Bonus: How Markets Might Be Wrong About Trump
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Bloomberg Audio Studios. Podcasts. Radio. News. Hi, Stephanie Flanders here with a bonus episode of our Votonomics series because, well, we just couldn't resist. It's a good one. And who knows, if you enjoy it, there might be more to come in this vein. The focus is Trumponomics, the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next.

To help me tackle this subject, I've recruited two of Bloomberg's finest, each with a unique perspective on Donald Trump. Anna Wong, chief US economist for Bloomberg Economics, and Josh Green, a national correspondent at Bloomberg Businessweek based in DC, who covers politics. Enjoy. Unless you've been living in a very deep forest with bad Wi-Fi, you'll have noticed that investors have responded pretty favourably to the re-election of Donald Trump. Stocks are up, so has the dollar, Tesla stock.

Bitcoin is way up.

In general, you'd have to say Wall Street seems to think that Trump 2.0 will be good for them, good for capitalists. But at the same time, you have a long line of economists, sometimes working for the same Wall Street institutions, telling us that Trump's economic policies, if implemented as advertised, the stuff he promised on the stump about tariffs on all imports and mass deportations of illegal immigrants, well, all those things will raise inflation, slow growth,

and stoke uncertainty, which investors are supposed to hate. So I quite like to tease out whether there's a contradiction between some of those beliefs. Helping me with that is Anna Wong, Chief US Economist for Bloomberg Economics. Before that, she's worked at the Federal Reserve Board. And while she was at the Fed, she served in the Trump

White House in 2019-2020 on secondment at the Council of Economic Advisers. She's also worked at the US Treasury. We also have Josh Green, national correspondent at Bloomberg Businessweek, author of several books, including, I guess most relevantly for this purpose, the number one New York Times bestseller, Devil's Bargain, Steve Bannon, Donald Trump and the Storming of the Presidency. Anna, I mentioned those two beliefs a

often held by the same person. Trump's economic policies would raise inflation, slow growth, stoke uncertainty, but somehow he's still going to be phenomenally good for US investors and companies. Am I right? There is a bit of a contradiction there? I think Wall Street economists and Wall Street traders are two different animals. So a lot of traders are very practical. So they are basing their bets

pouring all the money in stocks right now on the experience from the first Trump administration. And if you looked at the stock performance at that period, indeed, it was quite phenomenal. So the S&P 500 rose 55% from late 2016 to the end of 2019.

Now, in terms of the tension created by Donald Trump's threats on tariffs, indeed, it's true that I think it's now well documented that every time Trump tweets a threat on tariff, the stock market falls. And if you add up all these tweets in his first administration and looked at the cumulative stock decrease due to his tweets,

you actually would find that his tweets are responsible for about 10% lower stock market value. That is news you can use. I like that stat. We actually did this when I was at the CEA. In fact, that was one of the studies we undertook

to document what is the impact of all this tariff announcement. Overall, stock market still increased by 55%, but it could have increased by 65%. So I guess in that sense, there is some tension,

But I think the traders are still thinking that on net it will be positive. But let's keep in mind that in the first Trump administration, a lot of the stock market increase was due to the tax cuts in Tikta. And at that time, that was clearly a big reform in the tax code. So corporate tax rate fell from, you know, in the 30s to 20s.

That is a very sizable increase that they're not going to be able to replicate. No, I guess the big thing we're talking about on that front is just to prevent those tax cuts from expiring, which you would have thought could

could not possibly have the same kind of impact. Exactly. So I think in one calculus they have to think about this time around is, well, suppose that all these trade drama knock down 10% to 15% of the stock market. Will a boost from all the other policies be able to more than offset that? I would argue that right now the stock market is already, the valuations are already very rich.

And there's less upside, but just more downside. But, you know, I'm not an equity strategist. No, luckily, we don't have any equity strategists in this conversation. You've painted a fantastic sort of picture of people in the Council of Economic Advisers examining the tweets and then potentially going to the president to talk to him about the impact on the stock market. And I want to get into that and his view of tariffs in a minute. But Josh, I mean, you're someone who, in writing that book, you were...

very close to Trump and Steve Bannon as the campaign unfolded and as they went into the White House. When you see what's happening at Mar-a-Lago now, the dynamics of this, potentially this new administration, and then think about what Wall Street seems to think about it, do you think they're being hopelessly optimistic? I

I do. And with the proviso that I, too, am not an equity strategist, I'm your political reporter. I do think, you know, the way I think of it, talking to people down in Mar-a-Lago now, talking to some of my Wall Street sources, clearly right now Trump is in a honeymoon phase.

