Hey guys, we've got a great doubleheader for you today. Mallory McMaster announced she was running for Senate yesterday, so I'm planning to have her on to discuss the campaign and more. And then I wanted to bring in somebody who had real expertise on what's happening with the markets and the tariffs following yesterday's Liberation Day announcement. And so we brought in Tracy Alloway, who's a very insightful observer of what is happening in the markets. She writes a newsletter and does a podcast with my guy Joe Weisenthal. So I think she is going to educate us. I'm going to have more economy experts on in the coming weeks and months because that is what Donald Trump has thrust upon us. And so look forward to that, and we'll probably have Tracy back when the time is right. But before we get to it, since we got so wonky and nerdy in that first segment, I just want to emote with you guys for a second.
It is insane that we are here with regards to the stock market and the economy. I mean, as I am taping this right now, the NASDAQ is down 5%, almost 6% really. The S&P 500 is down 4.5%. This is all self-inflicted. None of this had to happen. There is not, you know, a bubble that has burst. There is not some issue in the credit markets. There were not a bunch of credit default swaps, you know, being bundled. This is not The Big Short. This is not a global recession. This is not a pandemic. It is just Trump chaos. Any pain you have in your retirement account or your 401k right now is only due to Trump chaos. If you're one of the people who are going to lose their job over this, it's only due to Trump chaos. And here's the thing.
Trump's whole career has been failures like this. This was utterly predictable across every metric. We screamed it from the rooftops here at The Bulwark and elsewhere. He bankrupted a casino. How do you go bankrupt in the casino business? Like this man, Trump Steaks, Trump Airlines, Trump Water, fail, fail, fail. He's failed at everything. He was a horrific businessman. He was a good marketer, and we can be honest, he's been a pretty good political manipulator. That's what he's good at. He's a con man. He's good at conning people. But we are all about to experience unbelievable pain, unbelievable economic pain, because people who should have been smarter than this went along with the con. People who should have known better, who should have known Trump for who he is, went along with this and decided to take this risk because they thought maybe they might get a little tax cut or maybe there might be a little regulation cut that might help their business. Well, guess what? All of your businesses are going into the tank right now, and it's hard to see a way out. Tracy Alloway will talk about that in a little bit more dispassionate way. Up next, she'll educate us, get us smart on what's happening. Stick around.
Hello and welcome to The Bulwark Podcast. I'm your host, Tim Miller. We are on the morning following Liberation Day, and we have been liberated from the value of our 401ks. I want to talk about that and much more with one of my favorite finance journalists, Tracy Alloway. She's a co-host of Bloomberg's Odd Lots podcast alongside the stalwart Joe Weisenthal, and also author of the Odd Lots newsletter. How you doing, Tracy?
I'm good, thanks. There's a lot going on, huh? Busy morning.
Thanks for taking the time with us here at The Bulwark. I'm just pulling up my little Bloomberg account here because we're right off the top. Not looking great. Craters is the word you guys have got up here on the website.
That's right. And you've made this tricky by recording at exactly when the market actually opens, but I think at this point we all know the direction is going to be down, right? The announcement in the Rose Garden on Liberation Day was a lot worse than a lot of the professional economists and analysts were expecting. And this morning, if you look at my inbox, it's just a flurry of notes with the words recession and stagflation in them. Everyone is rushing to revise their forecast for the rest of the year. Most of the notes that I've seen are forecasting a dip in GDP, so that would be a recession. And a lot of them are ratcheting up inflation outlooks as well, going to as high as 4 or 5%. That's a pretty big deal given that we've just been seeing inflation actually come down. It is quite a big deal.
And I want to get into kind of exactly what the announcement was of the tariffs and the, you know, kind of big picture economic stuff, but I just initially, I just have to react to the fact that your friends in the finance world, your sources, the people you talk to, there did seem like a level of surprise. I know over on CNBC after the announcement they said it was the worst of worst case scenarios. Obviously the market is reflecting surprise. You know, as you said, by the time this posts things might be different, but NASDAQ opened down 4%, Dow down 2.5%, S&P 500 down 3%. Why did, why are they surprised, I guess, is my question. They could have just listened to Trump or listened to The Bulwark or listened to Newsmax and gotten the real news for once. I mean, it wasn't like there was a secret here. I mean, he said it was his favorite word. You know, he kept promising it. Why, why didn't they believe him?
A couple reasons. I think it's a totally fair point to make. I would say the main reason when it comes to finance professionals, it's really hard for them to imagine someone in power doing something that is so clearly against the grain of, you know, canonical economic thought. I don't think there's a single, you know, seriously taken economist out there who actually thinks that destroying global trade is going to help the American economy actually go up. So they didn't think he could possibly be this much of a... Like it was unimaginable to them that he could be that dumb.
