On Bloomberg, economist Betsey Stevenson shreds Trump's tariff war: “Calling them reciprocal tariffs is completely misleading”
Stevenson: “The American consumer pays the prices.” ... “If you want to support American manufacturing, you don’t do it by making all the ingredients in American manufacturing more expensive.”
Published
Citation
From the April 7, 2025, edition of Bloomberg's Balance of Power
KAILEY LEINZ (CO-ANCHOR): We want to get more on what is happening not just in these markets but what markets are signaling about the forward look on the economy. Betsey Stevenson is joining us now, she’s professor of public policy at the University of Michigan, also a former member of the Council of Economic Advisers during the Obama administration. Betsey, welcome back to Bloomberg TV and Radio. As we consider here the idea that President Trump today has floated even higher tariffs on China than previously thought, potentially reaching 104%. With this current regime assuming there’s no backing down, is this a greater inflation risk or a growth risk to you?
BETSEY STEVENSON (GUEST): Oh boy, that’s a really hard question. I think that’s why no one knows what the Fed's going to do. There is clearly an inflation risk, and we know that these tariffs are going to bring inflation. Of course, what they bring is a one-time jump up in prices, and so the Fed has to ask, can we look through this period of inflation? Can we say transitory again, ignore it, and then focus on the growth?
Because there’s clearly going to be a big hit to growth.
The challenge I think that the Fed has is that it’s just not a hundred percent sure what it should be doing. Does it want to try to stimulate demand in this environment? Does it want to slow demand down? You know, if I was there, I'd be more worried about the risk to growth, because, you know, unemployment has long and permanent effects. So, I would really be focused on that.
But equally, I think what they are going to have to be looking at is not what do people expect for inflation this year — we all know inflation is going to be higher this year — but what do we expect is going to happen to inflation in 3, 4, 5 years? And, we have very fragily anchored inflation expectations right now. If they see that fragility getting even worse, I think they are going to turn to making sure that they keep those anchors in.
JOE MATHIEU (CO-HOST): We heard from Kevin Hassett over the weekend. He did Sunday morning television, Betsey, and suggested that the phone is ringing off the hook at the White House. And if you listen to what he said, you might envision a world where there is no tariffs in the near term. Let’s listen.
...
MATHIEU: What's your thought on that? We know that the president spoke with Japan earlier today, he is meeting with Benjamin Netanyahu now. We get to the end of the week, let’s say these fifty leaders cut deals with the president. Does he look like a genius, market’s up 1000 points?
STEVENSON: No. So, I will start with a simple thing. I don’t even think Kevin Hassett believes what he was saying.
Why are countries coming to the table? Not because they think they are going to absorb the price increase, but because when prices go up all around the globe, we all sell less. The stock market is not falling because they are worried about having to pass through prices on to consumers. It’s that when you pass on high prices — if the price of Nikes go up 30%, you know what people are going to do? Buy fewer Nikes. So, even if they are passing all those prices on to consumers, it’s not good for Nike profits because people don’t buy their product. And that’s what countries all around the globe are worried about, it’s about the shrinking of trade, not about who’s paying the prices.
The American consumer pays the prices, and the administration even believes that they pay the price, because they are talking about the great gain in revenue they are going to get from from these tariffs. So, they know that the tariffs get paid here — that it's not not going to show up in terms of hurting some other country.
So, then you said, wait, could Trump be the genius who eliminates tariffs? Tariffs were incredibly low before Trump started all of this.
I think the reason he has shocked markets so much is because everybody thought oh yeah, maybe we’re going to get 3%, 4%, 5%, 6% tariffs, that’s going to be a huge increase compared to the past.
But not these numbers, that are like early 20th century tariffs. Nobody expected them, because they are enormous. No other country has them. Calling them reciprocal tariffs is completely misleading. It’s not — Vietnam is not charging us 46% tariffs, which is what we put on them. They are charging us like a 1.5% tariff. So, is he a genius if that 1.5% tariff goes away at the cost of all the turmoil he's caused around the globe? I don’t think so.
LEINZ: Well, one of the things he argues is that this brings back more manufacturing to the U.S.
My question, Betsey, is when you consider that there’s tariffs on actual raw materials, like steel and aluminum, potentially lumber coming down, what impact that would have actually on the the ability to build out that infrastructure, let alone to find the labor force to build those factories or populate them, ultimately when construction is done, given some of the other efforts around migration, specifically, in this country.
How easily can it realistically be achieved if some of those barriers are put into place?
STEVENSON: Everything you said is exactly right, and let’s add on top of it that it takes several years to build a factory and get it up and running. We are not talking about building factories in the United States where we assemble Nikes, we are talking about paying more for Nikes.
Even if he is talking about protecting American manufacturing, he is hammering the American auto industry with this. They are suffering more because of all of the tariffs on the components of cars. Look, we cannot have a car or even a bicycle without imports, because we don't have rubber in the United States. So, what are we supposed to do to actually move that car down the road, if we don’t have wheels? It’s just not, you know, it doesn't make any sense. If you want to support American manufacturing, you don’t do it by making all the ingredients in American manufacturing more expensive.
MATHIEU: Betsey Stevenson was ready for this conversation. Professor of public policy, economics, University of Michigan.