Traders are exuberant. Everybody's excited about tax cuts, deregulation, mergers, the rise of crypto, perhaps the fall of Lena Kahn. Expectations are running sky high. But I tend to analyze Trump like you have to think about two categories. One is the expectations and then there's the execution. I think what Wall Street might be forgetting right now is that Trump

always brings with him a certain level of chaos that means the expectation or the execution is never as smooth as he'd like it to be. He's an impulsive guy. He gets angry. Things go wrong. And I think that

The fact that he's not president yet and he isn't running the government yet has led people perhaps to discount that second part of the equation, that once he gets in there, especially given the types of people –

that he wants to surround himself with in his new administration, things could go off the rails very quickly. And that's something that every investor, I think, is going to want to keep a close eye on. It's interesting that goes slightly against, you know, the expectation had been chaos Trump 1.0.

And he's had four years to lick his wounds, think about his mistakes. This is the storyline. Now he's back. He's less constrained in all the ways that we know, lack of guardrails, etc. So potentially more radical, but also more disciplined. You know, he kind of knows his way around the White House. He knows his way around government. You think that's not going to make a difference?

That was the thought process going in. But I think that the big revelation about Trump 2.0 is that he's not necessarily going to be surrounded by savvy veterans of government. Look, the number that jumps out to me

is that Trump has nominated 11 Fox News personality to serve in his administration, including a secretary of state and attorney general, although the attorney general, Matt Gaetz, has now bowed out. I mean, to me, that raises the question of who's actually going to be running the government and what happens when a crisis inevitably hits. Is Trump's

administration going to be able to perform as well as an ordinary Democratic or Republican administration or even Trump's last administration where you did have military generals. You had a segment of the Republican Party that wasn't MAGA, people like Mitt Romney,

All those people are gone this time around. And Trump has made clear that he wants to come in. He wants to aggressively impose tariffs, cut taxes, deport millions of immigrants. I was talking to a Democratic source yesterday who said the thing that people aren't thinking about is Trump wants to drive 100 miles an hour. But this time there are no guardrails on the highway. I think that's the right way to think about Trump.

Anna, the Council of Economic Advisers was perhaps a haven of efficiency. It was. Absolutely not. All right. So, I mean, does that ring true to you, Anna? I have to disagree a bit with Josh here. I have only been focused on the economic personnel nomination specifically.

And I thought that the economic nominees that Trump has announced so far sounds like business as usual. In fact, I think that the nomination of Scott Besant and Kevin Hassett actually felt more solid than the first administration. And in terms of chaos, Josh, you mentioned chaos. I think there are other words to describe it.

Maybe another, you could think about it as a euphemism.

But one word would be team of rivals. That's a humanism. Sure, sure. Rats in a sack is another one, yeah. So while I have not briefed the president, former president, I had briefed principals on these POTUS meetings and I got debriefed from it. And the sense I got from it is that Donald Trump enjoys saying

seeing his economic cabinet officials debate or fight. Yes, I would say fight. I think it's part of his style, this chaotic process, if you want to describe it that way, is for him to hear a range of views. So the idea that he is just this

out of touch emperor only listening to this that he wants to hear. I think that is not accurate. The chaos I personally experienced in the first administration outside of just being there during the thick of the pandemic while it was happening and during the trade war outside of those policy related drama, the drama I experienced is the leaks. Whenever there is a policy proposal,

And in all administration, there will be crazy economic proposals. I mean, the objective of CEA is to do an objective analysis on any kind of crazy economic, right? And then shoot it down. We just shoot down a lot of stuff, right? But then in a Trump administration, what will usually happen is when a proposal has come in and suddenly the next day it will show up

in the media and in fact I remember one very specific incident where it actually showed up in the Bloomberg media. Probably Josh's story. And then the next day the chaos.

As a reporter, I really did appreciate all the leads. Yeah, I know, I really do. But as an insider, what happened is actually shows distrust between everybody because there's only a small group of people who are in the know. And then suddenly the story appears in the media and the whole policy process just breaks down. And then people started behaving in a way where I don't trust you, you don't trust me, let's control the information. So

Okay, but you started off disagreeing with Josh and then you seem to be coming back to a slightly more chaotic vision. And I made a great point there about the economic team. That is the one exception to what I was talking about earlier. And let me emphasize too, Scott Besson, his Treasury Secretary, a story that Bloomberg News broke, by the way, was I think the most positive. You may even have been on the byline, I seem to remember. I might have been, I might have been.

