The Dispatch Podcast - Surviving Trump’s Tariffs | Interview: Josh Barro

Episode Date: April 28, 2025

Jamie Weinstein is joined by Josh Barro, author of the Very Serious newsletter and co-host of Serious Trouble, to explain everything wrong with Donald Trump’s tariff regime. The Agenda:—You can’t undo uncertainty—What does Trump really believe about tariffs?—Reinventing trade alliances—Political consequences for a recession—Will America rebound?—America’s debt crisis Show Notes:—Flexport CEO Ryan Peterson on The Dispatch Podcast The Dispatch Podcast is a production of ⁠The Dispatch⁠, a digital media company covering politics, policy, and culture from a non-partisan, conservative perspective. To access all of The Dispatch’s offerings—including members-only newsletters, bonus podcast episodes, and regular livestreams—⁠click here. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Check. Close the garage door? Yep. Installed window sensors, smoke sensors, and HD cameras with night vision? No. And you set up credit card transaction alerts, a secure VPN for a private connection and continuous monitoring for our personal info on the dark web.

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My guest today is Josh Barrow. He writes a newsletter called Very Serious with Josh Barrow on Substack. He also co-hosts a law podcast called Serious Trouble with Penn White, also known as Popat, as he used to be on Twitter. He is a very knowledgeable figure on the economy. which is what we talk about in this episode, what he thinks of Donald Trump's tariff policy. And ultimately, if Donald Trump were listening to this podcast and called him, what three things would he recommend to help make sure America once again leads the 21st century economically?

Without further ado, I think you'll find this interesting. I give you Mr. Josh Barrow. Josh Barrow, welcome to the Dispatch podcast. Hi, Jamie. Thanks for having me. Well, I'm excited to have you on, Josh, because of all the commentators and out there, I think you're probably among the most economically literate of the punditocracy. So I wanted to talk to you about the tariffs that we have been involved with for the last. It's hard to believe it's not been a month yet, but it has not been a month since Liberation Day.

wondered what your thoughts were going into Liberation Day and if you had anything different coming out of it, if this is what you expected or you were surprised by what the speech was. I mean, first of all, do we have to call it back? I think they call it facetiously these days' liberation. I know, I know. I just, at least when I'm writing, I can put scare quotes around it to indicate that it is not, in fact, liberating. I mean, look, you know, we're not quite a month out from quote unquote liberation day

from the, you know, the largest slug of tariffs that the president has imposed. But he's been doing smaller versions of this almost since his first week in office. And the stock market peaked on February 19 and has declined, it declined significantly into the beginning of April than it declined a lot more rapidly with the new tariff announcements. But basically, there's been this gradual realization that Donald Trump is actually quite serious about imposing really large tariffs on trade from all around the world, not just from China.

and I think the market's been sort of digesting that and adjusting its predictions about what is the percentage likelihood that we get to the end of this year and we have somewhat high tariffs or very high tariffs or shockingly high tariffs they're sort of hanging on each of his words and as he you know some one day he's more aggressive

in his rhetoric and then the next day he's trying to dial things back and the market moves with that but it's sort of you know it's it's sort of market participants trying to predict what's most likely in a range of outcomes. And I just think the biggest concern now is that, you know, the president can change what he says. He can change what tariffs, you know, he's imposing under these various laws that give or may give him power to do that. But he has created this uncertainty that he kind of can't undo. You know, if he walked out tomorrow and said, just kidding, you know, I've decided that the

tariff thing was a bad idea and I'm going to ease off on it, the markets would definitely go up and that would be positive and it would be positive for the economy. But there would still be the risk hanging over us that he changes his mind again in six weeks. And I think that makes it very difficult for firms to invest and say, you know, I'm going to build a new factory that requires a global supply chain because the president today has announced a tariff policy that would be congenial to that because you don't know what the policy is going to be in a month. Do you think there is any plan? I mean, we've heard so many different reasons for the tariffs, often contradictory, you know, to raise money, to stop fentanyl, to bring people to negotiate,

table to maybe bring them an alliance against China. Do you think there is a plan or do you think this is kind of an ad hoc policy that changes day to day on the president's whims? I don't think there's a plan. I think there's a set of urges that drive the president here. I mean, it's one of the policy issues that he's had a relatively consistent public position on for several decades going back to 1980s. I mean, then the boogeyman was more Japan than China. But this idea that it is harmful to import and that somehow you are losing an international trade when you buy things from other people,

