the billions
of dollars, the hundreds of billions of dollars, the trillions
of dollars we are raising and are going to raise
from tariffs? Now, I think a lot of people said, oh,
he's going to threaten these tariffs, but he's going to
lift them very quickly. If he does that, great, If
he leaves them in place and we just have constant tariffs,
(26:47):
that is a massive tax increase on the American people.
And I think many people are underestimating that. The President
believes and many members of his administration believe that tariffs
are just a fabulous feature of the American economy. They
harken back to William McKinley when he was president. Now,
(27:08):
now look we used to have before the income tax,
tariffs were the main source of revenue for the federal government,
and they want to go back to that scenario. And
I got to say, we're going to find out because listen,
President Trump believes in this. I think in the first
term he wanted to impose policies like this, and I
(27:28):
think many Republican senators talked him out of it, pressed
him back and said, look, their real risks, don't do this.
I think of the second term, Trump feels unchained, he
feels unburdened. He's like, screw it, let's go, and he
believes it.
Speaker 1 (27:41):
I do know, by the way, that's where the threat
could actually work, right, because every other country's looking at saying, hey,
this is surely he's not going to do it. He
does it like he's going to finch quickly. There's no
indication he's going to finch per se quickly.
Speaker 2 (27:56):
Right.
Speaker 1 (27:56):
I think the real threat of it is the fact
that he's actually willing to go through with it.
Speaker 2 (28:01):
Look, I want this to succeed. I wanted to succeed,
But my definition of succeed may be different than the
White Houses. My definition of succeed is dramatically lower tariffs
abroad and result in dramatically lowering tariffs here. That's success
for the American workers, American businesses, American growth, American prosperity.
That's a great outcome. But look, I think we're going
(28:26):
to find out one hundred years ago the US economy
didn't have the leverage to have the kind of impact
we do now. But I worry there are voices within
the administration that want to see these tariffs continue forever
and ever and ever. They don't want a lower of them.
They think they're great. And what is particularly I think
(28:51):
has has startled some observers. It wasn't just directed at China,
it wasn't just directed at bad actors. It was directed
against everybody that if that is the breadth of it
is enormous and it carries it carries upside, but it
also carries real risk.
Speaker 1 (29:07):
All right, let's talk timeline in your definition of short
term or long term? What does that timeline look like,
because obviously people are trying to figure out weathering the storm. Right,
you talked about supply chain and the car is a
great example. You don't feel the pain till let's say June.
All right, so give us a few months for things
to kind of work its way through, work it out.
(29:29):
Is that a timeline of short term and then after
that it's it's considered all right, this is long term?
What is that timeline in your opinion?
Speaker 2 (29:36):
Well, let's be clear, the timeline was immediate. So let
me read from the Wall Street Journal headline Trump tariff
send out to sixteen hundred point decline, dollar slumps Asian
stocks hit for a second day, fear as a recession rise.
And here's what the Wall Street Journal reports, quote, US
markets suffer theirs steepest decline since twenty twenty on fears
(29:56):
President Trump's new tariffs plan will trigger a global trade
war and dragged the US economy into recession. Major stock
indexes dropped as much as six percent on Thursday. Stocks
lost roughly three point one trillion dollars in market value,
their largest one day decline since March twenty twenty. Stock
index futures drifted lower Thursday evening in stocks in Japan
(30:18):
were hit for a second day as Friday training began.
In Thursday's market plunge, the Dow Industrials dropped sixteen one
hundred and seventy nine points, or four percent. The tech
heavy NAGS deck, which powered the market higher for years,
was down six percent, pulled lower by big declines in Nvidia, Apple,
and Amazon dot Com. The S and P five hundred,
which fell four point eight percent, and the other benchmark
(30:39):
suffered their sharpest decline since the early days of the
COVID nineteen pandemic. The dollar meanwhile tumbled, with a Wall
Street Journal Dollar index suffering at sharpest decline since twenty
twenty three. Now those are immediate hits, and understand, Look,
it's easy to say, okay, fine, you know that's just
rich people. Look at this point, a majority of Americans
have money and vested in four o one ks and iras,
(31:02):
and so that's impacting everyone, and people don't necessarily follow
their four A one K on a daily basis. Many
people see their four A one K statement when it
comes out at the end of the quarter. A whole
lot of people are looking at that, and we'll see
if that's a temporary one day hit. But if it
continues to slide over the next few days, that's not
waiting for six months to see the impact. That's freaking
(31:24):
people out now. And so the consequences of this are real,
and I want to be clear about something. Look, it
used to be conventional wisdom in Republican politics that free
trade is wonderful and we should just have no terraffs
and lower terraffs. And that was almost.
Speaker 1 (31:42):
Everyone ask you. This is a question. I'm just going
to ask it because I know there's people listening. They
want to know what the definition your definition of free
trade is.
