This episode explores the significant market reaction to the announcement of new tariffs by the President. Against the backdrop of Liberation Day, the unexpected scale of these tariffs—affecting not only China but also allies—caused a 4.8% drop in the Nasdaq. More significantly, the discussion analyzes the potential consequences of these tariffs, including a potential stagflationary shock, decreased US growth, and increased inflation. For instance, a computable general equilibrium model suggests that 60% US-China tariffs could virtually eliminate trade between the two largest economies. The panelists debate whether these tariffs will lead to a reindustrialization of the US or instead accelerate its decline as a global power, considering factors like higher US wages and existing supply chains. In contrast to previous tariff implementations, the current situation involves a depreciating dollar and widespread application, making transshipment less effective. Ultimately, the episode highlights the uncertainty surrounding the economic impact and the Fed's response, leaving open the question of whether the tariffs will achieve their intended goals or lead to unforeseen negative consequences. What this means for the global trading system and the US economy remains to be seen, with the panelists emphasizing the numerous uncertainties at play.