that's something that he's been wrong about for a long time in a way that's been relatively consistent. Maybe the surprising thing is that he got talked out of doing very much of this in his first term. But I think so partly what's going on here is just that Donald Trump thinks this stuff is a good idea, thinks tariffs make a country richer. And I think he thinks that

imposing these tariffs will cause reindustrialization in the United States. I don't think that's correct for a number of reasons. One is that, you know, having an effective industrial base requires international trade. You need inputs that come from abroad in order to make things, and you also need people to be willing to buy your products abroad, which he's making more difficult. And then on top of that, because of the completely haphazard nature of the policy, even you can you can come up with scenarios where a tariff is imposed and that makes it attractive to build a steel mill in the United States because that's the only way you can make steel for use in the United States that won't be subject to the tariff. And so you can

draw scenarios where a tariff does cause some kind of investment, but it doesn't work well if there's no consistency and certainty about what the tariff is going to be. And I think the fundamental problem here is that one of the things Trump enjoys about this is because he can create this chaos because he can change his mind all the time. People have to pay attention to him constantly. The market moves up and down on things that he says. I mean, that has to be, you know, make you feel pretty powerful, right? That you can just tweet something and it causes the Dow to go up or down a thousand points. And he also likes people having to come to beg him, whether it's foreign countries or companies. I mean, you have the CEOs of Walmart and Target

meeting with the president a few days ago to talk about the problems with the China tariffs. And he seemed to adjust policy to some extent, maybe not based just on that conversation, but he's responsive to these meetings. He wants people to have to come every day and ask him to do things on the tariff policy. And so that's, you talk about there being contradictory goals. If one goal is to feed Trump's ego and another goal is to offer certainty to businesses so that you can encourage them to invest, I think the ego is going to win out almost every time. I want to ask you if you think there's anyone in the administration that has maybe a more cogent plan. But before I get there, you mentioned the 1980s. And this is more conjecture, I guess,

asking you to conjecture a question, is that to Trump in 1980s seems like the golden age that he wants to bring America to, but really back to. That was the age of him and Trump Tower and the casinos in Atlantic City. It's when the New York Times was the best, which is why he probably talks to Maggie Haberman all the top. It's when 60 minutes. It's when Slice Stallone was a star at the box office and now he's at Mara Lago. And it's when GE and Jack Welch were kind of the top echelon of business. Do you think he's romanticizing that age and therefore, you know, he wants to go back to when someone like Jack Welch is the top CEO and their manufacturing is the major thing that business is talking about? And that's where he gets this idea that

manufacturing needs to be the base of the United States. I think he is romanticizing that age. And I think some of the people around him have come up with a like more sophisticated way of romanticizing that age? Because one of the things that Trump's defenders will say is, you know, well, Ronald Reagan did tariffs. And that's true on a very small scale relative to what Donald Trump has done. I mean, a lot of

presidents have, you know, even if they were broadly thought of as free traders, they did certain tariff things. George W. Bush had tariffs on steel that he imposed basically as a favor of the U.S. steel industry. And so there was, you know, when Ronald Reagan was president, there was this concern about the Japanese auto

industry eating the lunch of the big three and there were formal and informal efforts to restrict Japanese imports in the United States and the Reagan administration successfully put some pressure on foreign actors to do some things differently. To some extent that was Japanese automakers

coming and making investments in the United States to build vehicles here. And then there was also something called the Plaza Accord where there was this concern basically that the dollar was overvalued and this was making U.S. exports uncompetitive. And we sort of got some of our, you know,

trading partners to the table to agree to try to sort of rebalance exchange rates to some extent. And so, you know, Steve Myron, for example, who runs the Council on Economic Advisors, they sometimes point to that, you know, the success of the Plaza Accord, and that maybe something like that could come out of this in the end. The name Mara Lago Accord has been thrown around for that. The problem is just that the administration doesn't have a clear goal here. And we're seeing this in news reports about the negotiations with the Japanese, where the Japanese basically say, well, what do you want us to do? And the response from the Trump negotiating team is, what can you offer us? They don't, it's, it's not clear exactly what it is

that they want out of our international trading partners, what they would consider a victory in these, in these negotiations to be. So I think, you know, it is possible to do things that adjust the global economic and trading order and prior presidents have done that to some extent, but A, not to the extent that Trump seems to believe we could have. You know, we've had persistent trade deficits for decades. And we had trade deficits before and after Ronald Reagan did the things that made some adjustments. And then you also have, you have to have a strategy and you have to have specific goals and you have to have priorities. And they just haven't been willing to do any of it. Is it willing or is it competing interest within the administration? Is it that Trump sees

