Welcome to politically speaking.

I'm Elizabeth Benyon, chancellor's professor of political science and director of community engagement at Indiana University, South Bend.

Today, we're joined by Doctor Jeff Campbell, an economist and professor of economics at the University of Notre Dame.

We'll be discussing President Donald Trump's proposed economic policies for his second term in office, including his promises on tariffs, tax reforms and interest rates.

We'll consider the possible payoffs and potential pitfalls of Trump's proposed policy.

How's that for a literary?

Perfectly poetic perfect.

Thank you for having me.

Thanks for being here.

I do want to start by talking about Donald Trump's promises regarding tariffs, either new ones or expanded tariffs.

How historically are these used in trade policy?

And as an economist, what's your perspective on that?

Well, I mean historically they're used in trade policy in a very different way than President Trump is proposing.

Historically either uses very targeted rewards to certain industries or certain groups of workers.

And what President Trump is proposing is, truly unprecedented.

And thinking about a broad tariff policy, which I think of as more as macroeconomic, designed to change the, relative, well-being of workers in manufacturing industries and other industries where there are heavy competition from imports.

Vis-a-vis the rest of us who don't compete against imports.

And so the idea here, in terms of Trump's plan, would be to protect, American workers and wages keep jobs here.

Is that, possible?

Probable in a global economy?

Do we what do we know about how that might work out?

Somewhat possible, but not guaranteed.

Okay, so it's, a a a tariff is in some ways very similar to a minimum wage.

It's it's a it's a, restrict it's a regulation of how we trade that is designed to give benefits to one set of, of workers at the expense of consumers or other workers.

Okay.

And those can be done well or poorly.

Okay.

We could set a minimum wage of $100 for fast food workers, and that would be done poorly because they would quickly get, replaced with machines.

Okay.

We could raise it to $16 an hour.

That's a little less dramatic.

And that would be done be that would be probably more beneficial on average for those who kept their jobs after the minimum wage.

Just so with tariffs, I like to think about whirlpool, a local company.

They're actually at the intersection of two great historical, tariffs on washing machines and other white goods and on steel.

So they use steel as one of their, basic inputs into building the white goods.

Now, if we put a tariff on steel and raise the price of steel, that's generally going to hurt Whirlpool's bottom line and, worsen the situation for their workers.

Okay.

If we put a tariff on washing machines, that's going to ease the competition they get from LG and Samsung and generally improve their bottom line.

Okay.

So as an individual, a worker or firm, the details matter.

Now what President Trump is proposing is something like an across the board tariff.

And that's going to be on in general more beneficial to those very low, lower income, manufacturing workers, because there's going to be fewer opportunities for producers and consumers to work around them.

I mean, think about what would happen if you, put a tariff on steel again.

Well, we can import the steel as washing machines then, and that would really hurt whirlpool workers.

Okay.

Whereas if we put the tariff across the board, there are a few fewer opportunities to evade it.

Now there's another opportunity to evade it that could undermine everything, which is so called trade, trade diversion.

Okay.

So, President Trump has talked about putting tariffs on China, on Mexico, on Canada.

Okay.

Fine.

So if he puts a tariff on China, China could turn around and sell a bunch of goods to Europe, and then Europe could increase its exports here.

We've actually not changed the total volume of imports to the US.

In fact, we've just diverted.

We've made it go through a roundabout, path to get here.

Okay.

That could have some other effects.

And I'll talk about those maybe if you want.

But, there are a lot of moving parts, and so it's, it's it could go well if it go poorly, depending on how it's designed and how it's implemented.

Let me talk about those tariffs.

And it is essentially a fee or a tax on those imports coming in to try to make the American goods cheaper, but well to make the American goods more competitive, more competitive.

Yeah.

And so if that happens and you put the place a huge tariff on goods from China, for example.

Yeah.

Wouldn't that drive up those consumer prices on goods that are currently made in China?

Well, basic theory says yes, but we need to go to practice as well.

Okay.

And in practice, we didn't see a large fall in prices when China acceded to the WTO.

We also didn't see a large fall in prices when Mexico joined NAFTA, which before NAFTA was a candidate.

Canada-U.S. Free Trade Agreement.

And, the so what we've seen and experience is that many of these, changes in tariffs get absorbed by producers in their markups and that prices don't change a whole lot.

So I'm actually not expecting very much of a change in, in prices, following a, substantial tariff increase.

