Bonus: How Is Trump Changing US Economic Competitiveness?
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I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and welcome to a bonus episode of Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next. And we thought we would just throw your way another panel I did at the 28th annual Milken Institute Global Conference called US Economic Competitiveness in a Changing World,

with guest Gary Cohn, vice chairman of IBM, but former senior player in the first Trump administration, Peter Orszag, CEO and chairman of Blizzard, but also previously budget director for Barack Obama, and Kevin McCarthy, the former speaker of the US House of Representatives.

My opening question, given the title of the panel, was what kind of US economy did they think would emerge from the policies of Donald Trump? Would it be more or less competitive and resilient than the US economy that Donald Trump inherited at the start of the year? So, look, we're going to come out of this just fine.

Go back and take a reflection on the U.S. economy and let me see. We've lived through depressions. We've lived through recessions. We've lived through COVID. We've lived through the financial crisis. And every time when we thought it was really bad, it got a lot better. If you go 10 years forward, 20 years forward, if you have any duration of time, this is an unbelievably resilient economy in the United States. We're the reserve currency of the world. We're going to stay the reserve currency of the world.

We have huge capital here. We've got a great corporate system that wants to invest in this country. Look, we all have short-term concerns, but long-term, we should be really excited where we're going with this country. Mr. Speaker, Kevin McCarthy. Look, they all talk economics. I think you ought to get in the brains of the president. He's different this time than the last time. Trump is a populist, but there's two things that are principled to him. There always have been. Tariffs...

Drugs cost too much when he says he's gonna put a 10% tariff on he'll put a 10% tariff on When he says it's gonna be 25 or higher. That's all about negotiations. We were in the middle of negotiations He's also not a rigid person that will not adapt. He's always Negotiating so if you take him exactly what he's saying you're going crazy But what's happening is at the end of the day? He's not gonna have the shelves empty

He knows he's got about 60 days to do something. I actually think we're going to be a lot better off. And I would point to one part of the history. For the same reason we opened the three communicates with China when we were dealing in a Cold War, this is going to be a reset in China. When we get an agreement with India and Japan and the UK, it's going to be much more positive for America. Is there adjustment? Is there disruption? Yes. But in the long run, it will make us stronger. Peter Orszag.

Let's see, four really quick points. On resilience, I think we will be more micro resilient and less macro resilient, by which I mean certain supply chains and pharma, et cetera, will be more secure.

But from a macro perspective, in terms of our ability to project power abroad and our ability to sustain the fiscal trajectory that we're on and so on, I think we will be more vulnerable. Second, we will have marginally higher manufacturing activity and manufacturing employment, but nothing like the 1950s shares of either the economy or employment.

Third, I think we need to be a bit careful about, I saw Simon Johnson in the hallway, the Nobel Prize in Economics was awarded for the last year for what drives long-term growth and rule of law

inclusive rather than extractive approaches to policymaking are all core to long-term economic growth. And so we just need to keep that in mind. And then final point is despite all of the discussion about tariffs, as Nouriel Roubini put it,

Tech trumps tariffs if you look out over the next three to five years. So what is happening on the digital payment stack? What is happening on the AI race? What is happening in quantum? That is going to turn out to be more important than the next two or three months. Gary Cohn, whether it's IBM or anywhere else, can you respond to this changing incentives for...

and support the kind of investments that the administration wants to see when you have zero clarity about what the tariffs rates are going to be and what the future is going to be? Look, I think all of us who run big companies, who have run big companies, we have to think long term. Like no one's thinking, like we're thinking about the next 90 days because we have to, but honestly, we're making investments for a generational cycle.

Everyone's talking about AI today. A lot of the investment that you're seeing in AI today didn't happen in the last two or three or four years.

We'll get the quantum. I mean, the amount of money that IBM and others are putting in the quantum today is just extraordinary. Quantum will pay results five, I'll say five years from now. So we are making extraordinary investments in this country, in this economy. The one place I'll caution, because I think we need to talk about this to some extent, tax policy drives investment decisions in this country.

If you want to boil down to any one major factor that drives decision making in this country, it is tax policy. When we changed our taxes in 2017, we affected corporate policy more than anything else that's happened in this country in the last 30 or 40 years.

