Former US Treasury Secretary Lawrence H. Summers Talks Tariffs
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This is Bloomberg Markets. I'm Bonnie Quinn. We want to bring you an interview now with Wall Street Week host David Weston, who's standing by with former U.S. Treasury Secretary Larry Summers. David. For our Bloomberg audiences worldwide, I'm David Weston. I am joined by former Treasury Secretary Larry Summers of Harvard, a special contributor here on Wall Street Week. Larry, thank you for being here. It's a big day, whatever we want to call that day, a liberation or something else. This afternoon, we're due to hear about the tariffs. First, set the stage. What's at stake?

These are very consequential economic policies. They're consequential for prices. They're consequential for employment. They're consequential for America's foreign relations. They're consequential for national security. And frankly, I think the question is mostly how much damage is going to be done.

You know, if you think about it, David, it's kind of a remarkable thing that this is the centerpiece of their economic program. And they're so nervous about its market impact that they have to announce it after the markets have closed. So it seems a kind of bizarre strategy, which...

I've been watching government policies a lot. I've never seen an announcement that was delayed until after the market closed.

where the government was the one that was making the announcement. And frankly, it's a bit naive as a strategy since the indices and the futures continue to trade. So insofar as there's a market impact that's playing out, we'll still see it almost immediately. You're a distinguished macroeconomist with a lot of extensive experience in Washington dealing with the economy. What would you normally expect if

if, as predicted, we have substantial tariffs, however they're purged out. We have a supply shock. Is that related to a demand shock? So, as far as markets are concerned, it's all going to be about what happens relative to what people expected. And markets have traded down a lot over the last couple of weeks because people think that this is going to be bad. As far as the economic impact is concerned, the proximate impact is higher prices.

When you have higher prices and people's incomes don't adjust immediately, they have less money to spend on other things. And that means less demand. And that means fewer people employed. And that means less need for capacity expansion and less investment. And so this is a classic supply shock.

The basic economics of this situation are just like the economics of an increase in the price of oil, which is always seen as the classic example of a hard stagflation kind of problem. And of course, it puts the Federal Reserve in a very difficult position because usually all the signs go one way. But when inflation is going up,

that would be a reason to raise interest rates. When unemployment is going up, that would be a reason to reduce interest rates. And so it puts the Federal Reserve in a very difficult position. So we'll have to see how these tariffs are administered, just what form they take before we can make an estimate of what the cumulative impact is going to be.

The direction of the impact is, I think, something that almost all economists would agree on. What is also surprising about this is that

Yeah, economists always think protectionism is bad, but not all protectionism is equally bad. And a bunch of what the Trump administration is doing is, seems to me, bad within the category of protectionism. Think, for example, of the tariffs on steel and aluminum.

Sixty times as many people work in industries that use those inputs as work in industries that produce steel and aluminum. So when you tariff inputs to American producers, it's not even good mercantilism.

You're reducing the competitiveness of the producers. And so even if you just focus on things in terms of competitiveness and you don't think about the consumer interest at all, you're doing something that's counterproductive. And the other thing is, this is like a football team that's trying to run a play in practice without a defense.

This is going to hurt our economy before we get to any possible retaliation. And it's clear from what's been said, whether it's Canada or whether it's Europe or whether it's China, that there's going to be retaliation, perhaps retaliation in tariff forms, perhaps retaliation in terms of discrimination against other customers.

And on top of that, you have the psychological effect. You know, there's data in the last few days suggesting that just because people are angry and upset

The demand for Tesla's is down significantly because people are unhappy with Elon Musk. Well, that kind of effect is going to attach to American producers around the world because everybody's thinking that their traditional friend has turned against them. So this is this is the kind of thing you discuss.

in the way we would usually discuss an oil price spike or an earthquake or a drought as a supply shock, but it's a thing we're doing to ourselves.

This is not the only action from the Trump administration that's causing a lot of turmoil. One of them is close to you and you've talked about, and that is the move by the administration against certain elite universities, including your Harvard, with a possible, as I've seen it, possibly $9 billion up for review. What are your thoughts about that? Look, there is a lot that should be fixed.

at Harvard and should be fixed at other elite universities. And in some ways it is shameful that there hasn't been more done to address anti-Semitism, that there has been real excesses on DEI and the universities should have done more, much more quickly to address that. Make no mistake, David, this is

an authoritarian attempt to chill and punish potential adversaries. President Trump and his administration have made common cause with the neo-Nazi AFD.

There's a track record of who they've been in contact with and who supports them. This is not a genuine concern about anti-Semitism. And this is not a genuine concern about universities. They're going after judges, they're going after law firms, they're going after companies. So this is an attempt at being authoritarian towards your adversaries.

And what we know from history is that there's a lot of contagion. When people capitulate, people decide it's hopeless and more people capitulate. When people have rectitude and stand up against it, it gives others strength. If Harvard University with a $52 billion endowment, with its enormous prestige,

with an alumni network in every aspect of American leadership second to none, if it cannot resist this authoritarian tendency, who can? So there is an enormous amount that is at stake here. Okay, Larry, thank you so very much for being with us on this important day. That's Larry Summers, former Treasury Secretary now of Harvard. Back to you.

And our thanks to Wall Street host David Weston and former Treasury Secretary Larry Summers.

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