tariffs one way? And then Scott Besson sees him a different way. And it's hard to square a circle when he actually likes tariffs and maybe Scott Besson's using them to, you know, get something. Yeah, I mean, if you look at what Scott Bessent was saying about the tariffs before Trump took office, it was clear that Scott Besson didn't believe there would be a policy that looked anything like this. And he talked about tariffs more or less as a tool that you can threaten in negotiations to get something else. And so I think it's, you know, the president, well, the president wants several contradictory things at once. He wants to use the tariffs as a tool in negotiations, but he also wants to have the tariffs. If you negotiate the tariffs away, then you don't have the tariffs anymore.

So I think that, you know, partly he can't, you know, he can't pick because he wants both things. but I think this is really being driven by the president. There's been, you know, we all kind of missed Steve Mnuchin who did a really good job as Treasury Secretary last time around. Sort of a shockingly good job. Mnuchin looked actually kind of underqualified on paper when he went up for that job. And I think he did very well. But it was partly because at that time, Trump demonstrated a willingness to listen to people like Mnuchin and Gary Cohn. And he followed a fairly orthodox economic policy in his first term. I mean, you know, There was some deficit expansion that probably wasn't necessary in the given economic condition,

but it also wasn't disastrous because there wasn't a lot of inflationary pressure. The tax cut, I'm sure, did something to encourage business investment by reducing taxes on corporate income. It was sort of the economic policy that a more typical Republican administration might have made in most respects. I think the president just this time thinks that it was a mistake to listen to so many Republican Party regulators. last time around. He just wants to do his thing. And he thinks, I think he generally believes this stuff about tariffs will make America rich, that if you have them in place, both it generates revenue. I think he believes this nonsense about that it's the foreign countries that pay the tariffs rather than our own U.S. consumers who pay them. And I also think that he thinks he's going

to, you know, he's going to send Americans back to work in factories. And there's this weird aesthetic preference for factory jobs over other kind of jobs. There's nothing wrong with working in a factory, but there's also nothing especially good about working in a factory. And also because of automation, like even if you succeed in creating, in greatly expanding the U.S. industrial base, which again, I don't think he's going to do, it wouldn't move that much employment into the sector. But I think he still has this vision that goes back maybe even farther than the 80s. It's more like a 60s or 50s thing where it's like, you know, it's a more male-centric economy with people, with men who work with their hands and, you know, earn a, you know, a good wage that can, you know, support a family

of four without a college degree. Now, of course, that family of four had only one car and, you know, a house that was 800 square feet and that kind of thing. But anyway, I think it is an economic nostalgia thing that he is pursuing in a way that is not really deeply thought out. Do you think we would be talking about this right now, or even having this podcast, if what he announced on Liberation Day, quote unquote, was the 10% across the board? When he initially announced that you see the future markets were shooting up, maybe because they thought they avoided the worst of what the potentials were, even I think Stanley Drucken Miller has come out and said that he, you know, he would have been okay with the 10,

but he thought 10% makes sense. Would we be talking about it now if it was just the 10%? And is there a case for the 10%? Is that also a bad idea, even if it would not be as catastrophic? It's also a bad idea. It's only better because it's smaller. I mean, you know, the tariffs are, they are attacks on the American consumer and they are a distortionary tax. I mean, In general, like broad theory of how you should finance the government, you want taxes with low rates and broad bases because they don't cause people to change their behavior. If the tax code is causing you to do something you wouldn't do but for the tax, you're probably doing something that is less economically efficient.

That's why you wouldn't have done it without the tax there. So, you know, if you have a low sales tax rate on all consumption, that does a little bit to discourage work because it, you know, it slightly reduces the return to work. but it doesn't really distort the economy very much. If you have a tax that's only on certain goods, only on imports or things that contain imports, then you get all sorts of distortion in addition to the income loss to consumers.

And so that's broadly what's wrong with the 10% import tariff. That said, I think you're right that the stock market had priced in more than that. And so it might have gone up on whatever it was April 2 instead of, or I guess the announcement was April 2, the market reopened on the morning of April 3. So maybe the market would have gone up instead of down.

