Taking the Long View on America’s Economic Upheaval
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I'm not worried about the markets. Over the long term, if we put good tax policy in place, deregulation and energy security, the markets will do great.

I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is 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 there you just heard Treasury Secretary Scott Besant on NBC's Meet the Press last week doing what Treasury secretaries are supposed to do, making little of scary moves in financial markets, insisting that everything's going according to plan. But it has to be said, I can't remember many of his predecessors having to do it quite so often or so aggressively in just their first few weeks in office. It feels...

An eternity ago that the smart money in Davos at the end of January was so cock-a-hoop about the US, so bearish about everywhere else. US consumer confidence surveys were going up, so were the US markets. But as we pointed out on this podcast a few weeks ago, that has all gone dramatically into reverse and now talk of Trump's session is everywhere. But it has only been a few weeks and the

And those problems that President Donald Trump talked about on the campaign trail, well, they're not going to go away overnight. Or without some tough decisions. Traditionally, political advisors to any newly elected government would tell you, best to get those tough decisions, all that bad news in, as early as you can, as long as possible away from the next election. So this week, we did want to take a wider view on the White House's economic policies, to

to look at the Trumponomics long game. Is it possible that all of these bumps on the road are in fact taking us to a better long-term destination after all?

Well, to focus on this, I think, pretty important question. I have Tom Orlick, Chief Economist for Bloomberg Economics, sitting in London currently, but normally in Washington. And he's particularly well placed to talk about this because he spent 11 years in China learning to take the long view. So, Tom, thank you very much for joining us. Great to be here, Stephanie. Thank you.

I have to say, before we start, I'm a bit surprised to see you here. When I came on Stephanomics, you were the host. Now I've been invited on Trumponomics. I naturally assumed, given the name change, that the great man himself would be here for a discussion. But still, great to see you. Yeah, I'm sorry about that disappointment. But as we're going to talk about, he's been pretty busy.

As I said in the intro, I mean, if it was anybody else, you sort of feel like we wouldn't be very surprised that a lot of sort of negative things and difficult decisions were happening early in the administration rather than late when people have a chance of remembering them more clearly when they go to the ballot boxes.

Are you surprised, as our chief economist, how negativity has taken hold so quickly? I mean, I saw the BNP Paribas chief economist, a note of hers that's just come in my box saying it must be a record for how quickly it's taken for the Davos consensus to be overturned. Yeah, I am surprised. I think before the inauguration, there was two views about how the Trump administration was going to go. One view was that

There'd be a lot of talk about tariffs and a lot of talk about deportations, but actually the real energy and the real action would be around tax cuts and regulation cuts. And so it was going to be noisy and it was going to be raucous, but in terms of the substance, it was going to feel pretty much like a traditional Republican administration.

I think that was more or less the consensus in the markets, the consensus amongst the Davos crowd. The other possibility, of course, and I don't think people really took this very seriously, was that he'd actually try and do what he talked about on the campaign trail. Sweeping tariffs, sweeping cuts in government spending, the most deportations since President Dwight Eisenhower. And eight weeks in, it seems like we're getting that second possibility.

That's why the mood has swung so quickly from that optimism to pessimism. The manner of the execution, at least on the economic policy, I think has maybe distracted people from the kind of longer term view that we're going to take on this podcast. Because we obviously have had changes of minds, last minute delays or suspensions and exclusions for the tariffs.

Certainly, I think that's distracted a bit from the extraordinarily successful kind of institutional first few weeks of this administration. I can't think of one, I mean, not so much on the economic policy. I can't think of a first few weeks of administration which has fanned out across the departments and agencies of government.

so effectively to impose its will in such a short period. I mean, we've obviously heard a lot about Doge, but the efficiency with which this administration has approached the executive orders and the placing of people across vast swathes of government to pursue the administration's cultural and ideological objectives, let alone anything else, I think is

If you were just a sort of change consultant, you'd have to be sort of tipping your hat at how effective that's been, regardless of where we end up or what gets broken along the way. Anyway, all of that probably deserves a podcast episode in its own right. But on the core economics on which he was elected...

I think people might take your point, but they would say, look, you know, the main thing, certainly a lot of voters have been saying, the main thing we were focused on was inflation. And if anything, on inflation, you seem to be pushing things the other way. So just lay out for us the case for thinking this administration's being a bit more strategic than it looks. So I think the first thing to say, Stephanie, is that the Trump administration and Trump himself has made a compelling case for what the problems are.

Sometimes in analysis and commentary, you see a comparison between Trump and Reagan. And the implicit point is, well, Reagan was a great Republican president. He was courtly. He was gentlemanly. He was optimistic.

Trump wants to be a great Republican president. Why is he so bleak? Why is he so crude? And I think the answer to that question really lies in the very different economies which they inherited. Reagan inherited a US economy which was on the rise, a US economy where debt was just 25% of GDP, a US economy which still had a trade surplus.