Oh, you're talking about imports.

Exports.

Who imports.

Who exports.

What about this notion of retaliatory tariffs?

If, President Trump decides to place tariffs on particular nations such as China or Mexico, some of the leaders of those nations have said, well, we'll place a tariff on goods from the US.

Yes.

What would that mean?

And do you think that's likely?

Well, that's obviously an attempt to pressure, American officials into dropping their tariffs.

Okay.

And it's a little bit like, back in the cold War, mutually assured destruction, where I promised I was threatened to blow you up and you threatened to blow me up.

And the idea is, neither of us does it, because we're both afraid the other one will carry out the threat to do that.

You've got to convince people that you're kind of, well, homicidal and a little crazy.

And, the winner of that kind of battle is the one who can convince them.

Convince their their opponent that they're more homicidal.

I'll leave it to you and the viewers to decide whether Justin Trudeau or Donald Trump has the edge on that competition.

And so that is where it becomes that art of politics, of persuasion, and try to convince that that that person should be the first one to blink, because you will, like in any other negotiation.

That's right.

Now, one of the really interesting things about retaliatory tariffs is that you have to you have to worry about who you're retaliating against.

Okay.

So if I say, I'm going to pick this a bit out of thin air.

If, somebody decided to put a tariff on California wines, I'm not sure President Trump would care very much.

California didn't vote for him, and I doubt that Sonoma Napa voted for him, so I'm sure he's happy.

He'd be quite content leaving them with the pain of not being able to export their goods.

That's a speculation.

But and so that's the kind of decisions that are, of course, political.

These are entirely political.

And these domestic considerations matter.

We shouldn't think about this as America versus Canada or America versus Mexico, but rather Donald Trump and his administration and the people who voted for him, doing battle with Claudia Sheinbaum and her administration and the people who voted for her and her interests.

And that's very interesting, because we often do hear this discussed as simply an America First policy.

But you're saying it's much more complex than that.

It is much more complex than that.

I mean, America First is a good guiding principle, to the administration's, plans and priorities.

Okay.

When there's a lot of talk about international law and order and rules of the road, and President Trump has made clear that he believes and those who voted for him believe that the rules are no longer serving America's interests.

And America first, in that case means that, either the rules change to serve our interests as we see them or we, take ourselves out of them.

Now, consumer prices are subject to a wide number of factors.

And what kinds of things can, president do that would help to control consumer prices so that people aren't, as concerned about their purchasing power and eager to punish the president's party at the polls.

And also, what, if anything, can the president do to control inflation?

Obviously, the Trump campaign, talked a lot about inflation, although it has been coming down, there is still a dissatisfaction about costs.

And that helped, we think, helped Donald Trump to win the presidency.

And so he said recently in an interview with time magazine that it's maybe hard to bring prices down at the grocery store.

So what is it that he can do?

And that American politicians can actually do?

Well, I can see with $9 eggs in some parts of the country that people are concerned with their with their grocery bills, and they see prices up a lot since, 2021.

I get asked frequently when our prices come to come down.

And I would say there are two things that an administration can do to help that, in this current situation.

Thing number one is simply peace in Ukraine.

Okay.

Peace in Ukraine would, free up international energy markets and lower the prices of oil.

And that's going to directly impact consumers budgets, especially low income consumers who spend more than their average share on gasoline.

And, it'll trickle through to other sectors of the economy that use energy as an input.

Okay.

The second thing is to, deregulate some and lower the cost of production.

Okay.

We've all heard of the Costco butter problem, where it didn't say, may contain dairy and that had to be recalled.

Okay.

Those kinds of regulations drive up costs.

And the more we can do to lower costs, and hopefully those will be passed on to consumers.

Although, again, there's always the worry that it gets absorbed in markups instead.

The better off consumers will be.

But ultimately.

So those are two very real things that that an administration can do.

Some follow up just quickly on that point of regulation.

Obviously, consumers are concerned about food labeling, food safety, some environmental standards of the plans that are producing goods.

And so what kind of regulations are, you talking about when you talk about reducing regulation a bit about food safety?

That maybe we could back up a little bit on, some of the more onerous ones, but mostly I'm talking about environmental.

Okay.

It's very difficult to build in this country without a very long environmental permitting process.

Anything that's substantial.

I think a good example of that is, President Biden's failed, rollout of electric vehicle charging stations where there was an enormous budget for those, I think it was something along lines of $40 billion.