But remember, the market peaked on February 19. And part of the reason that it had been falling for those six weeks before April 2nd was this growing expectation that there was going to be significant tariffs. And so, you know, the outlook would have been better than it is now. But it would have been worse than the outlook was as of January 20 when people on Wall Street were convinced that the president was all talk about tariffs and it was just going to be tax cuts and deregulation and a big party for the business community. You mentioned Mnuchin did a good job.

I wonder what is, what are your fuller thoughts on Scott Besson? I had never heard of him. I guess he was a big hedge fund guy. You know, when the tariff were first announced, you got all these people saying he's a genius because you saw the treasury drop initially. And the all-in podcast guy said his plan is working, the plan. And then it obviously shut up drastically. Are you confident that he's there?

Is he, does he have a background that makes you more confident? Does he, you know, was this his plan to think that treasuries would drop? And then do you think he's surprised that it turned out the way it did? Yes, he clearly thought, he clearly thought a couple of things were going to happen that didn't happen. One is he definitely thought that the treasuries were going to continue falling. And when they were falling, he was bragging about that. And the kind of funny thing about it is like there's a lot of different things that can move interest rates up and down. But one thing that tends to move long-term interest rates down is if,

economic outlook weakens. Because, you know, one of the things that pushes interest rates up is if a lot of people are out there trying to borrow money, people try to borrow money if they want to make business investments or if they feel good about their own future economic outlook and they want to buy a house, that sort of thing. So, you know, sometimes when interest rates fall it's for a good reason, sometimes they're falling for a bad reason. And so as the economic outlook started to weaken but not look, you know, catastrophic and awful in the way that it has in some recent weeks, you had interest rates falling and you had Scott Besant out there bragging about that, like that that was what they were trying to do with their policy. The other thing

Scott Besant said would happen in his confirmation hearing was that the dollar would strengthen when we imposed tariffs. And they thought that in part because that is what happened in the last term when we imposed the China-specific tariffs. The dollar did strengthen. And that's where you get the case where maybe U.S. consumers don't really pay the tariff or don't really pay all of the tariff because if there's a 10% tariff on products from China, but a dollar now buys, you know, I forget what the exchange rate is with China, but if it goes from, you know, we get 100 of units to 105 units with a dollar, then, you know, that really offsets half the cost of the tariff because the dollar buys more product and then you impose the tax and that, you

know, that means it buys less product. So he said when he was, when he was before the Senate committee for his confirmation, he said that, you know, probably 40% of the cost of the tariffs would be offset by a strengthening dollar. Now, in fact, what happened after quote unquote Liberation Day is that the dollar has weakened substantially. And that again is an economic outlook thing in significant part that prospects for growth in the U.S. are just now weaker than they are in the rest of the world compared to how it looked a few months ago. And that makes the U.S. dollar less attractive and the dollar is weakened. So that actually means that Americans could end up paying more than 100% of the cost of the tariffs. Because not only do you have to pay this

new tax on the imports, you can't buy as many imports with a dollar because a dollar is not worth as much. So I think, you know, I think we've already seen Bessent be wrong about a number of things. He was wrong about what the president's instincts were on tariffs, and he's been wrong about the economic effects of a number of these policies. Now, that said, you know, am I comforted that he's there? I mean, the question is sort of compared to what? Sherwood, which is the in-house publication at Robin Hood, put out this funny graph where they looked at, you know, on any given day is who is mentioned more in news stories about the administration? Is it Scott Bessent, or is it Howard Lutnik, the Commerce Secretary and Peter Navarro, the president's absolutely insane trade advisor?

And the market goes up on the Bessent days and the market goes down on the Lutnik Navarro days. And so I think it's definitely the case that Bessent is giving the president better advice than a lot of the other people around him. And, you know, but then there's a, but I, you know, I don't think he's necessarily giving great advice. He does have some of these sort of kooky ideas about that we, I mean, the funny thing about him saying that the dollar was going to strengthen is his view also seemed to be that ultimately we did want a weaker dollar because and that they and the thinking had been that we

were going to have to do other things to get the dollar a weekend now you know look party congratulations it's weakening already um but you know the benefit of a weaker dollar is that it makes our exports more attractive to other countries because they're cheaper to buy and so if you're trying to rebalance the economy toward exports then you might want that weaker dollar and scott besant is one of these people who has this view that it's actually been a burden on the united states that the dollar has been so strong. The flip side of it is what happens when the dollar weakens is that U.S. consumers have lower real incomes and cannot consume as much. So, yeah, maybe, you know, maybe in theory that's good if you own a factory, although as we've seen in the stock market, it actually