Fast forward to 2025, and Trump's inherited a US economy which is shrinking as a share of the global total, a US economy where debt is 100% of GDP and rising fast, and a US economy which in 2024 had a trade deficit approaching $900 billion. So Reagan was optimistic, and that resonated with voters. Trump is bleak and pessimistic, and that resonated with voters. And when you look at the shift in the US economy, I think

you can see the reason for that transition. So I think top marks on identifying the problems. On delivering the solutions, well, I think the Trump administration can point to some early and significant wins. They can point to TSMC, the giant Taiwanese semiconductor company, which has said it will invest $100 billion in the United States.

They can point to Germany, which has said it's going to spend $500 billion on infrastructure and probably hundreds of billions more on defense. A long-term objective of the US has been to have its allies pay more for the cost of their defense. They haven't achieved it.

but Trump seems to be delivering. So they can point to some early and I think significant wins, but certainly you're right. The early days of the administration have been characterized by confusion, by missteps, by abrupt about faces. Think about the 25% tariffs on Canada and Mexico, which were abruptly removed from

That's one of the reasons why the mood has swung from optimism to pessimism. And that, as you point out, is also one of the reasons why concern about inflation is rising again, with the University of Michigan survey showing households are really quite concerned that tariffs are going to be driving inflation higher. Again, the manner of the imposition of the tariffs has not been efficient. But what can we say about the

the architecture of what he's been seeking out to do? I mean, does it have a genuine chance of addressing that sort of long-term trade gap that the US has had for so long? Because that's one of the things that he's identified as a problem. But I guess the question would be whether tariffs is the solution. So if we go to the economic textbooks, tariffs are absolutely not the solution. The economics textbooks tell us that trade balances are not determined by whether

whether you've got tariffs or you haven't got tariffs. Trade balances are determined by the relationship between saving and investment.

And tariffs don't affect that relationship. So when you impose tariffs, what happens is currencies move to maintain a trade balance, which is consistent with that fundamental relationship between saving and investment. If you look at the economic textbooks, Trump is absolutely following the wrong approach. I think if we did have Donald Trump on this podcast, what he would probably say is, well...

textbooks be damned, look at the results I'm delivering. TSMC are investing $100 billion in the United States. Apple have agreed to invest hundreds of billions of dollars in the United States. Other companies, faced with the threat of tariffs, are also thinking about moving their supply chains back to the US. For decades, the United States has lectured China about the importance of relying less on exports and boosting its own consumption.

And China's officials have listened politely and sipped their tea and basically ignored them. What's happened since Trump came into power? Well, Premier Li Chang at the National People's Congress in Beijing a few weeks ago said, the first task is to vigorously increase consumption. And he's put some money behind that. The Chinese are targeting a

fiscal deficit in 2025 of 8% of GDP, a lot more than 6%, which was their target in 2024. And Li Chang's telling us that money is going towards consumption spending. So the textbooks tell us it won't work. Trump thinks it will. Some of the early evidence is lining up behind his case.

You see, this is the difference between our economics podcast and anybody else's economics podcast. Other people, including Rory Stewart and Alastair Campbell on their Rest's Politics show last week, can talk a little bit about the Chinese economy, but only here would you get some of the key quotes in Mandarin. So I think we can chalk up some points on that one.

I think when it comes to the rest of the world, the rest of the world might differ on this. But I think if you're looking at the world through a Trumpian lens, I think you would have to say there's been movement in his direction quite dramatically so in Europe, maybe not for the reasons that...

you might want, but there's certainly been a structural change, most dramatically in Germany, its approach to defence spending, even at the cost of overturning or ignoring for those purposes, its long standing limit on debt. And as you identify also a quite significant change of trajectory in China. At home in the US,

Can he also point to any wins? I mean, some of the other things he's identified, the cost of government borrowing, oil prices, low oil has been a theme of Donald Trump's pretty much all of his political and business career, the high level of the dollar. How's he doing on those things?

So I think it's a mixed picture, Stephanie. Think about the stock market. Trump in the past, when the market has been going up, has viewed the stock market as kind of a daily report card on his performance. Well, since Trump came into power, the S&P 500, the Nasdaq, they haven't cratered

but they are markedly down. And that's the market saying, you know what? All of this uncertainty isn't going to be good for growth. All of these tariffs aren't going to be good for company profits. We're not optimistic.

If we look at the dollar, well, Trump's views on the dollar are a little bit, you'll be hugely surprised to hear me say this, Stephanie, Trump's views on the dollar are a little bit internally inconsistent. On the one hand, he would like a weaker dollar to support export competitiveness and reduce that trade deficit. On the other hand, he would like the dollar to retain its status as a global reserve currency so that US borrowing costs stay low.

And those things point in different directions. What's happened since the election? Well, he's got the weaker dollar. Probably not for reasons that he would like. The dollar is weak, not because the markets are acquiescing in his desire to boost export competitiveness, but because they're more pessimistic about the outlook for

for the US. And on oil prices, well, Trump wants cheaper oil prices. I think we all want cheaper oil prices. Certainly US households want cheaper oil prices. He thinks that drill baby drill, slashing regulations on oil producers in the United States is going to be a driver of increased supply, and that's what's going to bring prices down. Oil producers are

Well, they're not so certain. They'd certainly take the cut in regulations, but whether they're going to increase production, that's a different question. So far, though, oil prices have come down from around $80 a barrel when he was elected to around $70 a barrel as we're recording today. So again, a move in the right direction, though not necessarily a reflection of early success for Trump's policies.