When we deemed repatriation of money back to the United States, we forced a lot of this money back. When we changed the corporate tax rate, we became competitive with the OECD. We changed the way people thought about manufacturing and building businesses in the United States. When we look at accelerated depreciation, when we look at R&D credits, all of these things matter and they will drive policy more than anything else we're actually talking about. Because at the end of the day,

When you're running big companies, you're a fiduciary for shareholders, you're trying to maximize their return over a long period of time, and taxes will drive a lot of those decisions. So one of the most important things that has to happen this year is we have to, at a minimum, extend the Trump tax cuts. So that, to me, is a minimum. If we can put something additional in there, great. If we can bring back the R&D credits, bringing back the accelerated depreciation, those will have more impacts than anything else we're actually talking about here.

Peter, do you agree with that? No. I thought you'd say that. Gary won't be. Look, I think there's a large empirical literature on this question and taxes matter, but it's not even close to the most important factor. A lot of things go into the future cash flows and expectations of future cash flows and

part of which is taxes, but there are lots of other pieces that are arguably more important. And on that point, I do think we need to also highlight that a lot of the benefits that we have experienced historically in the United States comes from being the world leader in technology in particular. That is

WHERE A DISPROPORTIONATE SHARE OF THE PRODUCTIVITY GROWTH HAS OCCURRED, THAT IS WHERE TO THE EXTENT THERE ARE ANY DIFFERENCES WITH EUROPE, THAT IS WHERE THE DIFFERENCES HAVE SHOWN UP MOST PROMINENTLY. AND WE NEED TO BE COGNIZANT OF THAT BECAUSE THERE IS SOME RISK THAT WE WILL DISRUPT THE APPLE CART. I COMPLETELY UNDERSTAND AND EMPATHIZE WITH THE PERSPECTIVE THAT OUR LEADING UNIVERSITIES WENT FAR OFF KILTER IN

and how they handled the aftermath of October 7th in particular. But I think slashing the NIH budget, slashing funding to the leading universities of the United States risks exactly what we're already seeing, which is Europeans and others are saying, come here, we will invest in science. We don't want that. So that is just as important, if not more important than tax policy, but obviously everything matters.

Since we've got on to AI and technology, what outcomes were you hoping for from the CHIPS Act? And was it successful in revitalizing U.S. microchip manufacturing? That's George Esposito and also wondering what the next act like that would be. I think, I mean, you were speaker when the bipartisan CHIPS Act was passed. There's been sort of different signals around it. But as far as you're concerned, was it successful in doing what it was supposed to do? Not completely, no. I mean...

the company government invested in the most i don't know is going to make it all the way um ai is going to do one thing for america is going to get our energy policy right because we'll never capture ai without getting energy policy right you'll do more than any climate change has ever done to our energy policy getting chips made in america is going to be an agreement with government and taiwan

Taiwan is never going to give the full fobs here unless they get an agreement that they're going to get some type of support and that's actually Happening now, so I believe there is enough capital out there It's more a government view that in the Senate if they just throw money at chips I think there's a lot of capital in the free market to give money for chips I don't think government needed to make that investment. This isn't normal. I

I tell my friends in Congress, China has a Congress too, no one knows who they are. All the power has usurped to the White House. Trump has one term. You can tell him, "Oh, if you went really smooth, you could..." None of that's gonna matter to him. He's got one term to get something done. He has his 10,000 hours that he knows how to do the job. He picked the cabinet that he wants that will follow what he wants to do. I believe investment is important, but under the Republicans, we increased NIH.

But I don't think any of these colleges have been audited. Did you really think taxpayer money should give Harvard $9 billion? What are they doing with it? I actually believe coming after them will make every single college to start auditing what are we doing with this money. And it will drive more towards

research and development than prior. I firmly believe in the tax bill and it will get done but it won't get done perfectly on the timeline that Congress says right now. But it's too much pain that they not do it. But Trump will cut regulation, he did last time, even faster than Reagan. That combination will help energy more and AI will drive energy to do it more than anything else.