doesn't look great right now for manufacturing firms. But it's a policy that is built literally around making American consumers poorer in order to theoretically strengthen the industrial sector. And so Scott Besson, at least to some extent, believes in that, which is a mistake. and, you know, it would be better if the president was listening to someone who had more orthodox ideas like Mnuchin, presumably has. What do you make of the argument that, you know, however crazy the chart was or this policy is whether intentionally or unintentionally, the fact is the American consumer is so desired around the world, particularly in China, that they're going to have to play ball in some way

and give up something, and that the American security blanket, you know, we're the only alternative to protect countries from China and that they, that all our allies were going to have to come at the table and provide something. So at the end of the day, so what? You know, we might be crazy, but there's no other choice for these countries than to deal with us. I don't think it's been playing out like that in practice. The Chinese won't even really talk to the president.

The president claimed to Time magazine that he had spoken with President Xi and the Chinese put out a statement saying that that was a lie. And the strategy from China clearly seems to be that they think they can wait us out. And I think that's already being borne out because of the, you know, the president clearly indicating that he's going to back off to some extent on the China tariffs. It is a relationship of mutual need and it is economically harmful to both China and the U.S. to go through this abrupt decoupling. And I understand there are good national security arguments for a decoupling. I would just say two things about that. One is that it's a, the decoupling is still costly.

it's a cost that you would incur for a national security benefit, but you have to remember it's still going to cost you in the economy. And the other thing is that you would want to do it in a much more orderly way that would give companies time to adjust their supply chains and so you wouldn't have bare store shelves. And there's been some legislation that's a lot more thoughtful than what the president has in fact done. But so in any case, you know, we're going through this decoupling now very rapidly.

And it's true that there's, that's harmful to both our economy and the Chinese economy. But we've sort of declared trade war on the entire world at once. which somewhat limits our capacity to adjust as compared to China, which, you know, a majority of their exports go to countries other than us. And so one of the things they can do to adjust to the fact that we're cutting them off is they can deepen their trade relationships with other countries. And we're seeing the efforts from China to do that. We, I mean, sometimes the administration talks like they want a strategy like that too

and saying, you know, well, that's why we need a trade deal with Japan and with India and that sort of thing. But, you know, we started by giving a middle finger to all of these countries, including Japan and India and Vietnam. And so it's a weird step to try to, you know, are they trying to rebuild the Trans-Pacific Partnership? It's not a new idea that you would have a trade alliance of countries that are skeptical of China. Barack Obama tried to do that

and this sort of progressive, or this populist pincor with Bernie Sanders on one side and Donald Trump on the other really did a lot to kill that idea. So you could have a trade alliance like that, but we've made no real progress toward actually having one. And it's not at all clear to me that the administration has either a strategy or even a deep desire to cut the sort of deals that would deepen trade relationships with countries like Japan instead of trying to cut them off. And that's again because the president has these multiple conflicting influence or multiple conflicting instincts. He definitely has this skepticism of China, but he has skepticism of global trade in general. And so if you present him with a strategy that, you know, we're going to isolate China by trading more with Vietnam and Japan, it's it cuts against the president's instincts.

And so I think that's part of why they haven't had a coherent coherent strategy to do that. We had recently on the podcast, Ryan Peterson of Flexport, the CEO, talked about how global shipping is off. We're not seeing ships come from China. Trucking seems to just be collapsing. It doesn't seem like we've felt the effects really yet of these tariffs. What do you think is coming this summer for Americans?

What should they expect? higher prices are nothing on the shelf? I mean, what are the confrontances? It'll be a combination of shortages and price increases. And I think it's remarkable, you know, the president's poll numbers have already moved substantially purely on the financial market effects. We've seen these big moves in the stock market

and interest rates in the dollar. And, you know, to some extent that has day-to-day effects on people, you know, if you're about to retire, then maybe you're very focused on the balance of your 401K. People have noticed that they're unhappy about it. how unhappy are they going to be in a few months when it's not just numbers on a page, but it's actually price increases, shortages, layoffs, it's going to be a huge mess, and people are going to be pissed about it. I mean, Trump had a pretty stable approval rating