Well, the other thing I would say is like that's the case for a lot of non-professional armchair economists as well, right? Even Trump supporters, when you talk to them about, well, what do you think? Trump wants to impose these massive tariffs. That seems like a big deal. They'll say, well, you know, Trump, he just says stuff. He's not necessarily really going to do it. And then lo and behold, he actually does it. And even now after he's done it, there's still plenty of people who are arguing about whether or not this is just a negotiation tactic and whether or not some of the tariffs are going to come right back down.
Yeah. Well, I guess I had the benefit of having to obsess over Donald Trump. There's a lot of downsides to that, you know, having to know a lot about Donald Trump, having that take up space in my brain. But, you know, one thing that you could realize is like he bankrupted basically everything that he ever did. He bankrupted a casino, and he is a very good PR person and a very good media person. He was never really that good of a manager of businesses, and we're seeing that now. But I guess maybe they all thought since the first term had three good years, I guess that was it, that, you know, that's the rationale, that he didn't do it the first three years of the first term.
Yeah. I mean, the media story is strong, right? And by the way, if Trump is living rent-free in your head, maybe you should impose a 30% tariff on that.
How could I, how would I collect that? It's kind of similar to, I don't know, did you see his tweet the other day where he said that we are, the fentanyl smugglers are going to have to pay tariffs, tariffing the value of this. So, whatever vehicle he uses to tariff the fentanyl smugglers, I'll use to tariff him, I guess.
That's right. It's all very confusing. And I got to say, like when you look at some of the tariffs that have been unleashed, there are weird things in there. Like I was just writing about this actually. There's a 30% reciprocal tariff imposed on Nauru, which is this tiny island in the South Pacific that mostly exports like fish and pig meat and some phosphates, but not that much anymore, to the rest of the world. Even if you think this isn't necessarily an economic tool, it's a political tool. It's a tool of diplomacy. Maybe the question is what exactly do we want from a place like Nauru? I can't imagine that like many Americans want to become phosphate miners. America's fishing industry has been in decline for a long time, and in fact there's other things the Trump administration is doing that reportedly are hurting the fishing industry right now. So it's just all very confusing, and I think like the big question is what exactly do we want? Like when do we declare success from these particular policies?
Nauru has been screwing us for years, Tracy. You don't understand. Our leaders have been too dumb, and Nauru has been taking advantage of them. Let's talk about some of the specifics here. JP Morgan calls it the largest tax increase since 1968. James Surowiecki caught this, and you're kind of alluding to this here, but let's like, what the reciprocal tariffs is a little bit of a misnomer actually because they didn't really look at the other countries' tariff rates. They looked at the trade deficit, I guess. So James uses this example. Indonesia exports 64% more than they import from us. So we used 64% as the baseline, and we're very generous actually, only did half of that at 32%. This is like nonsense math. I mean, like it's not even a, you know, it's much more than a reciprocal tariff. Actually, it's all very weird.
There was a lot of confusion when they released the numbers yesterday because at first no one could figure out what those figures were actually based on, to your point, and it does seem like they basically made a simple math calculation where they took the trade deficit and divided it by exports. And I got to say, like if you look at the table, you start seeing some very strange stuff. So South Korea, for instance, has a higher tariff rate than Brazil. We have a free trade agreement with South Korea, and tariffs are coming in higher than Brazil, which actually does compete a lot with the US in agriculture. It's just weird. And then the other thing to remember is that that famous billboard that Trump trotted out, that was just the reciprocal tariffs. So these tariffs are coming in on top of other tariffs that have already been imposed. So for instance, China, it's getting an additional 34% tariff, but it had 20% worth of tariffs imposed on it earlier. So its effective rate is now 54%.
Right. Yeah. I don't think you should feel bad or anyone should about being confused by this because Treasury Secretary Scott Bessent was on CNN last night and Kaitlan Collins asked him about that very issue, the China issue. They said, well, you said it's 34, so is that on top of the existing 20? And Bessent was like, I believe it is. He couldn't even say with confidence that, and it does turn out, yes, it was. But they, I mean, the chaos is stemming from them, and like it felt like somebody that was honestly what it felt like to me, Tracy, and this is maybe outside your wheelhouse of knowing the Kremlin of the White House, but it felt like the people didn't really, even inside, they didn't really believe Trump and they were cramming on their midterm and had to push something out before April 2nd. It's like, oh, he's really serious about this. We got to come up with a billboard.
This is exactly to your point earlier about why didn't people expect this? I mean, people in the administration don't seem to have expected this, right? Trump was talking about tariffs all of last year, and that's his big thing. I mean, someone pointed out earlier that he's been talking about tariffs when he was like on Oprah in the 1980s. It's a long-held belief. And yet, you know, we are months into the new administration. Not that many, to be fair, but we are certainly a lot more months longer into his campaign, his planning for taking a new presidency. And here we are, and no one seems to have worked out the details, much less communicated them to people, people you would imagine are important like Bessent, like the Treasury Secretary.