Peter, you wanted to? Yeah. Look, I think there is a very positive agenda here that has to do with expanding the supply, not only of energy, where honestly the myth of the immaculate transition has dominated for too long, and I'm glad we are past that,

in housing, which admittedly is mostly local, but is a huge impediment to the upward mobility of many families. By the way, people have not realized, but the mobility rates in the United States have been declining over the past two to three decades. And, you know,

But part of that is the lock-in effects and the difficulty of finding housing in wherever you want to move to. This is a problem that needs to be addressed. And you can go down the list of expanding supply as a -- I mean, Ezra Klein and Derek Thompson just wrote a book called "Abundance," which is fundamentally about let's stop subsidizing demand and let's really focus on expanding supply. That is an agenda that I'm 100 percent behind.

I just wanted to shift a little bit of that follows on from that. If you have a supply side approach to the economy, one of the things that investors and others were very excited about in looking at this incoming administration was around

deregulation and that whole agenda. But we also saw in the previous administration quite an aggressive approach to corporate power, which actually was also associated with an analysis of what was reducing labour mobility, non-compete clauses, you know, that corporate concentration was itself impeding economic competitiveness. So I just wonder...

How would you judge where the administration is on that and whether it's right to kind of be more relaxed about corporate concentration if that's the case? The frustration I've had in past administrations, if one administration did something, the other one has to be opposed to it, which I didn't think good. Except when it comes to China, maybe. China has united everybody. This isn't about preparing for war.

we've become too dependent. This is about making sure we don't go to war and pure dependency. And it's the most bipartisan committee. And when the president of Taiwan came to see me, I held the meeting at the Reagan library simply for the symbolism of defeating communists without going to war. And when we sat and had a press conference together with the Berlin Wall behind us,

Andrea Mitchell gave the first question. And she said, "I cried and I was with Reagan when he said, 'Tear down this wall,' and I feel just as emotional as today that you are so united without politics." And I think it's been one of the most positive things. And dependency, just like they control 90% of the critical minerals but 95% of the processing,

And that really comes down to Congress. Are they going to allow us, if we have our own resources, to be able to do that? And I think this is a place, this is where the TikTok ban came from. This is going to be a very positive situation. What happened to that? Yeah. But I did actually distract you from... Garrett Cohn, do you want to take on the antitrust question? No, look...

I am always troubled by this topic to some degree because look we clearly want our companies to play within the rules We don't want anyone to have an unfair advantage. So that's that's a given on the flip side You know we sit here and we talk about we have to compete against China Which we do and we have to win the battle China is trying to build the largest companies in the world to take over the world We're trying to break up the larger companies are successful in the United States. So

I think we've got to decide which side of this equation we want to come out on. I think we want to be able to compete globally. And if some of our companies are really successful,

It happened to be very large. It's OK. It's probably good for us in this country. And they probably bring home a lot of tax revenue and they probably employ a lot of people as long as they're not prohibiting other people from competing in the space. I don't think we as Americans have problems with it. We should actually be very prideful in the fact that we can build these companies from nothing. And the companies we're talking about, and I know we're smiling, a lot of these companies didn't exist 30 years ago, 40 years, 50 years ago, none of them existed.

So you think about the creativity, and this is why I started out being so bullish on this economy. You think of the creativity and the entrepreneurial spirit that exists in this country. We've built some of the largest companies in the last 20 years. Let's allow them to continue to thrive as long as they're playing within the laws. That's why we have laws in this country. So the biggest divergence that the biggest bad crowd had was

was because it's easy to kind of just say it's across the board it's really quite specifically with regard to vertical integration so that is a firm that is buying something that's a supplier or a a distributor as opposed to merging horizontally and there i think honestly there was a lot of rhetoric often without a lot of evidence and you're going to find

That's where the differences will be the most significant is a little bit of backing off from the all vertical integration is bad. And let me just highlight one area where this tension is paramount. I saw Dr. Oz yesterday. He's here.

I believe that CMS under Dr. Oz will push very hard on value-based care and healthcare, which is fantastic. We should pay for value and not for quantity. But as you do that, you're creating incentives for insurance companies and providers to act as one.

because that's effectively what most of the incentive under value-based care does. And we have evidence, we're here in California, Kaiser Permanente is a good example of fully vertically integrated healthcare players that perform better than others. So if you go after vertical integration, but you also want value-based healthcare, which by the way, the prior administration was saying simultaneously, you have massive cognitive dissonance.

one arm of the government saying don't do this and the other arm saying do it. I think that will be better going forward.

