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We're joined by Peter Morisi.
He's a National Columnist Business Professor Emeritus at the University of Maryland talking about the incoming administration and economic policy.
Good morning to you.
Good morning.
How would you say are the core beliefs of the incoming administration when it comes to economic policy?
What would you say those are?
Well, they're certainly populists.
In some ways, they're similar to the Biden administration.
They both have this nostalgia about manufacturing.
They want to bring back good union jobs in the Midwest.
They want a tough line against China.
In those ways, they're similar.
Where they're different is that in leveraging up the economy as you deal with the Chinese problem, the Republicans, their classic, is a classic Republican administration.
They want to raise taxes, excuse me, lower taxes, cut spending.
Whereas the Biden folks wanted to raise spending, and if they could get away with it, raise taxes.
I mean, that doesn't change much.
With regard to the rest of the world, Joe Biden did a remarkably good job of reforming and connecting us in terms of alliances.
And that was good for the economy.
Unfortunately, they're both protectionists in their core.
And neither of them see much value.
For example, in ASEAN.
ASEAN is this region from Thailand to the Philippines, extraordinarily dynamic, an alternative to the Chinese, growing like gangbusters, having problems with the Chinese the same way we are, that President Obama wanted to link us to through a Pacific trade agreement.
They both shun that.
It's a terrible mistake because it leaves an open door for the Chinese.
And that's where the growth is.
And it's remarkable.
Malaysia's got a tech sector now.
And you say, gee, Malaysia.
Well, who would have thought India would have a tech sector 25, 35 years ago?
The world is changing rapidly.
Where they're both weak is they tend to just be too isolationist.
We're going to pay dearly in terms of economics for what's going on in Europe right now.
We have to ask ourselves, you know, the appeasement of the 30s, was it really a good economic choice?
The answer is no.
And we're on the verge of that right now in Europe, and that could cost us incredibly in terms of defense spending.
Why Europe and why defense spending?
Well, quite simply, if we have to spend much more in defense because we permit Putin to achieve victory in the Ukraine, which he's about to do, then he will be emboldened.
He's got his economy on a war footing.
He's spending huge sums of money on defense or on his military.
It's not defense, it's offense.
And in turn, someone's going to have to match that.
Or we're going to, in the end, have him gradually eat up Europe.
That's going to be very costly to us.
You know, Americans don't realize this, but they talk about NVIDIA makes chips.
NVIDIA makes nothing.
NVIDIA designs chips.
And these are the most powerful chips of the world.
They're the crown jewels of the American economy.
They're the equivalent of the Model T in the 21st century.
They designed those chips.
They only can be manufactured in Taiwan, which is just a brush away from China.
And they could only be manufactured in Taiwan with machinery made in the Netherlands.
The Dutch have a lock on the machine tools to make the chips.
Through R ⁇ D, through certain visionary decisions they made, and so forth.
We have an economic interest, a security interest, in defending Europe.
We have an economic and security interest in defending Taiwan.
Permitting the Axis to become stronger and bolder will mean ultimately that we will have to defend those places at much higher cost than we would today.
There's a profound connection between security these days and economics.
You know, the nostalgic view of America is that we can live here in splendid isolation, make everything we need on our own.
It might cost us a little more, but it's worth it not to be engaged in a nasty and terrible world.
That's just not true.
Is that reflected in the President's current ideas for trade?
No, it's not.
Hitting the Europeans, the Europeans are reeling from a lot of bad decisions over the last 25, 35 years.
They haven't invested adequately in their economy.
You know, during COVID, the way the counties and the equivalent of our counties and states sent information to Berlin about cases and so forth, you know how they did it?
By facts.
They didn't do it through email or the internet.
They did it by facts.
The Germans make great 20th century machinery.
They haven't modernized.
They're no more capable of competing with the Chinese on electric vehicles than General Motors is.
They haven't invested in their economies.
And so if you hit them now with a 20% tariff and cut off this enormously important market to them, that could send that economy tanking into the ground in ways that we just don't want to see.
Then how will they defend themselves and those factories in Holland that make those machine tools?
If I were President Z, confronted by the sanctions we have imposed by denying them access to the technology, the two assets I most want, the things that are most important to me, remember ball bearings factories in World War II, we have to bomb the German ball bearings factory so they can't make the machinery?
The two assets I'd really want are the factory that make those chips in Taiwan and the factory that make the machine tools to make those chips in the Netherlands.
If we don't defend those, the American economy is going to look like a very different place.
So when the President talks about using, say, trade policy to China and other countries specifically to achieve policy goals, is that a good direction to go to?
With regard to China?
Yes.
Yes.
Threatening our friends?
No.
We have had, well before NAFTA, since the 60s, a free trade arrangement with Canada in the automobile sector.
We used to call it the Auto Pact.
There's no American cars.
They're Canadian American cars.
The parts go back and forth.
The chassis go back and forth.
You put a 20% tariff on that.
You might as well just say the Japanese are going to make all the cars and send them here.
Because it completely gums up that supply chain.
Who was writing the script for Donald Trump when he said that?