Speaker 2 (31:53):
That used to be conventional wisdom. And I want to
give Donald Trump credit for something really significant, which is
he's changed the debate on trade fundamentally. And so I
believe in free trade, but I also believe in fair trade,
and so when I talk about reciprocity, Donald Trump has
made a very clear point and It's a powerful point,
(32:14):
which is, many countries on Earth have been taking advantage
of the United States and have been imposing really high
tariffs and barriers to US goods while having free access
to the American markets. And that is unfair. And so
I love that President Trump is willing to use leverage
to lower tariffs. I think that's great, and that really
is a change in the debate. Ten years ago, there
(32:37):
was nobody in the Republican Party making that argument, and
that is the direct result of President Trump's leadership. That's
a good thing. Saying we should be treated fairly, that
is a good thing. That is a very different proposition
from saying it doesn't matter if other countries lower their tariffs.
We're going to impose tariffs on everybody because we think
(32:59):
tariffs should be the principal vehicle of funding the economy.
If the outcome of this is a multi trillion dollar
tax increase on American consumers, I think that that is
really consequential and really really harmful.
Speaker 1 (33:15):
So let me ask you one other question, and that
is if these tariffs don't change center, then what would
the impact be.
Speaker 2 (33:23):
Well, let me share an analysis that a group called
the Tax Foundation did now. The Tax Foundation is a
think tank based in Washington. They're very good. They're they're
economic experts. They analyze tax policies. They have proven to
be incredibly accurate in terms of measuring the impact of taxes.
Here's what the Tax Foundation has assessed from the announcement
(33:45):
this week. They say, if these stay in effect, the
average tariff rate on all imports will rise from two
point five percent in twenty twenty four to eighteen point
eight percent, the highest average rate since nineteen thirty three
under the tariffs announced for twenty twenty five. The consequence
of those tariffs, they will cause imports to fall by
(34:08):
slightly more than nine hundred billion dollars in twenty twenty five,
or twenty eight percent. So that's what they're predicting, is
that imports drop nine hundred billion dollars twenty eight percent
this year. They also say the newly announced tariffs on
April second will raise one point eight trillion dollars in
revenue over the next decade and will shrink US GDP
(34:33):
by zero point five percent. The April second escalation, they note,
comes in addition to the previously announced tariffs, which will
raise another one point three trillion dollars in revenue over
the next decade and shrink US GDP by zero point
three percent. Altogether, Trump's tariffs will raise nearly three point
(34:54):
two trillion dollars in revenue over the next decade and
reduce US gd by zero point eight percent. They further
project the tariffs will reduce after tax income by an
average of two point one percent, an amount to an
average tax increase of more than two one hundred dollars
(35:16):
per US household in twenty twenty five. Now, to be clear,
that's a prediction. If these tariffs stay in place, if
they don't change, if the upside that I described happens,
if foreign countries slash their tariffs and Trump in turn
slash these tariffs, none of those numbers hold. Instead, I
(35:37):
think we see an enormous economic boom. But if that
doesn't happen, if these tariffs stay in place as an
ongoing economic policy, we're facing very real and I think
very detrimental consequences.
Speaker 1 (35:51):
It's going to be an interesting one center. It's I
think it's important that we have these conversations. Hopefully many
of you listening understand this more and the ups and
downs and what this will look like it's going to
be changing often, and when it changes, we are going
to continue to cover it day in and day out.
So make sure you hit that subscribe or that auto
(36:11):
download button wherever you listen to this podcast, share it
on social media. I hope this has helped you, and
I honestly hope that you'll share it with your friends
so that they will share it and they can hear
exactly what we did here today in the Center. I
will see you back here for our week in review
on Saturday as well
Welcome in is Verdic with Center Ted Kruz Ben Ferguson
with it's signe to have you on this Friday morning
and Center. Everybody's waking up today. They're looking at what's
happening with these tariffs. They're looking at what's happening on
Wall Street. There's no doubt, no matter who you are,
there's a lot of anxiety, concern, angst. Those are the
words I've been hearing from friends about what's happening right now.
(00:23):
So let's break it all down for listeners and talk
about where we are and what is happening, what your
concerns are, what you think is happening, and what is
being said by your colleagues in DC as well well.
Speaker 2 (00:36):
On today's podcast, there is one topic and only one topic,
and that is tariffs. And I will say I believe
this week may well prove the single most consequential week
in the Trump administration so far, and it may be
the most consequential week in all four years of the
second term of the Trump administration. I think this week
is consequential as a policy matter, and this week is
(00:58):
consequential as a political matter. I think there are enormous
risks there is the potential for upside, but there are
enormous risks. And so what we're going to try to
do on this podcast is break it down because a
lot of people are trying to trying to figure out, Okay,
what am I supposed to think about this? What's this
going to mean? What does this mean for my job?