through his first term, and I think people took away this lesson that it was like, oh, he just has this unshakable base, and there's 40% of the country that adores him, and they'll never leave him. But an alternative way of thinking about that is just not that much happened. until the COVID pandemic hit in his first term. The economy was broadly satisfactory. And so why should people have changed their opinions day to day when the circumstances weren't really changing very much day to day? And then COVID hit, and I think people correctly understood that as a day as ex machina, and they cut the president a fair amount of slack about what went wrong there. And certain aspects of the COVID response were actually quite competent in the Trump administration. So we haven't

seen what it's like for Donald Trump to preside over terrible economic conditions that he created. And we're still not even quite seeing that this month. We're seeing, you know, him preside over terrible financial market conditions that he created and people don't like it. But people are going to like it even less. And we saw what happened to Joe Biden with this stuff. It's going to be very much like that, except that he will have fewer excuses than Biden did about why everything went wrong.

In past crisis, a lot of Americans look to people like Warren Buffett and John Bogle and followed their advice that never bet against America. Keep, you know, keep your money in the stock market because over time, over 10, 15, 20, years, we rebound. And something I've been trying to wrap my head around is though in the past crisis, you didn't have someone who was leading the country trying to upend the economic system. So you had this system and it was the American, it would rebound. And no matter what the crisis was, it was scary, but people, you didn't have someone who was really trying to just change the system that we kind of gotten used to. And my question to you is, I don't know if you follow the same

Twitter type handles. You have all these stock guys show the charts that whenever these three things happen 12 months later, the market is up usually. But those were different scenarios, again, where you didn't have someone at the top trying to re-engineer the way our system worked, fighting with our allies, and creating a whole new structure. Are you confident that like past crises that America will rebound like it used to? Or are we potentially in a different environment, now a different system where we're trying to change the way our country operates economically. Well, I mean, you know, I think certain things will improve over time because this policy is so stupid and either, you know, to some extent Trump will unwind it or Democrats will

retake Congress and they will use some congressional powers to unwind parts of it and then eventually he won't be president anymore. And so I, you know, the, to some extent eventually will stop hitting ourselves and that will improve the outlook. but a lot of damage can be done along the way and a lot of reputational damage. You know, if we go out and, you know, people used to mock Barack Obama for the quote-unquote apology tour,

but like that's going to be needed by the next president because we have, you know, I mean, the absurd, like the 51st state Canada stuff that the president is just being so gratuitously nasty and then also economically damaging to countries all over the world.

It is damaging to the U.S. reputation and we're going to have to try to rebuild it. One of the reasons we'll have to try to rebuild it is in order to build some of those economic links, that make us all richer, but it's going to take time to build that trust back and also trust with private actors. I mean, if you want companies to make investments that require international trade in and out of the U.S., you need to credibly commit to them that not only have we stopped doing this, but we're not going to do it again. And some of that will be possible with legislative

changes. I think that the president's tariff powers are excessive and have there have been excessive powers available to presidents for decades. No one's abused them to this anywhere near the extent that Donald Trump has. And so I think part of the solution is take those powers away from him and from future presidents. But, you know, so I don't, you know, I don't think we're doomed if that's what you're asking. But, you know, I'm not going to, I'm generally very skeptical of anyone who makes claims about, you know, this is a good time to buy. This is not a good time to buy. We can all see the same forces that are causing the stock market to move.

And if I had the power to know, like, the stock market's gone down too much or it hasn't gone down enough, I wouldn't be here. I'd be on my yacht. But is there any concern about like the reserve current? I mean, that's... I think there's concern, but I don't think there's panic. I, you know, I did a conversation for the New York Times last week with Lyle Brainer, who was the former vice chair of the Federal Reserve, and Connor Sen, who's a finance guy, who's a columnist for Bloomberg. And, you know, they both said that they're worried, but Connor basically said, well, drop the dollar as the reserve currency and replace it with what? There's not a super obvious way to reorient the global financial. system and a lot of people all around the world have a lot invested in the way things already operate. So I don't, you know, I don't think we're, you know, I wouldn't predict that we're going to see the dollar dislodged from that. And people should know, like, you know, the U.S. gets a lot of value out of the dollar being the reserve currency because people all over the

world need to obtain dollars and dollar denominated assets to conduct business and to save. That means that interest rates on U.S. government debt are lower than they otherwise would be. and that the dollar is stronger than it otherwise would be. And that means higher incomes for Americans. So if we lost that, we would all be poor. Now, again, you have this unorthodox view that some people in the Trump administration hold that the quote-unquote exorbitant privilege,

the way that the reserve currency status strengthens the dollar and cheapens our government financing, they think that's actually a burden because a strong dollar makes it harder to export. Now, I would not trade a stronger export sector for lower standards of living for Americans, but some of them want to make that trade who are in the administration.

