Tariffs will damage economy 'by definition': Former US trade rep

00:00 Speaker A

I guess what I’m curious about is whether this is a more fundamental, sustainable, long-standing change to US foreign policy and trade policy that you think is going to last perhaps even beyond President Trump or are we going to get at some point a return to sort of more traditional ways of doing it?

00:26 Speaker B

I think it it will depend in part on what the economic implications of these actions turns out to be. As your previous speaker said, how much more inflation is there, what’s the impact on reducing productivity, does it slow US and global growth, what companies and and sectors go out of business here because they can no longer afford to produce their product competitively and how do you balance that against what the president hopes to achieve, which is to drive more manufacturing and more investment in the United States. If if uh if if we see the negative economic implications play out as most economists expect over the next couple of years, then I think the pendulum could shift partly back in the other direction, not all the way back. If however it turns out that uh that the president’s able to achieve his objectives without raising, increasing the cost of living, without putting us into a recession, then this may be the new way of doing business going forward.

02:14 Speaker A

Um you know, when you look at figures from the Yale budget lab, which a lot of folks have used as their sort of benchmark, they their estimate is that the effective tax rate um given what we know now is going to be right around or tariff rate, I should say, is right around 18% which would be effectively the largest tax increase that we’ve seen what, since the 1930s. So you know, how how do you think this will play out? Will our negotiating partners also be able to use that at some point as leverage in some of these discussions?

03:21 Speaker B

Well, I think that’s right. I mean at the beginning of the Trump administration, the average applied rate was something closer to two, two and a half percent. So we’re going from two and a half percent to 18%. And obviously, it varies a bit country by country and product by product, but fundamentally, the economy is become, going to become by definition, less efficient, more expensive, more fragmented, and that’s going to have implications for American households, how much they have to pay for basic goods, and for American manufacturers who rely on imports as critical inputs into our manufacturing process. So seeing how that plays out, I think, will be very important. And as you said, if it has uh a significant economic downside implications, then I think our trading partners have a degree of leverage to renegotiate these packages in the future.