What does this mean for my family? What does this
(01:19):
mean when I go to the grocery store? What does
this mean when I buy goods for my family? And
the answer is a lot. And so we're going to
break it down and try to explain what it means
and what's likely to happen next. I think this podcast,
in terms of the impact on the country, I think
(01:42):
is as consequential as anything we ever talked about. So
let's start with what the news is this week. On Wednesday,
President Trump announced massive tariffs tariffs on virtually every country
on Earth, a ten percent baseline tariff on everybody, and
then specific terrafs country by country. And I'm going to
(02:03):
go through really quickly, but there are a lot of them.
So on China thirty four percent terraffs, on the European
Union all of Europe twenty percent tariffs, on Vietnam forty
six percent, tariffs on Taiwan thirty two percent, terrafs on
Japan twenty four percent, Tariffs on India twenty six percent,
terraffs on South Korea twenty five percent, terrafs on Thailand
thirty six percent, terraces on Switzerland thirty one percent, Teriffs
(02:26):
on Indonesia thirty two percent, terraffs on Malaysia twenty four percent,
tariffs on Cambodia forty nine percent, tariffs on the United
Kingdom ten percent, terraces on South Africa thirty percent, terraces
on Brazil ten percent, tariffs on Bangladesh thirty seven percent,
terraffs on Singapore ten percent, Tariffs on Israel seventeen percent,
tariffs on the Philippines seventeen percent, Tariffs on Chile ten percent,
(02:48):
terraffs on Australia ten percent, terraces on Pakistan twenty nine percent,
terraces on Turkey ten percent, terraces on Sri Lanka forty
four percent, terraces on Columbia ten percent, tariffs on Peru
ten percent, tariffs on Nicaragua eighteen percent, tariffs on Norway
fifteen percent, tariffs on Costa Rica ten percent on Jordan,
(03:09):
twenty percent on Dominican Republic ten percent on United Arab
Emirates ten percent on New Zealand ten percent on Argentina,
ten percent on Ecuador, ten percent on Guatemala ten percent
on Honduras ten percent on Madagascar, forty seven percent on
miandmar Or Burma forty four percent on Tunisia twenty eight
percent on Kazakhstan twenty seven percent on Serbia thirty seven
(03:31):
percent on Egypt ten percent, Saudi Arabia ten percent, El
Salvador ten percent, the Ivory Coast twenty one percent, Laos
forty eight percent, Botswana thirty seven percent, Trinidad and Tobega
ten percent, Morocco ten percent. This collectively is the highest
rate of tariffs the United States has had in place
since nineteen thirty, one hundred years. That is enormously consequential.
(03:57):
That is, as a policy matter, a huge deal, and
is a political matter, a huge deal. Now we're in
a partisan political environment where right now the world is
turned upside down. We are we are very much tribalized,
where each side is is on their team. So Democrats
(04:20):
right now are lighting their hair on fire. Democrats right
now are saying this is a catastrophe, this is destroying America.
It's the worst thing that ever happened. And a lot
of the media is echoing that. Now. That is producing
a lot of Republicans who are naturally defending the president
and saying this is great, this is fantastic, that that that,
this is that, this is a day of liberation, and
(04:43):
and and they're they are celebrating that. I will say
it's it's a fairly odd dynamic because the two worlds
are inverted. So a few years ago, Republicans were the
party of free trade. Yeah, Republican Republicans were the party
of let's lower tariffs, let's have more trade with the world.
That produces more jobs here at home, that benefits White House,
(05:07):
that benefits American producers. And Democrats were the protectionists. You
think of the Dick Gephart Democrats, the Democrats who wanted
big tariffs against other countries. And so it is a
bizarre dynamic that the two sides have switched and they
(05:28):
are essentially giving opposite talking points. My view, look, I
want to set aside the talking points. I want to
talk about what is likely to happen, the big, big
question they're two big questions. Number one, how are other
countries going to react? And number two, what is the
Trump administration going to do in response? Now there are
(05:51):
two broad scenarios. One that is very very good, one
that is very very bad. Here's the good scenario. The
good scenario is other countries freak out. That is clearly happening.
Just every country I listed is freaking out right now.
And in response, other countries come rushing to the White
House and say we want to negotiate a deal and
(06:13):
we're going to dramatically lower our tariffs to US goods
coming into our country. That may well happen. We're seeing
some of that starting to happen. It may happen in
a massive cascade. If that happens, that would be a
very good thing. Now, the second question is if other
countries dramatically slash their tariffs, Let's say other countries zero
(06:34):
out their tariffs, they say, all US goods will come
into our country with zero teriffs. Then the second big
question is what does the Trump administration do in response?
And if the Trump administration, in response to other countries
slashing their terriffs zeroing out their tariffs, if the Trump
administration responds by dramatically cutting these tariffs, lowering them dramatically
(06:57):
on this side. That would be a home run for America.
