Former IMF Chief Economist Maurice Obstfeld Talks Tariffs
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Even if you didn't read the 830 pages, it had a lovely purple lavender cover. And you could walk around campus toting your Absfeld and Rogoff, and you'd get cool points just for that. Joining us now, one of the foundation academics we have on our International Macroeconomics Program, Maurice Obstfeld, he's with the Peterson Institute, with Posen and Blanchard. He is at Berkeley forever and always. Professors, thank you so much for joining us. What I see percolating right now, Maurice Obstfeld, is real tensions about supply lines falling apart, supply lines fragile because of tariffs. The interstitial wiring of our trade system, is it broken?
It's not broken yet, but it's under strain. It's under strain because of tariffs. It's under strain because of geopolitical tensions. It's under strain because of the trade war. And we can see this in the threats flying back between President Trump and China right now over everything from shipping to rare earths to cooking oil.
there just seems to be two americas one affected by goods and trade and worry and angst and another a financial boom like morgan stanley can we exist like this
Well, the U.S. economy has become increasingly financialized over the decades. And at some level, the U.S. is the world's banker at this point. And interestingly, finance hasn't seen the kind of backlash that we've seen against trade. Trade is blamed for deficits with other countries. It's blamed for the decline of manufacturing. You know, we don't see people wanting to curb financial transactions. Quite the contrary. We're seeing deregulation, stablecoins, and the like. So there really is a divorce between those two sectors. And, you know, the question I have is, can that go on forever? Yeah. Or will the trade tensions eventually feed into the financial sphere? I think they will. And professor, that's kind of where we are right now.
The folks that are supporting tariffs, they say, we are not seeing the economy slow down. We recently had a very strong third quarter GDP print. We are not seeing a material increase in inflation data, although we are now lacking data because of the shutdown. So again, the supporters of tariffs are saying, we're just not seeing those economic headwinds coming from tariffs. So my question to you is, is it just a matter of time or are corporations adapting? Oh, I think it's a matter of time. There is some adaptation, of course, as corporations look for cheaper suppliers. But just sort of look at what we've seen. We have not seen any material fall than the dollar prices that foreign countries charge for us.
We've seen some limited increase in consumer prices of imported goods and close substitutes for those imported goods, but not enough to offset the tariff. But we've also seen substantial revenue coming into the Treasury from tariffs, which is being paid by our importers. So how do you square that circle? You square it with a hit to profitability. And with the observation that firms have been swallowing these tariffs to some extent while they wait for tariff policy to stabilize and figure out what it's going to be going forward. Now that we kind of know where we are with tariffs to some extent, I think firms are going to be adjusting by passing those cost increases on.
Professor Obstfeld, synthesize here, say the work of Douglas Irwin at Dartmouth, with down the hall from you at Berkeley, Barry Eichengreen, and this whole trade upset, and the risk to the dollar. This goes back to Obstfeld, Rogoff, and frankly, back to Mundell. I'm assuming you don't have a fear of the gloom crew on the dollar.
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