And we have about 500 charging stations to show for it.

Okay.

And why was that?

Because there were many regulations and, social programs attached to that, minority contracting, environmental standards, other such things.

And the fact is, those extra regulations got in the way of achieving the mission.

And so taking a look at the regulations and asking, are the regulations getting in the way of achieving the primary mission of feeding, clothing, housing and warming?

The American people, I think, is probably the right thing for the administration to be doing.

So are you are you saying that racial equity or, clean environment are not important goals, or that there are different, better, more efficient ways to achieve those that don't get in the way and be better ways of achieving those that don't get in the way of the economy.

Let's talk about the environmental side first.

One of the, most robust facts and environmental economics is that rich people demand a cleaner environment.

Okay.

One of the best ways of cleaning up the environment is to make people rich.

And when people become rich, they will take it on themselves to use their local governments and their own decisions about where to live and where to work and what to do to make their own environment cleaner.

Okay.

So that's, that's an overlooked, path towards environmental improvement.

And then in terms of, racial equality and gender equality, of course, those are desirable goals and we want those.

But if the pursuit of racial equality means that the charging station doesn't get built, then no one's been made better off.

And we haven't achieved any racial equality either.

So prices you didn't say tariffs would be the number one factor.

But the war in Ukraine, something people sometimes don't think about regulations.

And then you had another of course.

The fed is in charge of our country's monetary policy.

Milton Friedman wisely said that inflation is everywhere and always a monetary phenomenon.

So ultimately the fed controls the money supply, the fed controls credit conditions and the fed the the the settings for those controls influence the general level of prices or the purchasing power of a dollar.

And so the fed is has set itself a target of 2% inflation on average over I think it's it's called the medium term, which I interpreted as about three years.

Okay.

So the fed is going to be a key player in keeping inflation under control.

Back in 2019 they adopted a policy called average inflation targeting, which meant that a period of higher than average inflation like that we experienced in 2122 would be followed by a period of below target inflation, which we haven't experienced.

Now they adopted that policy.

I actually helped write it.

But it has not really been followed.

Okay.

And I honestly don't expect them to follow it.

If they did, we might see the prices of the dollar, prices of milk and eggs, actually declining some from these highs.

I unfortunately believe those prices are high and they're going to stay high.

And the fight against inflation is now a fight to stop the failures of 2021 and 2022 from continuing into the late 2020s.

Now, as I understand it, we don't want to have negative inflation that could even drive the value of our currency down.

It could create problems in our work.

Could you talk a little bit about that?

I mean, the fed has this difficult line.

The fed has a difficult line to walk.

They don't want an inflation that's too high.

Both because that degrades the purchasing power of, people's incomes and because at least in the short run, until they get raises, the catch up with that, and because it, distorts the prices of goods where that are, where the price is changing all the time, like gasoline and bread, from the prices of things that, don't change all the time, like your rent and your electricity bill or have or your natural gas bill.

So they don't want to hype inflation, but they also don't want too low inflation either.

Too low inflation comes with some very particular risks, which is called a, a, debt deflation spiral, which is that, if inflation, if prices fall, we could end up like we did in the early 30s, where the real value of people's debts increases and they find it much harder to service those debts than they default.

And we end up with a financial crisis as well.

So they want to find a fine line here.

And after a lot of consideration and a lot of research, the fed adopted under Chairman Bernanke a 2% inflation target.

Okay.

So that's the number that's shooting for right now.

Inflation is running between 2.6 and 3%.

Now that doesn't sound like a whole big difference.

But if you compound that over a long time, that ends up with a large difference in the purchasing power of people who have invested in dollars, and now the fed it or the Federal Reserve is trying to control inflation through interest rates as well as the amount of money available to borrow.

Yeah.

Donald Trump has ideas about what those interest rates should be, and has indicated that he would like to send signals to the fed of what those rates should be.

I suppose presidents always want to do this, but is the Federal Reserve independent enough to withstand pressure if they disagree?

That's a great question.

They'll tell you, of course, that they are.

Okay.

A friend of mine who is a Federal Reserve governor has said, President Trump is is free to complain about our policy and we're free to ignore him, which they are legally.

Okay.

On the other hand, I say there are two considerations limiting the Fed's independence.

One is that it's going to be very difficult to, run the fed if you have open disapproval from the administration.