I would be thrilled. I would be celebrating, and that
could happen. Look, look, Trump is that this is throwing
a long ball deep into the end zone. And if
thirty days from now, sixty days from now, ninety days
from now, the world we're looking at is a world
where our trading partners across the globe have slashed their
(07:19):
tariffs on American goods and services, and the Trump administration
has responded by slashing these tariffs. They've just announced. That
will be a great outcome for the American economy, will
be a great outcome for farmers and ranchers and small
businesses and manufacturers and jobs and workers. I will celebrate,
And if that happens, I will say Donald Trump had
(07:41):
a vision on trade that very few people in the
world saw. And this was a friggin home run.
Speaker 1 (07:47):
So the best case scenario is to see more headlines
like we saw tonight, which is, for example, Communists Vietnam
panics over Trump tariff. Sin's deputy Prime Minister to Washington,
DC with emergency delegation and our go to a Trump
family member. Eric Trump put out an interesting tweet where
he said, those that get here quickly and get a
(08:08):
deal done will get the best deal, and those left
at the end, it's gonna hurt. And so it's pretty
clear that's the strategy that you also just mentioned can
be in theory, best case scenario.
Speaker 2 (08:20):
Look, and if that's what happens, hallelujah, that is a
great outcome. And listen, we've all seen Donald Trump's negotiating
style is frequently to pick up a two by four,
smack someone in the head with it, and then negotiate
down from that. And so if that's what's going on,
yesterday was a two by four, it was unquestionably a
(08:41):
two by four. And virtually every trading partner partner of
America is reeling right now. If the result is everyone
cuts tariffs and we have massive more American exports and
farmers are sending our crops and and our livestock abroad,
and manufacturers are sending our goods abroad, and service providers
are setting our services abroad. That's great. Now, let me
(09:05):
give you the downside. There's another way this could play out,
which as other countries get pissed off, and they jack
up tariffs, and they impose retaliatory tariffs on American goods,
and the tariffs Trump put in place remain in place.
And I got to say, if we're in a scenario
thirty days from now, sixty days from now, ninety days
(09:25):
from now, with massive American tariffs and massive tariffs on
American goods in every other country on Earth, that is
a terrible outcome. It's terrible for Texas, which obviously I
care about deeply, and it's terrible for America. It will
hurt jobs and hurt America. And there is a very
real risk of that. In the past we have seen
(09:46):
when one country jacks up tariffs, it can provoke a
trade war where each country accelerates tariffs, and the result
would do a couple of things. Number One, it would
destroy jobs here at home and do real damage to
the US economy if we had tariffs everywhere. Number two,
and this is a virtual certainty inflation. This is going
(10:09):
to have a powerful upward impact on inflation. And let's
take for example, all right, let's take cars. You know,
Trump has announced a twenty five percent across the board
tariff on cars. Yep, what does that mean. That means
if you go and buy a new car, you're going
to pay a hell of a lot more for that
new car. And and by the way, if you buy
(10:31):
a used car, you're going to pay a lot more
for the use car because when new cars go up,
used cars go up too. Because because that that that
that will impact the pricing across the market. Now, now
what is interesting, You might say, well, wait, wait, wait,
this is just a tariff on foreign cars. So what
do I care if a bunch of fancy foreign cars
their prices go up? Well, you know what, a lot
(10:53):
of Americans choose to buy foreign cars. So if you're
choosing to buy a foreign car, your prices are likely
to go up. They may not go up exactly twenty
five percent, but they'll go up pretty close to twenty
five percent. If you look at what happens when a
tariff is imposed, who pays it is dependent For those
of y'all who remember your your econ class, it's dependent
(11:14):
on price elasticity. So sometimes the burden of the tariff
is paid by the company, and by the way, if
it's if it's paid by the company, depending on the
price elasticity. That means the company's making less profits, and
they may well be letting workers go and ending jobs.
But for many goods it will be paid by the consumers,
(11:35):
and the immediate impact will be prices going up. But
let's take cars again. It's not just foreign cars that
will go up. All the American cars, their prices are
going to go up too. If all their competitors' prices
go up twenty five percent. And it's not quite that simple,
because it will be less than twenty five percent, but
it will be in that neighborhood, you're going to see
every other car price go up that much as well.
(11:57):
And there are weird impacts given how the American supply
chain works. So, for example, I was talking with one
of the major US car manufacturers yesterday. You think of
sort of the poster child. If you ask, you know,
(12:18):
just the guy on the street, who's benefiting from all
these tariffs, they'd probably say They're immediate answer, they'd say
American car companies, GM, Ford, Chrysler. They're going to do
great well. One of the big three told me last
night that the impact of these tariffs will be the prices.
The average prices of all of their cars will go
up four five hundred dollars that when you go and
(12:40):
buy an American car from a big American company that
you will pay. They said, probably starting in June. And
I asked why June, and they said, well, there's some
lag in the supply chain. So they've made cars that
they've sold to their dealers, and so it will be
the cars they're selling to their dealers. It'll be about
June when the prices go up. But they were predicting
last night forty five five hundred dollars is what the
(13:01):
price of a car will go up. And what is
interesting also, so this is I said, was one of
the big three car makers. They said they thought this
would end up hurting them more than it helps them.