It's probably the most positive sign I think for Wall Street and markets. Universal praise among my democratic and republican political sources that a "adult in the room" is going to be treasury secretary. To me however, as a political reporter, as somebody who writes about all the backstabbing, as the recipient of some of these leaks,

The difficult thing is at the end of the day, Trump is still Trump and the people around Trump behave in a certain kind of way that I don't think people like Scott Besson who have no experience working for Trump are necessarily accustomed to. So the big question I have in my mind

is I don't have any doubt that Scott Besson would be a steady hand on the tiller of the economy if he's allowed to steer it. What I want to know is what happens when Trump decides he wants to do something that Besson doesn't think is necessarily a great idea for the economy, for global markets.

what have you, does he have the stature and power and where to stand up to Trump and to convince him to do otherwise? Or is he in the position that a lot of Trump cabinet officials have been historically where you either get steamrolled or pushed out or layered over and aren't able to keep the car on the highway to go back to my earlier metaphor. When we think about

whether this administration will be broadly good for the economy, good for Wall Street or not. I think there's a sort of, there's a big,

question to be asked about one particular set of policies, which is the tariffs. So I just want to spend a little bit of time on that. I mean, you're very interesting, Anna, on how that panned out in the first administration. Yeah. So Stephanie, I think the main point that I would try to make is that it's important to separate the drama from the execution, as Sean Donnan wrote in our big take earlier this week. I think that's a

great way to describe how to think about the tariffs in the next four years. If you were a person who was in Mars in 2016 to 2020 and you came back and so you didn't live through the Twitter, all the tweets, if only, or didn't watch TV at all, and then they are just looking at the numbers, looking at the escalation tranches of the tariffs, looking at the CPI data, looking at the unemployment manufacturing employment data,

you, this person from Mars would think that, well, it turns out that most of the tariffs had very little negative impact on employment in 2018 and inflation in 2019 ended up even below 2%. And this person would also look at the execution of the tariffs and thinking that there is an internal logic and strategy to how they executed the tariffs. So if you look at it,

The first tranches of tariffs were on solar panels and steel, and it happened in early 2018. And this was after the Republicans passed the Tax Jobs Cuts Act in December 2017.

Right. In the first year of the Trump administration, there was no tariffs at all. And I think there is a logic to why they want to sequence the tariffs increase after the tax cuts was passed so that it could in case there was negative effect. So that's one observation that there is a strategic sequencing to when these escalation of tariffs will happen.

The second part is that you also look at how these tariffs tranches are designed. It turns out that the first three tranches on China, as well as the solar panel and the steel, were mainly on intermediate goods and capital goods. Economic theory actually tells you that if the tariffs is on these type of goods,

it tends to be not as inflationary. So that's actually what the data was showing, that throughout the first four waves of tariffs in 2018, manufacturing employment was climbing. And so I think Trump...

remember that part of the data. But what also happened is when he started imposing the really big Section 301 tariffs on China, and it starts getting into consumer goods because they just ran out. And those are the things that when you're putting tariffs on consumer goods, just sort of that's, it's harder for the retailers to they end up having to pass it on to consumers.

Exactly. So towards the last two waves, which are the Section 301 tariffs on Chinese goods, that's when you started seeing employment in manufacturing sectors dropping. It's very clear. The moment 301 tariffs are imposed, then you start seeing the manufacturing employment going down. Has he forgotten that?

So I was about to get there. Sorry. Going back to Josh's point about who is Trump, Trump is his own man at the end of the day, and I totally agree, right? I would not rely on the voice of Scott Besant as the sole countervailing voice, and I don't think anyone would have the power to single-handedly pull Trump forward

away from whatever he decided because Trump, after all, is the president. But I think Trump is a rational president, putting aside the drama once again. So what happened in 2019 is, as I was saying, the economic data started turning, business investments started flowing down meaningfully, yield curve inverted, manufacturing, employment started plunging. And within the Fed, there was a burgeoning

body of literature looking at trade policy uncertainty and clearly tracing the impact of all these tariff announcements to lower investment. And so we presented all this evidence to Jared Kushner and then later to Trump. And he was actually quite receptive to it, that he does look at economic evidence. He cares about the stock market. He cares about the performance of the economy. So if you do show him

evidence, clear evidence that this is hurting the economy, then he will

pull back. And that was one of the key reasons for why he decided to de-escalate by accepting the phase one deal in December of 2019. I actually spoke to Trump in July with some of my Bloomberg Businessweek colleagues for the cover story we did. We brought up the issues of tariffs. And to me, the interesting tension in Trump's mind that Anna did a really nice job of describing is that when we said most mainstream economists agree that inflation or the tariffs are inflationary, Trump jumped in and said, no, they're not.

And just look at my last administration. I imposed tariffs and we didn't get the kind of runaway inflation that people were worrying about. Therefore, this is not something I'm worried about in the next Trump presidency. And I thought that was interesting. In speaking to people around Washington, policy expert types, everybody seems to understand that this is Trump's belief. And so, I think one of the worries that people have, that investors should at least be aware of, is that

that if Trump doesn't believe the tariffs are inflationary or the expectation is that he's going to push to impose them until the point comes that we really do see inflation or that the stock market falls. So I'd said earlier, there really aren't any guardrails around Trump. But I do think that the one kind of guardrail Anna alluded to was the stock market. Oddly enough, that Trump has always viewed the stock market as a measure, a gauge of his own success.