Who was giving any thought to that?
Well, if you look at who he's appointing, he's decided that trade is going to be handled by the Commerce Secretary.
The trade representative is not going to be a particularly senior job.
He's going to take orders.
Lutnick has no experience whatsoever with trade.
Probably someone right now is explaining to him what Section 337 of the Trade Act is.
You can't have people like that making those kinds of policies.
Over at Treasury, we're not getting Janet Yellen.
We're getting a good, you know, we're getting a good derivatives trader.
Scott Bessett.
Right.
And I'm not a Democrat.
You know that.
But credentials matter.
Experience matters.
A defense secretary that does your job doesn't, if you look at the various and significant challenges the military faces over the next four years in terms of modernization, force structure that it's outnumbered in Asia and so forth, compensating for that, the distance at which we will have to fight if we have to defend Taiwan.
Someone who's been a platoon leader in the military should be commended for his service, but not handed the keys to the executive, you know, to basically be made CEO.
Let me pause you for a second only to invite viewers to ask questions about economic policy in the next administration.
202748-8001 for Republicans, 202748-8000 for Democrats, 202748-8002 for independents.
If you worked at the International Trade Commission, I was chief economist.
How does that inform your view of trade now, particularly when it comes to tariffs like that?
You have to understand, my whole career has been about trade agreements and tariffs and so forth.
I wrote my doctoral dissertation on the structure of the U.S. tariffs.
And I worked on that through my entire career.
It comes and goes.
I work on other things.
So that gave me an inside view of how, for example, these laws that Trump will have to access to impose the tariffs.
They have to perform investigations to impose the tariffs.
My office did the economics on those investigations.
I signed off on them.
My signature was on those investigations.
So my feeling is that we need people.
Like, for example, the last U.S. trade representative for Mr. Biden, she's an experienced trade lawyer.
She worked the cases.
Trump's last trade representative really carried the ball.
Initially, he was put under, I believe, Yellen's authority, but he quickly read, or no, it was someone, it was the Commerce Department, but he quickly wrestled that away because over there they had a trader as well, an investor.
But he's a trade lawyer.
I worked with him on some cases.
Economists do get called in.
He knew what he was doing.
I believe people should be loyal to Donald Trump to work in his administration.
But it would be kind of nice if would you entrust surgery to someone who kind of picked it up on the web two weeks before they met you?
Rhetorical question, sure.
I don't think so.
Let's hear from Milton.
Milton in Philadelphia, Democrats line, you're on with Peter Morisi.
Go ahead.
Okay, thank you for taking my call.
I'd like to make three points here.
One, okay, Trump is, when he comes in, he's going to make that, he's going to destroy this economy.
Let's look at, okay, he starts a trade war with Mexico, Canada, and China.
You know what they're going to do?
They're going to retaliate.
And that's going to cost even more jobs, and it's going to cause prices here in America to go up.
I don't understand how people have supported this idiot.
Second of all, okay, now he's talking about this mass deportation, right?
You go out and you deport all these illegals.
Look at who's doing the work in our country right now.
Who's picking those produce and crops from the farmers' fields right now?
They are illegals.
You deport all of them.
They work in our hotels.
They work their DJ and our restaurant.
Okay, Milton, what's the third point, please?
For these people, who's going to do them jobs?
Prices for produce, prices at restaurants, and hotels going to go through the roof.
Okay, okay, we'll leave it with the guy.
You make a good point.
I don't expect all these tariffs to go into effect.
First of all, he can't put them into effect right away, with the exception of China.
Of course, the president can do whatever he wants, and if someone doesn't challenge him in court, I mean, that was Joe Biden's strategy.
Donald Trump is no more lawless than Joe Biden.
He kept forgiving student loans, even though the courts told him he couldn't do it.
His basic strategy is, I'll forgive him, and we'll see if you catch me if you can.
But if he imposes a 20% tariff across the board, I expect him to be challenged in court.
I don't believe he'll be able to declare a national security emergency on trade and impose a 20% tariff unless there is strong sentiment in the Congress that he's on strong ground.
The court president's run in that direction.
I think that by and large he would get an injunction.
A tariff on China, he can go back to the prior investigations he did during his administration and invoke authority from that.
Normally that sort of thing, the authority he used there takes about a year to do.
So I think he can move pretty quick on that.
If he does that and he does it in the right way, he isn't going to cause the kind of harm you say.
On the immigration point, probably the most dangerous man in America right now to the U.S. economy is Stephen Miller because he's the architect of this deport everybody kind of thing.
When I tell Republican operatives, you know, somebody's going to have to pick the crops, well, we'll just pay more Americans to do it.
40% of the field workers in American agriculture are probably irregular immigrants.
They're not necessarily illegal.
Some of them have been granted temporary asylum because, you know, their cases have to come up, which then may never happen.
But we have a in macro terms, they're concentrated in agriculture, food processing, construction, the hospitality industry, in macro terms.
Through our regular program of immigration and population increase from people becoming 18, the U.S. economy can add 80,000 new workers a month once it gets to full employment.