That's what they told me last night, in part because
if you look at the current supply chain of how
a car has made so many cars, many cars. The
(13:22):
big three companies make cars in America, many of them
make them in Texas. But if you look at the
supply chain, it's very odd. But the way it works
right now is that parts, say the drive train or
the chassis or different parts of the car will go
back and forth across the Mexican border. So they'll build
part of it in America, They'll send part of it
to Mexico and build, they send part of it back
(13:44):
to America, and it goes sometimes three, four or five
times back and forth before they fully complete a car.
Every time it crosses the border from Mexico, those terrafts
are stacking on top of each other. So this US
car company told me they actually thought that foreign car
companies would benefit more than they would because if you
just build the car in Germany or Japan and you
(14:05):
send it over here, you pay one tariff, whereas these
guys are getting hit on each part that is going
over and back and over and back on the supply chain,
and they thought they would end up. It's why they
were talking about they're having to raise prices forty five
hundred dollars each. One of the undeniable impacts of these
tariffs is the prices that Americans are going to pay
(14:25):
are going to go up significantly, and that is painful. Now,
what are some of the good outcomes? Because President Trump
is acknowledged he said, look, there may be some pain,
but it's worth it if we end up in the
outcome I started with, which is foreign countries slash their
tariffs on American goods and we in turn lower the
tariffs that the Trump administration just announced. That's a great
(14:47):
outcome and we will see a big economic boom from that,
and so I'm hoping for that. I'm rooting for that.
I will celebrate and praise the administration if that's the outcome.
But if it's not, here's one thing to understand. And
I think I'm seeing a lot of sort of Republican
cheerleaders that are kind of reflexively defending what the White
(15:09):
House is doing. And listen, I love President Trump. I'm
his strongest supporter in the Senate. I think he's doing
incredible things as president. But here's one thing to understand.
A tariff is a tax, and it is a tax
principally on American consumers. So when I read out all
those percentages, I said, you know, x percent on this country.
That actually gets it wrong. So when I said, for example,
(15:35):
twenty percent on the European Union, it's not actually the
EU that pays that, it's you, Ben Ferguson. If you
go buy anything from the EU, as the consumer, you're
paying that tax. And so the effect of this is
trillions of dollars of increased taxes on American consumers. If
these if these tariffs stay in place, this is the
(15:57):
biggest tax increase we have seen in a long long time.
I got to say, I am not a fan of
tax increases on American consumers. I'm not a fan of tariffs.
And so if this is leverage to lower tariffs, great,
But if the outcome is tariffs stay in place forever,
that is going to do a lot of harm in
(16:18):
the American economy.
Speaker 1 (16:20):
So let's talk timeline here. And you obviously have had
a lot of conversations with the administration but also with
your colleagues. Is there any guess of what this timeline
could look like? Is it truly dependent on the other
countries that you mentioned. I mean, I go back to
that headline of Vietnam and then rushing to DC. They
(16:43):
obviously know that this is something they don't want to
deal with for a long time. And here's the reason
why Vietnam is among the world's most trade dependent nations.
Right their export equivalent to about ninety percent of their
economic output. And guess what, the US is the most
significant customer. So they've got to fix this. We have
(17:04):
a lot of leverage I think with Vietnam, that's why
they're rushing to America.
Speaker 2 (17:09):
Okay, so you're right about that, And listen, we're trying
an experiment that hasn't been tried in really one hundred years.
The last time we really saw this tried in earnest
was the Smoot Holly tariffs and the Smoot Holly tariffs. Look,
history has not been kind to the Smoot Holly tariffs.
They were a major contributor to the Great Depression. And
(17:30):
what happened in response to the Smooth Holly tariffs is
is my scenario to the bad scenario, which is other
countries put retaliatory tariffs in place, you had a trade war,
and it ended up hammering jobs and driving up inflation. Now,
I will say we're in a very different world from
nineteen thirty. Nineteen thirty was one hundred years ago or
ninety five years ago. Today, the American economy is the
(17:55):
largest economy in the world, so we have massively more
level ridge than we did one hundred years ago. What
that means is that if we have a tariff, another
country has a tariff, the tariff we're imposing will hurt
the other country in all likelihood more than it hurts us,
because our market is a bigger deal, and so foreign countries,
(18:19):
foreign companies facing massive tariffs, will get hurt more. And
so one of the positive consequences of the tariff announcement
is that we will see more foreign companies announcing new
plants in America, saying we're going to build in America
because the easiest way to get around the tariffs is
build your products in America. That's a good thing. I'm
(18:40):
all for bringing manufacturing back to America. Now, I will
say the process of building a new plant is slow.