Yeah, you would think. Also just worth noting that Russia, Belarus was not included in the reciprocal. Everybody can just sit with that if they want. I want to get into your newsletter about the long-term effects, but was there anything else about kind of the details of yesterday that stood out to you?
Well, the other thing I would say is all of these reciprocal tariffs, they're focused on goods, right? Actual exports, things that Americans like to buy, I don't know, t-shirts, Nike sneakers, whatever. There's a component when we're talking about economic losses as a result of the tariffs. It's not just that these products become more expensive for Americans. It's also that they start to lose some of their associated, I guess, brand value. So, for instance, if I'm, I don't know, a teenager over in China, am I going to want to buy a bunch of Nike gear nowadays? I'm not sure that's clear. You know, it's becoming more expensive potentially even in China. And at the same time, that brand value is diminishing very, very quickly. So there are all sorts of intangibles, soft power that are wrapped up in the taxation of actual things.
Yeah, you're seeing this in Canada, I think most starkly, right? A friend of mine said, I'm forgetting if it was their sibling or their friend or whatever, is living in Canada and keeps sending them photos from the grocery store of how like no one is buying any of the American products. Like they're the only things left on the shelf because people are like, F this. Yeah, part of it the tariff, part of it is like you said the associated brand value. So you had a great newsletter on the other kind of long-term effects on this you wrote earlier this week. And there were two things that jumped out to me. One was just kind of even if this turns out to be kind of a bluff, which just doesn't seem like to me, like there could be long-term impact on inflation and prices, and also, you know, it's going to benefit the bigger companies over the little guys. So talk about both of those.
Sure. So, the thing that markets and investors hate the most has to be uncertainty, right? And boy, are we seeing a lot of uncertainty lately. We're seeing it at the consumer level in the confidence surveys, but we're also seeing it in things like the manufacturing surveys. The Dallas Fed put out a really interesting survey of energy companies in the area, and everyone is scratching their heads trying to figure out what all of this means for their business. A lot of them are talking about, well, maybe we're not going to invest as much capital over the next year because we just don't know what's going to happen. Like, why would I start building a factory in one place if I'm not sure the tariffs are actually going to be around in 5 months or whatever? So, uncertainty weighs very heavily, not just in the immediate term, but in the long term. And we're talking years and years and years. And Joe and I like to talk about one of our favorite examples of this is US housing. So in the aftermath of 2008, a lot of house builders obviously went bankrupt. There was a lot of capacity taken out of the home building market. And you could argue that even today, you know, more than a decade later, that capacity hasn't been replaced. So, you know, memories for this kind of stuff are actually fairly long. And so the capacity question is going to be a big one. How long will it actually take for us to react to some of these tariffs?
These are huge projects, huge expensive projects, take a lot of time, take a lot of money to build, massive factories, even simplistic ones to make sneakers or whatever. The other thing I would just add on to that is all of this is happening at a time when there doesn't seem to be what economists call a fiscal offset. So the government isn't planning on spending any more money to try to boost domestic industries, or at least we certainly haven't seen it yet. You know, if you opposed tariffs and then said, well, we're going to send billions of dollars into the US economy to target strategic industries, that could help. It would at least be a sort of cohesive economic plan, but we're not the traditional conservative. We're not saying that.
Yeah. Yeah. It's not a traditional free market conservative economic plan, but yeah, that would be at least something.
But the thing that jumped out to me about that Dallas Fed thing that you mentioned is if there was a sector that is more Trump's base than that, I don't know what it would be, right? Like those folks, you know, are most of the people that they interview and they talk to for that are going to be Trump supporters. And so if that group is saying that we are seeing uncertainty, we don't, you know, we're going to hold off on investing rather than saying, oh, you know, we trust Mr. Trump, we're going forward. That is particularly alarming because imagine what people in more skeptical sectors are thinking.
Oh yeah, I mean, the energy industry is the heart of Trump's base in many ways. And the interesting thing about that Dallas Fed survey is, you know, it's not just the short-term things. Like there was one guy, he was a supplier for parts in the oil industry, and he was basically saying, well, we had one supplier ask us if we could move all our production to Canada. Which is ironic because you would assume that's the opposite of what Trump intended. And one can only imagine how that supplier actually feels about all of this happening to his business. But the other thing to point out is there were people in that survey who are questioning the fundamental tensions in Trump's policy. So there was, again, this is all anonymous. You just get a vague idea of what these businesses actually do, but there was one business that basically said Trump's plan for energy independence in America doesn't work with oil prices at like $50 a barrel. We're seeing oil fall again today. You can't incentivize drillers to build new drills and produce more oil if the price is really low and capital costs remain pretty high. It's just not going to work.