I'm going to change the subject, but I did mention at the start, I mean, one of the things that economists had been, quote unquote, concerned about, given how much it had been part of the growth model in the last few years, was the much tougher stance towards immigration of this administration. Now, obviously, the focus has been illegal immigration, and companies don't tend to kind of stand up for the right to have loads of illegal immigrants working for them, and really want to get past that and just to a sort of core of what

has been a source of economic strength for the U.S. over the last few years, which is to be a very opening environment for... Legal immigration. For foreign citizens. No, but if we have people who are now being... If foreign students who are studying here may be contributing potentially to entrepreneurship and inventions in the U.S. and down the road are being intimidated, if people are worried about...

We will know people here who have been told, actually, if you don't need to come to the US, don't come or just take a burner phone. I mean, all of this is, I'm sure, exaggerated, but just about the sort of atmosphere that it creates for a country that's trying to attract foreign talent. I mean, Peter, do you worry about that? It's not about these specific cases. I agree that we need to have secure borders, and I agree that no one can or should be in favor of illegal immigration. So let me just say that.

However, even if the burner phone phenomenon is anecdotal, anecdotes can become the telephone game and affect our ability to attract top talent. The number of foreign CEOs with whom I've spoken who say that they are going to be bringing a burner phone to the U.S. is much higher than it should be. So I very much hope that whatever's causing that changes because that is not good for our economy.

Mr. Speaker, do you think, do you just worry about the, again, the tone of what's happened over the last few months and maybe the overreach by some people in individual bits of homeland security, which then contributes to these stories? Look, I think the greatest strength of America is not our aircraft carriers, the idea of America, okay? But President Trump got elected on two main factors, the border and the economy.

And I think 80% of America believes the border was out of control. So just like everything else, you have to actually make this statement to stop the illegal from coming. We were the most generous nation in the world more than a million people ago. Now you're going to get a gold card. So you're going to get a whole nother set. I think this is a small part. I think it'll make people rethink. I'm more concerned the relationship with Canada and Mexico, because I believe that's a great deal of strength.

And I think that has to be we have an agreement with them. We need to work through it because if you can't work with your neighbors that you have an agreement with, it's hard to make agreements with other people. I want to get back to we started right at the beginning. You mentioned about debt and also about the importance of making the tax cuts permanent.

You know, that is one of the things that if you, again, just doing a sort of classic economic health check of the US, you'd say that's the kind of scariest bit of the scariest chart is what happens to debt under any reasonable assumptions. So do you see a path, given the relatively modest gains of Doge, given the kind of cuts that are on the table in Congress,

Do you see a path to meaningfully flattening the U.S. debt trajectory? There's always a path. Do we want to take the path? We're going to have no choice. I think we're going to have to get to the point where we take the path. So if you look at what Doge is trying to do in waste, fraud and abuse, as the governor said, as the speaker said, there's waste, fraud and abuse everywhere. It's hard to go in and find those pieces. I actually think we'd be better off to take a step back

and figure out what can we actually eliminate. It's a lot more cost-effective to start eliminating things. So I'll go back to my former, former, former life. You know, when you look at the banking sector in the United States, I think we have eight to 11 regulators in the banking sector in the United States. If you look at the UK, you look at Hong Kong, you look at Japan, you look at Singapore, you'd say they have pretty good markets, pretty good banking systems. They have a maximum of three regulators in each of those countries.

They don't have an SEC. They don't have a CFTC. They don't have an OCC. I could keep naming names of things they don't have. They have a prudential regulator and a central bank, and they have a regulator that protects the public. We could do that really efficiently in this country, and we could cut out real, real spending long term. Now, look.

it will take my friend over here and his colleagues in the capital to get rid of a bunch of these agencies. But these agencies, in many respects, I think have probably outlived their needs, outlived their services. So if we're going to get serious about taking money out and keeping it out because the Doge money, I hate to say it, and the next administration could come back in, the way to keep it out, take it out is to remove part of the organization that actually doesn't need to be there today.