It can take years. It can take years just to
get permitted, to find the land to build the plant,
to build the factory, that can take years. And in
the meantime, everyone's prices go up. So we are seeing Look,
(19:02):
we're seeing new factories being announced to the United States.
I think that's great. I want as much manufacturing as
possible coming back to America, coming back to Texas. But
none of that happens quickly. You simply can't build a
car factory in a couple of months. It it doesn't
work in most places. You can't even get the damn permits,
(19:23):
uh in less than that than a couple of years
much less poor the foundation, build the factory, put the
machines in, and hire the workers. So so there is
real time involved. But an unquestionable benefit of this will
be more manufacturing in the United States. Now, look, let
me give you another basic economic principle and and and
(19:46):
this is this is right at the heart of the
debate between protectionism and free trade, and it deals with
there's a school of economic thought called public choice theory,
and it looks at how political decisions are made and
and the basic principle of protectionism. If you put big
tariffs to protect an industry, let's say steel terraffs big
(20:07):
tariffs to protect steel, you have concentrated benefits, which is
steel manufacturers steel in the United States get real benefits
from that. And you often have diffuse harms. In other words,
lots and lots of people are hurt, but they're hurt
less acutely than the beneficiaries are benefited. Now, as a
(20:28):
political matter, let me tell you how politicians respond to that.
If you have a bunch of people that are benefited intensely,
they're really motivated and they care about supporting you, and
they're really excited because they're like, Wow, you just gave
me a huge, huge benefit. And the people who are harmed,
Like with steel tariffs, the people who are harmed is
everyone who's buying steel. So oil and gas, you're putting pipelines,
(20:52):
you're drilling wells, railroads, you're putting railroad ties. Building manufacturers,
you're putting steel in building. You know it's soda and
beer manufacturers you're putting either aluminium or steel, depending on
what the cans are made of. But everyone who's using
steel is the companies are paying more, the consumers are
paying more, but it is diffuse across a lot of people.
(21:14):
So public choice theory will tell you that politicians will
care more about the concentrated benefits than the diffuse harms,
even though if you measure the aggregate harms, there are
in many instances much much larger than the concentrated benefits.
But the aggregate harms are spread out over a ton
of people, whereas the benefits are concentrated in a much
(21:36):
smaller group of people. That's the economics behind what's going
on here. The consequences of this. I think what happens
on these tariffs, let's talk about politically, is going to
be probably the single biggest determinant of what the twenty
twenty six mid term elections look like. If these tariffs
(21:57):
result in massively higher prices result and driving up costs
for US companies, result in job losses, and put us
into a recession. And to be clear, there, that is
a if the tariffs remain in place and we have
retaliatory tariffs, that is a very possible outcome if we
(22:17):
go into a recession, particularly a bad recession, twenty twenty
six in all likelihood politically would be a bloodbath. You
would face a Democrat House, and you might even face
a Democrat Senate. Look, we've got a fifty three to
forty seven majority in the Senate. But if we're in
the middle of a recession and people are hurting badly,
they punish the party in power. And to be clear,
(22:39):
if that happens in twenty twenty seven, in January of
twenty twenty seven, the Democrat House that gets elected will
immediately impeach Donald Trump, and we would spend the next
two years of twenty twenty seven and twenty twenty eight
with constant impeachment battles, constant investigations, constant political attacks, all
of the weaponization that we saw in the first term.
Speaker 1 (23:00):
Deja vu, that's under.
Speaker 2 (23:02):
Steroids, not even deja vu. Take the first term, and
and and and put it on steroids, and and so
the political consequences of getting this wrong this was this
is a high risk play. The upside massive, but the
downside could be massive.
Speaker 1 (23:22):
Is this the highest risk play so far from Trump's
first term second term combined so far?
Speaker 2 (23:28):
Not not even close by far? Yes?
Speaker 1 (23:33):
All right, So then I got to ask you this
question behind the scenes, What are the conversations with your
colleagues are on a score one to ten, how concerned
are they over the scenario that you just described forty two?
Speaker 2 (23:49):
Okay, Look, there's another point that I think is important
to understand. So so you and I did a podcast
I think last week where we talked about tariffs, and
and I talked about I said, listen, the president uses
tariffs for two principal purposes. One is leverage as an
incentive to incentivize other countries to enact policies that benefit America.
(24:11):
And the clearest example of that is the threatened tariffs
against Mexico and Canada unlessen until they help us secure
the border. Now, using tariffs's leverage for something like that
is very effective. The President uses it really well, and
particularly using them to push securing the border. I am
emphatically in favor of that. Is it has proven successful.
(24:34):
It worked incredibly well in the first term. It produced
to remain in Mexico agreement with Mexico. It produced the
lowest rate of illegal immigration in forty five years, stopping
the border invasion of the last four years. As an
acute national security and public safety imperative, it is a
mandate from the last election. It is massively important for Texas.