Does it matter that these things are happening for the wrong reason, especially if it's early in the term? Famously, the good economic news that was in the economic statistics last year was not being felt by American households and apparently was not felt in the results of the election either. Now, if there's some underlying bad news, which is ultimately

altering markets, pushing down the long-term cost of borrowing, cost mortgage rates. Is it possible that people will actually notice those things and not the negativity in parts of the real economy that's leading to them? And he will end up with the kind of positive trajectory from here that many governments would like to have. You get your bad news in the first...

six months, nine months, and then everything seems to be getting better as you approach the next election. I mean, in the previous Trump administration, and we've talked about it in the past with your chief US economist, Anna Wong, and others, you had a different ordering where you

The sugar rush of the tax cuts was all really quite early on in the administration. And some of the negativity caused by the tariffs, as Anna has pointed out, well, that was delayed because of the legacy of the tax cuts sugar rush. But actually, some of the bad news was coming in even before COVID. You know, in the latter part of the administration, you were actually starting to have the bad news, which is exactly what you don't want. So this could be another way in which

the administration has learned from the limitations they hit in the first administration? Do you think that's a stretch? They've got their timing better this time? I think there's certainly something in the idea that

getting the bad news out of the way ahead of the midterms is a good political thinking from the Trump administration. I guess the nuance I would introduce is I don't think we've had anything like all the bad news yet, right? If we think about the drop in the stock market, the fall in the dollar, the dash into US treasuries, it's all because of noise, uncertainty, uncertainty

sudden about faces, we haven't actually had the big policy shock yet. April the 2nd is when we're getting the major tariff announcement, potentially a significant increase in tariffs on all of the major US trade partners, including Europe. And

On public spending, well, Elon Musk and his Department of Government Efficiency have certainly put the fear of God into all of the federal employees in Washington, D.C., and they've certainly captured a lot of headlines.

But even based on their own estimate, which many analysts are sceptical about, they've only saved a little bit more than $100 billion. And that's really pretty insignificant relative to the size of the cuts in government spending, which Trump is going to need to deliver if he wants to get the fiscal deficit from 6.4% of GDP, which was where it was last year, down to 3% of GDP, which is where Scott Bassett says it has to be. So taxing

tactically, politically, getting the bad news out of the way first is a good idea. But the caveat I would introduce is if you think the bad news we've had so far is all the bad news, well, I've got some bad news for you. To return to where we started, he has identified some pretty fundamental problems with the US economy, with the US economic model.

And he has started to address them one way or another, if he's made significant progress on those in two or three years' time or four years' time. Just as the Chinese do judge the results of their policies over many years, sometimes decades, rather than a few weeks and months. All of this will be forgotten, right? Yeah, I think that's true. Stephanie, do you mind if I come at you and Trumponomics listeners with another historical analogy?

We live for historical analogies. Okay, great. So look, Paul Volcker, he was the son of a lowly county clerk or city official. He was a cigar chomper. He devoted his life to public service. So at

at first sight, there's not much to suggest an analogy between him and Donald Trump, the son of a millionaire, teetotaler, and on the evidence so far, not someone who has a huge amount of respect for people who devote their lives to public service. But I think there is an analogy which is worth thinking about. Volcker came into office as chair of the Federal Reserve and he faced a huge problem. Inflation was way too high.

And he said, you know what, I'm going to get this under control and there's going to be a huge cost to doing so, but it's going to be a price worth paying. And he jacked up interest rates to 20% and unemployment soared to 11%. More than one in 10 US workers were out of a job, but it did the job.

and inflation came back down and Volcker had laid the groundwork for decades of increasing US prosperity. And when people look back at that period now, they don't remember the missteps and the pain and the uncertainty of those initial moves to jack up interest rates. What they remember is the vision and the determination and ultimately the success. Right now,

With Donald Trump, the focus is very much on the missteps and the uncertainty and the transition costs. But if, and this is a really big if, at the end of his four years in power, he can point to debt coming under control, deficits coming under control, and a world which is more secure because US allies have stopped free-riding and they're paying their share for the cost of that security, that's what his legacy is going to be. ♪

A straight line from Paul Volcker to Donald Trump. Well, if there's a test for a good podcast, it's surely to take people to a destination that they find unexpected and could never have predicted. And that's surely, we've done it on this occasion. Tom Wallach, thank you so much for joining us. Great to be here, Donald. Sorry, Stephanie.

Thanks, as ever, for listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined by our chief economist, Tom Orlick. Trumponomics is produced by Samar Saadi and Moses Andam, with help from Chris Martlew and Amy Keene, and sound design by Blake Maples. Brendan Francis Newnham is our executive producer.

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