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understanding the tariff plans of President Trump
and his administration is a challenge for many
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people and many companies to try and better
understand it a pleasure to be joined here in
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studio by Jo Gomesh who is a finance professor
and senior vice dean of research centers and
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academic initiatives here at the Wharton School jo
great to see you again how are you good to see you
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Dan thanks for having me okay so we're a while
into this now how have you viewed I guess the
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process that we have seen play out the process
you said hard to understand and I think I think
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purposefully hard to understand so the process
is gamesmanship no question i I've been trying
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to focus on what's the end game and trying to
understand where we're going to land and struggle
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with that to be honest um the process without
question is to create confusion to play a game
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where and and and there's really good economic
theory I have to say behind it saying that you
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know if if if we're playing these kinds of games
and your adversary doesn't know what you're going
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to do and is actually frankly nervous of of the
outcomes this is actually a very good strategy so
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I I I can't blame the president for thinking this
way it's it's maybe a little you know one of those
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examples where a little knowledge is a little more
worrisome than than having a lot of knowledge but
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but there's a lot of good theory for this and and
and the president is also right i will give him
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credit in saying that other countries have a lot
of non-tariff barriers against us the Europeans do
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a lot of countries in Asia do and and and again a
lot of economic theory would say going back 50 or
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60 years that if countries do not have free trade
it's not necessarily optimal for you to have free
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trade and and you should think through that and
and and I think as a result you can't look at
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this and say this is totally doesn't make sense
you make there's lots of arguments why it makes
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sense having said that I don't think the trade
deficit is a big problem for us i I I think it's
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an obsession not a problem um but the reality is
tariffs are here to stay i think it's a question
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of how how large against whom and and for how long
but they're probably here to stay all right so
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you mentioned the trade deficit which obviously
draws a lot of attention a lot of people would
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say there's an element of having a trade deficit
which is actually a good thing when you're doing
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international trade but I guess the question is
where is that level of you know not having too
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much or or too little it's a really good question
and clearly context matters the context here is
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this is the USA we have the reserve currency
uh a trade deficit is much less of concern for
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us and and is the result of a lot of corporate
optimization of supply chains to a large extent
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you know Apple has its iPhones manufactured
elsewhere they could have had them done here
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they don't want to because it's not efficient it's
not profitable it's not the best way to supply
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the cheapest possible product or the best possible
product for American consumers and world consumers
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the trade for us I don't see it as a problem it is
an obsession it is unfortunate that my profession
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economists have not been able to explain to people
that the trade deficit is not a major priority
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and a major concern it's not the reason why some
people are struggling in the US it's been on net
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a positive thing um but clearly has attracted
a lot of negative publicity and we're dealing
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with trying to cure what it's not a disease what's
more what's the most likely outcome then because I
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think some people are already saying that if there
is a level of tariff that the United States is
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putting on other countries that maybe it brings
the other countries back closer to where we are
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and maybe that kind of eases the the the feelings
amongst everybody yes that's the main thing I'm
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struggling with what is the objective of this
president and the people close to him i'm actually
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not sure and I'm not sure and as a result I don't
know what the end game is one objective could be
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we impose tariffs the dollar appreciates we still
have a trade deficit but we effectively maybe
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the other countries pay a lot of revenue to our
treasury and and you know it could be $200 billion
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$300 billion um that could be a great objective
to have um we don't have to raise taxes elsewhere
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um that would that's a sensible thing from our
point of view and be great for the rest of the
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world but but that's a defensible thing another
one is to say "No I want I don't want to depend
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quote unquote on the rest of the world and I want
imports to go down." Right if you want imports to
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go down then you you are dependent on these goods
being made in the US and and it's I think it's
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a belief of this of this presidency that doing
business in the US is incredibly desirable our
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institutions are fantastic we we we have a really
good governance we have really good markets so
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people will come here you know if if we can't make
cars in Germany or Japan and send them here we'll
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just build more plants in the US the jobs will
come i think it's a belief i'm not sure the data
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will support that um we may have to find out i I
hope not because I don't think it's true in terms
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of the use of tariffs there's also conversation
about going back in time to the days of Smoot
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Holly because the times are so different is there
any way you can correlate what we saw back then
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and make it similar to what we're seeing right
now i've been very very skeptical and and and and
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frankly also critical of my colleagues that have
tried to do that and and I I think I I I think
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there's good reasons to be skeptical terrorists
are a good thing there's real issues with them i
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I don't see any particular advantage other than
raising tax revenues which is an interesting
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objective the president hasn't really talked
much about uh but a comparisons with a hundred
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years ago when we were a very different economy
and and we were in the middle of a depression we
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had the gold standard uh it's just so different
i think very little can be learned from that i
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think it's a it's a useful scare tactic if you
but it's I think it's a really bad analogy and
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and I think the other thing that a lot of people
are starting to talk about is the uncertainty that
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it brings just in general we've obviously talked
a lot about how the markets don't like uncertainty
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this is that next level of uncertainty kind of
coming into the economy as a whole absolutely
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and I think this is the one thing that probably
blindsided the president and his adviserss i
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think the sense that uncertainty is good from a
from a negotiation standpoint but it has created
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a lot of damage to the US economy there's no
question businesses are paralyzed corporate
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spending consumers importers uh we're waiting to
see i mean what's the point of importing something
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right now from China if the tariffs are 145% today
and maybe 10% in 6 months i would just wait so
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I think there's paralyzed markets and and that's
done real damage to the economy we have to be seen
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how big how important then do the the role that
the CEOs of companies here in the United States
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play in terms of having those conversations with
the president about maybe things that they should
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look to tweak and the auto industry is obviously
a huge right now yeah i I think I think absolutely
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I think that's the crucial role I would say
absolutely crucial role and and I and I wish
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more of the people close to the president would
be would be listening to that and listening what's
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happening in small businesses all around the US um
absolutely crucial yes all right so take out the
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crystal ball if you'd like for a moment or two yes
and what are your expectations on what you think
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we might see play out here over the next several
months several months i don't know okay i think I
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know I think I think I No no i I think I feel more
comfortable thinking 18 to two years 18 months to
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two years i think the endgame is some tariffs
are here to stay i think they are addictive
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they're also addictive for every country in the
world the truth is governments need revenues and
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once you see the amount of revenue the tariffs
bring I think Democrats will be as addicted to
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them as Republicans are or are likely to be so the
tariffs are here to stay in some form 5% 10% um
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across the board targeted I don't know but tariffs
are definitely not a thing of the past not a thing
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of the moment uh now this uh fever of I'll put a
bigger tariff on you than me and and this sort of
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sense of I I need to strike a deal not strike
a deal i don't know how that plays out uh over
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the next six months but I'm fairly comfortable
we're going to be here two three years out and
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we'll have tariff we'll have a different regime
where there's going to be more higher tariffs
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around the world there'll be some nice trade deals
possibly with some of the countries that are more
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desperate to do business with us i think India
is a really important um case in point there um
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so I I am generally optimistic that the worse is
over i think it was a useful lesson in how not
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to provoke the gods the market gods um so I I'm
I'm genuinely optimistic about that but I think
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we're in for six months of uncertainty jah great
to talk to you again thanks very much thank you
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Dan thank you gomez who is senior vice dean and
professor of finance here at the Wharton School