(24:54):
So I'm all for using the thread of tariffs's leverage
to get good policy that benefits America. But there's a
second component, and this is an important thing to understand,
which is Donald Trump and much of his administration believes
in tariffs as an economic policy. We've all heard Donald
Trump say tariff is the most beautiful word in the
English language. And I do think the business community so look, look,
(25:20):
we had the stock market plummeted, we saw massive losses
in the stock market. We may well see more massive
losses than the stock market. I think the business community
was shocked by the magnitude of these communities of these tariffs,
by the breadth of them. Look, as we talked about
in our earlier podcast on tariffs, what I've urged the
(25:43):
President's two things. Number one, focus on China, because delinking
our economy from China is emphatically an America's national security
interests and economic security interests. And number two, focus on reciprocity.
And the reason I've said focus on reciprocity is the
upside scenario I just talked about, which is, by focusing
on reciprocity, if you incentivize other countries to lower their
(26:03):
tariffs and we lower ours, that's a win win for America.
But the thing to understand, I believe the business community
has systematically underestimated how much President Trump and the Trump
administration views tariffs as an ongoing, permanent feature of our
economic policy. I can tell you virtually every time I
(26:24):
talk with the President, I talk with the President frequently,
he goes on at length. Have you seen the billions
of dollars, the hundreds of billions of dollars, the trillions
of dollars we are raising and are going to raise
from tariffs? Now, I think a lot of people said, oh,
he's going to threaten these tariffs, but he's going to
lift them very quickly. If he does that, great, If
he leaves them in place and we just have constant tariffs,
(26:47):
that is a massive tax increase on the American people.
And I think many people are underestimating that. The President
believes and many members of his administration believe that tariffs
are just a fabulous feature of the American economy. They
harken back to William McKinley when he was president. Now,
(27:08):
now look we used to have before the income tax,
tariffs were the main source of revenue for the federal government,
and they want to go back to that scenario. And
I got to say, we're going to find out because listen,
President Trump believes in this. I think in the first
term he wanted to impose policies like this, and I
(27:28):
think many Republican senators talked him out of it, pressed
him back and said, look, their real risks, don't do this.
I think of the second term, Trump feels unchained, he
feels unburdened. He's like, screw it, let's go, and he
believes it.
Speaker 1 (27:41):
I do know, by the way, that's where the threat
could actually work, right, because every other country's looking at saying, hey,
this is surely he's not going to do it. He
does it like he's going to finch quickly. There's no
indication he's going to finch per se quickly.
Speaker 2 (27:56):
Right.
Speaker 1 (27:56):
I think the real threat of it is the fact
that he's actually willing to go through with it.
Speaker 2 (28:01):
Look, I want this to succeed. I wanted to succeed,
But my definition of succeed may be different than the
White Houses. My definition of succeed is dramatically lower tariffs
abroad and result in dramatically lowering tariffs here. That's success
for the American workers, American businesses, American growth, American prosperity.
That's a great outcome. But look, I think we're going
(28:26):
to find out one hundred years ago the US economy
didn't have the leverage to have the kind of impact
we do now. But I worry there are voices within
the administration that want to see these tariffs continue forever
and ever and ever. They don't want a lower of them.
They think they're great. And what is particularly I think
(28:51):
has has startled some observers. It wasn't just directed at China,
it wasn't just directed at bad actors. It was directed
against everybody that if that is the breadth of it
is enormous and it carries it carries upside, but it
also carries real risk.
Speaker 1 (29:07):
All right, let's talk timeline in your definition of short
term or long term? What does that timeline look like,
because obviously people are trying to figure out weathering the storm. Right,
you talked about supply chain and the car is a
great example. You don't feel the pain till let's say June.
All right, so give us a few months for things
to kind of work its way through, work it out.
(29:29):
Is that a timeline of short term and then after
that it's it's considered all right, this is long term?
What is that timeline in your opinion?
Speaker 2 (29:36):
Well, let's be clear, the timeline was immediate. So let
me read from the Wall Street Journal headline Trump tariff
send out to sixteen hundred point decline, dollar slumps Asian
stocks hit for a second day, fear as a recession rise.
And here's what the Wall Street Journal reports, quote, US
markets suffer theirs steepest decline since twenty twenty on fears
(29:56):
President Trump's new tariffs plan will trigger a global trade
war and dragged the US economy into recession. Major stock
indexes dropped as much as six percent on Thursday. Stocks
lost roughly three point one trillion dollars in market value,
their largest one day decline since March twenty twenty. Stock
index futures drifted lower Thursday evening in stocks in Japan
(30:18):
were hit for a second day as Friday training began.