And so, you know, arguably, they would view it as a success if the dollar was somehow dislodged from its position as the global reserve currency. But it would be a big mistake, and I think it's so hard to do it. I don't think they'll achieve it. I'll ask you a few questions about debt.

That's been another focus of the Trump administration with Doge. How serious do you think America's debt problem is, and is there any way to meaningfully address it without touching entitlement reform, which is what the administration has kind of put off limits? I mean, the debt problem is a problem. I wouldn't call it a crisis.

I mean, again, I would note, until Donald Trump created these voluntary crises, you know, the interest rates at which the U.S. government can borrow are reasonable. People out there in the world do not seem to be worried that the U.S. government is going to default on those debts. and what we, you know, typically up until the last few months, what you typically see in crises is that interest rates on U.S. government debt go down. And so, you know, you could imagine, like, oh, like an economic crisis that makes the debt less sustainable and increases the likelihood that

will default on it or that we will, you know, quasi-default on it by monetizing and having high inflation that produces the real value of the debt. But that's not what market participants feel when there's a crisis. In fact, they pile into U.S. government debt. because they think it is so safe. So I think that's the market's telling us that, you know, the catastrophic versions of this where you have some emerging market-style debt crisis where we really can't pay our bonds.

I think that has been vanishingly unlikely and the only thing that has made it a little bit more likely and that's contributed to the rise in interest rates over the last few months is just that we have this idiot president who has shown a desire to break parts of the global financial order and also to break all kinds of laws. know, if the, you know, if he won't follow other laws, who knows if he's going to pay the

interest on the debt. And Steve Myron, who's the chair of the Council of Economic Advisors, put out this paper in the fall before he was hired into that role that had ideas about how to weaken the dollar, one of which was literally to withhold a portion of the interest payments that are due to foreign bondholders. Um, so that's, I would call that proposing a default on the debt. Now, in the paper, he has this sort of like, well, it's not really a default because there's already taxes on interest income. Isn't this just like that? But so, you know, I don't want to overstate, I don't think we're headed in that direction, but I think the main non-payment risks on U.S. government debt are completely voluntary ones, rather ones driven

by unsustainability of the debt. Now, that said, we went through a 20-some-year period of interest rates near zero, and so the economic burden from the government borrowing was really low. We're back into a more normal range of interest rates, and so it's more costly. And so, yeah, I mean, I think in the longer run, you probably do need certain adjustments on, you both you need more revenue, and you probably do need to do certain adjustments on the entitlement side. One of the better success stories over the last decade is that health care cost growth actually slowed down in the last 10 years. I mean, the worst projections that we had for Medicare 10 and 12 years ago when, you know, we had the fights between Barack Obama

and Paul Ryan sort of had this idea that it was, you know, healthcare spending was going to keep growing it, I don't know what it was, six or seven percent a year. Now it's actually moved much closer in line with regular inflation. So that, at least that part of the picture has improved while these other things have gotten worse. But, you know, I mean, in 1983, you had the Greenspan Commission that made recommendations that turned into, you know, changes to the Social Security system. It included a combination of modestly higher Social Security taxes and a very gradual increase in the retirement age from 65 to 60. So at some point you could see another deal like that.

I think what I'd been saying last year, and again, you know, there's so much weird new economic stuff that's happened that I kind of feel like a lot of the long-term stuff needs to be backburnered. But the, you know, back in the 80s and 90s, it was actually a popular thing to say, I'm going to reduce the federal budget deficit. And the reason it was popular was that interest rates were a lot higher. And people had this perception that when the government went out and borrowed a lot of money, they were competing with private borrowers and driving up interest rates and making it

more expensive to get a mortgage. And that if the government cut the deficit, that it wasn't just some, like, abstract good behavior thing to have a lower deficit, that it was actually going to mean lower costs for Americans in the form of lower borrowing costs. And so I think, you know, if mortgage rates stay in the seven, eight range for a number of years, I think that will reassert itself in our politics. And that's what will make it possible to have a conversation, both about entitlement cuts and about broad-based tax increases. I mean, the last time there was a a federal tax increase that was aimed at people who made less than about a quarter million dollars a year was the gasoline tax increase in 1993.