I guess you only find out if you needed it once you get rid of it. But Peter. Look, if I told all of you that there was a country running 7% of GDP deficits, as far as I can see, that the debt to GDP of that country was 100%, that the political system was deeply polarized, that the country was arguably alienating a third of its investor class,

and that that country was also toying with the idea of whether the central bank should remain fully independent or not, that would not be a combination of factors that would be confidence-inspiring. So I agree with Gary. This is, in my opinion now,

There was a decade, and I will say even I as a former CBO director and a former budget director sort of had just tuned out all the chicken little kind of the sky is falling fiscal stuff because...

All of the dire predictions were not happening, and it kind of got a little tiresome to keep hearing them. But if you compare where we are now to where we were a decade ago, it's a lot different. The deficit is twice as high. Interest rates are dramatically higher. I am particularly pleased that Secretary Besant has cleaned up.

The question of whether the administration is doubting whether being the reserve currency is a benefit or not. I think there were statements from other administration officials which were not helpful. That is a very dangerous thing to be doing, given the combination of facts that I had. So this is I think it's time to worry again about this trajectory. And I do hope that we get serious about what we're going to do, because you don't want to be in a situation where it gets away from you. And I think the risk that it gets away from us are

It's higher now than it was over the past decade. Mr. Speaker, as Gary said, it's all down to your colleagues. Well, then I'd be really worried. Structure dictates behavior. There is not one person who gets elected that they're going to go in and cut.

It doesn't show up on any poll. Now, we had this exact same problem in 1990 with the collapse of the Soviet Union. And there's not one member of Congress who's going to raise their hand that we've spent the last 40 years developing a military to fight the Soviet Union that's going to raise their hand and said, close my base. So they know the structure wouldn't work. So what did they do? They created BRAC, Base Realignment and Closure. So every leader got to a point to it.

If they came up with a plan, this is all they were promised. They'd get a vote on the floor in the House and no amendments. You know what happened? It would pass and it would be bipartisan. Because then you're boxed in. I actually made this offer to Biden during the debt ceiling. I said, let's do it and let's vote after the election. You got the tax bill and you got some provision and some Obamacare coming due. So technically...

In the tax bill, if you took some revenue, you're not raising taxes because they're all going up automatically. You're actually decreasing them. In Obamacare, some of them are going to go, provisions were leaving. So if you reform that from a Democrat, you weren't destroying Obamacare. And if you did it after the election, you got a little lame duck. The greatest strength any politician has is the first day they're elected and it goes down each day to the next election, then it goes back up.

So and if you did it together, no one would lose their job over it now you can eliminate things in government That's not going to do anything for you. The drivers today are the government programs and if you do nothing Eight years and nine years. They'll automatically be double-digit cuts to them and few options and

It's the greatest threat we have. Okay, but help me out here because when you look at the only serious cut in a non-discretionary program that's on the table that is actually gaining some momentum in Congress is on Medicaid, but the president has said multiple times he doesn't want to see cuts in Medicaid. Without that number, without that cut...

It's very hard to see how you start to pay for the tax cuts. So I'm just wondering, how do you, given your history, your experience, how do you think that's going to be resolved? Okay, my experience in the debt ceiling, I cut $2 trillion and I lost my job over it. Even in this reconciliation, they're not coming anywhere near that. And it's a Republican White House, a Republican Senate, a Republican House.

So that's why I say I don't put my trust in them getting... It's going to become such a big problem that no longer anybody can ignore it. But you have to change the structure. Otherwise, the members will just... The minority will fight who's ever in the majority. Take it out of the argument and bring it back in one vote. And that's the way you'll have to get it done. Thank you very much. Thank you.

Thanks for listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined by Gary Cohn, Peter Orsag, and Kevin McCarthy. Trumponomics is produced by Sam Asadi and Moses Andam, with help from Chris Martlew and Amy Keene. Sound design is by Blake Maples, and Brendan Francis Newnham is our executive producer. Please help other people find the show. Just rate it very highly and review it wherever you listen to your podcasts.

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