And if he shoots too far on tariffs or any other kind of inflationary policy, if he does get a negative reaction to in the stock market, I think the evidence is that he will pull back or that he's at least willing to pull back. But I think what that means as we look ahead to a second Trump administration is it's going to be a really wild ride for investors either way. And like really the smart thing to do is just kind of buckle in and keep reading Bloomberg.

well i think you've already won the award for most bloomberg plugs in a single episode i've actually had sources during the transition reach out to me and say hey

Is it possible? Could you give me this? In fact, one of them is your report, Anna. And Bloomberg, Anna, could you give me this Bloomberg story or this Bloomberg report? It's great. It's wonderful for source buildings. But it made me aware of just how closely people in my world, the kind of politics and finance, are paying attention to what's going to happen, what people are expecting, where the various effects might show up. Because at the end of the day, none of us really know what's going to happen. Obviously, he cares a lot about the stock market. You've talked in the past about his need to be a plutocratic politician.

You know, you have all these billionaires backing him and certainly a lot of Wall Street, individual capitalists on Wall Street thinking they're going to be made better off by him. But also the great achievement of his re-election has been to bring into the Republican fold all of these very angry working class people.

who may stay angry if he's doing all the things he needs to do to keep the stock market high. So how does that work? I think the challenge for Trump is that he was elected by a multiracial, working-class group of voters who very clearly...

Sided with him because they were angry about high prices and inflation and thought Trump could do a better job than Joe Biden and Kamala Harris had. And if Trump is too aggressive with tariffs, with cutting taxes, with doing things that drive up inflation, that coalition could quickly fall apart. Looking at what Trump seems to want to do in his first hundred days, the focus is going to be on extending those Trump tax cuts.

Not the sort of thing I think that's going to excite a lot of the working class folks that are angry about prices at the grocery store. So the balancing act for Trump is going to be to do these exciting plutocratic things that have investors in Wall Street so happy while not angering the group of voters who moved from Joe Biden to Donald Trump because they were expecting lower prices and a stronger economy.

Do you think he can do it with this team? Boy, as a political reporter, I'm not supposed to be doing this. What should we be looking for to get clues as to how he's squaring this? I would look at the Fed and I would look at inflation rate. If inflation continues to fall, Trump will not hesitate to leap in and claim credit for it. If voters are happy, then...

I think he'll be in pretty good shape. But with Trump, there's always the risk that there's some kind of a crisis, an economic crisis, a global crisis. And his administration stocked with people, it looks like, who aren't going to be veterans of government.

You just don't know what's going to happen. And there's a lot of chance, I think, for things to go wrong. So certainly he could pull it off. Everybody was worried in the first Trump administration, as Anna said earlier, it wound up pretty good for the American economy. And so I think the hope is that the chaos will be contained and that we'll get another four years of positive economic growth. Anna, it's perfect symmetry. We've ended up with trusting the Fed as the answer to whether or not he's going to pull things off. What do you think?

I don't think we should be doing that. I think, you know, I think... You don't think, sorry, you don't think we should be trusting the Fed? I would rather not answer that question. Yes, some of the things that Trump wants to do create a tension between Wall Street and the working class, multiracial working class coalition that Josh mentioned. But there's one thing that's not in tension, which is growth.

If he manages through his deregulation, for example, because deregulation is almost like a free lunch. It does not really increase the federal deficit and actually lowers prices. It could lower prices. In fact, I just came across a very ancient document last week that it turned out that in 1974, when inflation was running at double digit in U.S., the CEA pulled together a coalition of half Republicans, half Democrats.

have Democrats to come up with solutions for dealing with inflation. And the one agreement that both sides of the aisle come to is deregulation in energy and also financial sector. And that led to two decades of wave of deregulation. So I think if Trump manages to walk that very narrow path where he's able to boost growth

without increasing inflation, then there will be no tension between the stock market and the working class people. Fantastic. Now, optimistic note on which to end, optimistic for all of us, let alone Donald Trump. Anna Wong, Josh Green, thank you so much. Thank you. Thank you.

Thanks for listening to this bonus edition of Votonomics from Bloomberg. This episode was hosted by me, Stephanie Flanders, and was produced by Summer Sadi, with production support by Moses Andam and sound design by Blake Maples. Brendan Francis Newnham is our executive producer and Sage Bowman is head of podcast. Special thanks, obviously, to Anna Wong and Josh Green.

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