We've had a multi-decade thing where it's like the federal government never goes and asks ordinary Americans for more money. So I think, you know, if we have elevated interest rates for a substantial period, I think that opens up the political doors to things that looked politically impossible, whether that's, you know, raising the retirement age again or whether that's, you know, an increase in the payroll tax. because those are the sorts of things that would close that budget gap over the long run.

Let me close with this, Josh. If President Trump is watching this and realizes he's made a few colossal mistakes here with his policy and calls you and says, Josh, what are the three things that you would recommend I do to make sure that America leads the 21st century economically?

What would you tell them? What would be the three policy proposals you'd say would help him achieve his goal? Well, the first thing, I mean, he's not going to like the advice because it's the complete opposite of what he's doing. But the first thing is to completely reverse the tariff policy. I mean, we shouldn't really have tariffs at all, unless it's for a national security purpose where we know that it's going to cost us and hurt the economy, but it's worth it.

For as an economic policy or revenue policy, we shouldn't even have tariffs. Even when other countries have them, people talk about this like, oh, well, they have tariffs, why shouldn't we have tariffs? Their tariffs make them poorer. in just in the same way that the tariffs we're imposing now make us poorer. And so, you know, if the Japanese want to have a tariff on American products and deny Japanese consumers access to something that is better quality or lower cost, that's bad, but it's mostly bad for Japanese consumers.

It doesn't mean that we should harm our consumers in retaliation for it. So I would say that he should become a free trader. And not only should he remove all the tariffs that he's imposed, he should ask Congress to take away his tariff power because that's the only way he'll be able to credibly promise, to investors, to foreign countries, to corporations, that the tariffs aren't coming back. So the number one recommendation

is the exact opposite of his signature economic policy over the last, you know, over the first hundred days of his presidency. And for him to give up power. And for him to give up power, which is not something he generally is. I mean, I don't know, if we're making a wish list, I could ask him to resign too.

I mean, you know, but the, so, but that's, you know, that's the overarching economic need is to like stop making, this huge mess that he has made now. And then there's a bunch of other secondary things. I mean, you know, the doge cuts have been completely non-strategic, have made no real impact in the overall amount of government spending,

but have really undermined, you know, scientific research that makes the United States in the longer run a leader in certain industries. And similarly, a lot of the stuff that's being done at universities making the U.S. a very inhospitable place to come be a foreign scholar, I realize there's a lot of people at universities who are just like useless left-wing political people producing no real valuable scholarship. I get that. But there's also a lot of people at universities who are doing really valuable scientific research that it benefits us, that that gets done in the United States and that we have the most prestigious universities in the world. He's setting about driving that away.

It's great if you're the University of Oxford. So I would tell him to stop doing that. In terms of things that he actually wants to do, I mean, I think, you know, the, I think, I think, I think, I think, think the administration's generally positive posture toward energy permitting is a good thing. And so I would tell them, you know, you know, hey, you're doing at least one thing, right? That's nice. I wish they didn't also have this weird effort to stop clean energy permitting. Like, I don't know why the president is so bothered by offshore wind. But in any case, you know, I would, I would, what I would really like to see is an administration that is

friendly toward all kinds of energy projects and, you know, electoral transmission too, which Republicans can sometimes be iffy on. Joe Manchin was trying to get a deal done around that. I would love it if they had some bipartisan energy reform deal that made it easier to build both fossil fuel projects and renewable projects. I think that would grow the economy. And then, you know, I would encourage him to do some of the longer run fiscal things that we discussed.

I mean, the tax bill that they're talking about is going to add another, you know, four or five trillion dollars to the budget deficit over the next 10 years compared to current law, which is a mistake, they should allow much of the 2017 tax cut to sunset. The best parts of the 2017 tax law are some of the corporate tax provisions. They, you know, they lower the corporate tax rate and broadened the base in certain ways. I think a lot of that should be kept. But the individual provisions basically just gave a lot of tax cuts out to rich people in a way that was not especially well designed to grow the economy and it blew out the debt. So I would let that expire. And then in the longer run, you want to talk about some sort of trade where you have some sort of entitlement reforms and some sort of broad-based tax increase.

But it's not, again, that's that long-term stuff is a problem rather than a crisis. I maybe would even be inclined to leave it to the next president who I think would probably be more competent with it than Trump. But if they wanted to look at that, that's the frame I would give them. Josh Barrow, thank you for joining the dispatch podcast. Thank you, Jamie. Summer's here. sunny days, delivered with Uber Eats. What do we mean by, almost? Well, you can't

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