In Thursday's market plunge, the Dow Industrials dropped sixteen one
hundred and seventy nine points, or four percent. The tech
heavy NAGS deck, which powered the market higher for years,
was down six percent, pulled lower by big declines in Nvidia, Apple,
and Amazon dot Com. The S and P five hundred,
which fell four point eight percent, and the other benchmark
(30:39):
suffered their sharpest decline since the early days of the
COVID nineteen pandemic. The dollar meanwhile tumbled, with a Wall
Street Journal Dollar index suffering at sharpest decline since twenty
twenty three. Now those are immediate hits, and understand, Look,
it's easy to say, okay, fine, you know that's just
rich people. Look at this point, a majority of Americans
have money and vested in four o one ks and iras,
(31:02):
and so that's impacting everyone, and people don't necessarily follow
their four A one K on a daily basis. Many
people see their four A one K statement when it
comes out at the end of the quarter. A whole
lot of people are looking at that, and we'll see
if that's a temporary one day hit. But if it
continues to slide over the next few days, that's not
waiting for six months to see the impact. That's freaking
(31:24):
people out now. And so the consequences of this are real,
and I want to be clear about something. Look, it
used to be conventional wisdom in Republican politics that free
trade is wonderful and we should just have no terraffs
and lower terraffs. And that was almost.
Speaker 1 (31:42):
Everyone ask you. This is a question. I'm just going
to ask it because I know there's people listening. They
want to know what the definition your definition of free
trade is.
Speaker 2 (31:53):
That used to be conventional wisdom. And I want to
give Donald Trump credit for something really significant, which is
he's changed the debate on trade fundamentally. And so I
believe in free trade, but I also believe in fair trade,
and so when I talk about reciprocity, Donald Trump has
made a very clear point and It's a powerful point,
(32:14):
which is, many countries on Earth have been taking advantage
of the United States and have been imposing really high
tariffs and barriers to US goods while having free access
to the American markets. And that is unfair. And so
I love that President Trump is willing to use leverage
to lower tariffs. I think that's great, and that really
is a change in the debate. Ten years ago, there
(32:37):
was nobody in the Republican Party making that argument, and
that is the direct result of President Trump's leadership. That's
a good thing. Saying we should be treated fairly, that
is a good thing. That is a very different proposition
from saying it doesn't matter if other countries lower their tariffs.
We're going to impose tariffs on everybody because we think
(32:59):
tariffs should be the principal vehicle of funding the economy.
If the outcome of this is a multi trillion dollar
tax increase on American consumers, I think that that is
really consequential and really really harmful.
Speaker 1 (33:15):
So let me ask you one other question, and that
is if these tariffs don't change center, then what would
the impact be.
Speaker 2 (33:23):
Well, let me share an analysis that a group called
the Tax Foundation did now. The Tax Foundation is a
think tank based in Washington. They're very good. They're they're
economic experts. They analyze tax policies. They have proven to
be incredibly accurate in terms of measuring the impact of taxes.
Here's what the Tax Foundation has assessed from the announcement
(33:45):
this week. They say, if these stay in effect, the
average tariff rate on all imports will rise from two
point five percent in twenty twenty four to eighteen point
eight percent, the highest average rate since nineteen thirty three
under the tariffs announced for twenty twenty five. The consequence
of those tariffs, they will cause imports to fall by
(34:08):
slightly more than nine hundred billion dollars in twenty twenty five,
or twenty eight percent. So that's what they're predicting, is
that imports drop nine hundred billion dollars twenty eight percent
this year. They also say the newly announced tariffs on
April second will raise one point eight trillion dollars in
revenue over the next decade and will shrink US GDP
(34:33):
by zero point five percent. The April second escalation, they note,
comes in addition to the previously announced tariffs, which will
raise another one point three trillion dollars in revenue over
the next decade and shrink US GDP by zero point
three percent. Altogether, Trump's tariffs will raise nearly three point
(34:54):
two trillion dollars in revenue over the next decade and
reduce US gd by zero point eight percent. They further
project the tariffs will reduce after tax income by an
average of two point one percent, an amount to an
average tax increase of more than two one hundred dollars
(35:16):
per US household in twenty twenty five. Now, to be clear,
that's a prediction. If these tariffs stay in place, if
they don't change, if the upside that I described happens,
if foreign countries slash their tariffs and Trump in turn
slash these tariffs, none of those numbers hold. Instead, I
(35:37):
think we see an enormous economic boom. But if that
doesn't happen, if these tariffs stay in place as an
ongoing economic policy, we're facing very real and I think
very detrimental consequences.
Speaker 1 (35:51):
It's going to be an interesting one center. It's I
think it's important that we have these conversations. Hopefully many
of you listening understand this more and the ups and
downs and what this will look like it's going to
be changing often, and when it changes, we are going
to continue to cover it day in and day out.
So make sure you hit that subscribe or that auto
(36:11):
download button wherever you listen to this podcast, share it
on social media. I hope this has helped you, and
I honestly hope that you'll share it with your friends
so that they will share it and they can hear
exactly what we did here today in the Center. I
will see you back here for our week in review
on Saturday as well
Host
Ben Ferguson
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