Okay.

That's a challenge that shouldn't be underestimated.

And the second is that the president does have the power of appointment, and he will get to use that power very soon.

When Chair Powells term, is up, it's pretty clear he's not going to reappoint chair Powell.

So he'll be able to put with Senate approval his own person, running the fed.

And so we'll see what happens.

Now, presidential appointees have a funny way of, not doing what their A pointers hoped they would, but nevertheless, that's that's a lever particularly on the fed in the Supreme Court.

Exactly.

Now, what about the national debt and the deficit?

We hear both parties talk about this a lot, particularly when they're in the minority party and then when they have control, sometimes it seems like it's not as great a concern.

And we have heard, talk about whether he should lift or not lift the debt ceiling.

Put that in context for our viewers.

And what do you think will happen?

Sure.

So let's talk about the debt first and then the debt ceiling.

Okay.

So, this is something Congress can do to help with inflation.

One way of driving inflation is for Congress to overspend relative to US tax revenues.

And then if it borrows, but there's no real expected stream of revenues to pay off that borrowing.

Inflation happens.

Okay.

We have to devalue the debt that we've issued in order to meet our obligations.

And that devaluation occurs to inflation.

This is sometimes called the fiscal theory of the price level.

Okay.

The so a big piece of the context for the debt and sustainability is inflation, debt.

We're never going to come to a situation where Congress says, oops, I'm out of money, I declare bankruptcy.

That's impossible.

Congress can print money.

Ultimately, the Constitution gives them that role, not the fed.

They delegated it to the fed.

And I think this is interesting because we often hear people compare the government to a family budget, but it's really very different.

It's hugely different.

And for one thing, there is no bankruptcy, okay.

That the fed default or excuse me, the federal government defaults on its obligations, not explicitly by saying I wipe my hands of this, but implicitly through inflation.

Okay, the second really big difference between the federal government and a family is we, you and I, I think expect the federal government to live for 2 or 300 more years.

Okay.

No family is no dynasty even is going to exist intact for that long.

And so because of that extremely long life, it can do things that ordinary people can't like borrow at very low rates for very long terms.

And so as we think about the debt versus the debt ceiling and the long term effect on the economy of carrying a certain level of debt and paying the interest on that, is it something we should be concerned about.

And how does the debt ceiling play into that.

So the debt ceiling is is a is a political mechanism, that Congress has created for itself in order to shame itself every time it, it, raises the debt.

I like to think about, Congress as addiction to debt as a little bit like drinking too much.

And, one way of trying to stop yourself and drinking too much is to place your liquor cabinet in the front yard so that everybody has to watch as you go and and and pour your evening southern comfort.

That's what the debt ceiling is.

Okay?

They have to have a vote to increase the debt.

They have to be very public about it.

Okay.

But ultimately Congress is in charge of that.

And so they can do it.

There are political issues, particular about timing of when the Treasury gets close to the debt ceiling, about what would happen if we actually hit the debt ceiling and Congress didn't raise it or didn't run to the front yards, liquor cabinet.

And those are interesting legal issues.

But, I think there are, kind of esoteric, to be honest.

I think eventually they can ignore it or change their own rules.

They can't ignore it, but they can change their own rules.

Exactly, exactly.

That's right.

Now, in terms of the the consequences of carrying a debt, where the important thing for your viewers to know is that any debt is sustainable.

Now, if it grows more slowly than the tax revenues that support it.

Oh, hey, we can we are a growing economy, all right?

We grow between, you know, 2% and 3% per year.

Okay.

And we're much better off because of that than we were in 1990.

Say just to pick a random date.

Okay.

Much, much better off that growth is distributed very unevenly, unfortunately.

Okay.

The rich have gotten rich, have gotten, higher incomes much faster than the middle class.

Okay.

That's part of what I think is motivating this fascination with tariffs right now.

But, any debt is sustainable if the revenues backing are growing faster.

And so it really depends not so much on balancing the budget today, as much as keeping a lid on the growth of spending relative to the growth of taxes.

And that will be a conversation that we will hear taking place in the media, in the public, and certainly in Congress in these years to come.

Now, unfortunately, that will have to be the last word, because we are out of time for this week's Politically Speaking.

I want to thank our guest, Jeff Campbell, for joining us.

I'm Elizabeth Feeney and reminding you that it takes all of us to make democracy work.

We'll see you next time.