Brad Setser on the Damage From Trump's Gigantic Tariff Shock
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What is the context and significance of Trump’s new tariff shock?
Hi, I'm David Weston. Join me every week for the Wall Street Week Podcast to hear stories of capitalism from around the world. From geopolitical tensions and central bank decisions to artificial intelligence, energy, and infrastructure, we sit down with the CEOs, economists, policymakers, and thought leaders whose decisions are shaping markets everywhere we find them. Subscribe to the Wall Street Week Podcast on Apple, Spotify. Five or anywhere you listen.
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Hello and welcome to another episode of the Out Thoughts Podcast. I'm Tracy Alloway
and I'm Jill Weisenthal.
Joe, another day, another emergency podcast.
We're gonna do a lot. This is a fact. We this is the I
should just resign myself to this inevitability, right?
The story of the tariffs, the market reaction, the global reaction is the central story of our time, one of the biggest stories of our entire career. I think perhaps depending on how things could go, a bigger story than the past two big stories of the great financial crisis and the COVID shock, we're gonna be doing a lot of episodes about what this all means.
This is what is mind-blowing to me because when 2008 happened, I remember thinking this was the biggest thing that had ever happened in modern finance and the modern economy. And then in 2020, I remember there was a very vibrant debate about whether or not the pandemic and the market sell-off would end up being the central crisis for a new generation. And I think in retrospect, it certainly was a lot. More people remember twenty twenty than they remember two thousand eight now. And here we are, you know, just five years later, having another discussion about how big this is inevitably going to be. So on that note, we are recording this on Friday, April 4th. The market is selling off yet again. We had Trump's new tariff announcements.
Those were released on Wednesday, April 2nd, Liberation Day. Investors have been, I mean, I would say pretty much panicking. Yeah. Yeah. Since then. Yeah. Yeah. And what's more Overnight coming into Friday morning, we've started to see some reaction from other countries, notably China. The US is one of the US's biggest trading partners. And they say they're instituting a thirty four percent reciprocal tariff on US goods. So things seem to be escalating.
Totally. You know, I'm just gonna make one short comment here, which is why I think this might be end up being a bigger story than the great financial crisis potentially. And that is banking crises happen. They happen around the world. They've happened in the US. They've even happened in the US between massive crises. And there is a playbook and there's a response and you try to reflate the economy and your stuff like this. This is different because this is a policy choice purposely aimed to completely reorient America's relationship with the rest of the world and reorient the internal economy. And so it's very different than sort of like, oh, you have a run on the bank, which happens for we had one in March 2023.
We had a run on the bank.
How did markets react to the April 2 tariff announcement?
You know, this is very different in terms of the entire relationship of both the internal and the external economy, and it may end up being more consequential for better or worse than the Great Five.
I don't disagree with you, but I'm just gonna say one thing. Number one, that's not a short comment. Number two, you're right. This is an entirely self inflicted own goal, basically, by the Trump administration. Like it is their decision to do this. And they Presumably knew what the results were going to be, right? They decided not to hold the tariff press conference while the markets were open. They knew that coming out with something that was worse than a lot of professional economists and analysts had expected was going to have this impact on the market. And here we are. So this is something that the administration has chosen to do. Obviously, there's lots going on. Obviously, we have a lot of questions.
Who do we turn to when we have trade questions? We do, in fact, have the perfect guest.
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Chapters
8 chapters
1
What is the context and significance of Trump’s new tariff shock?
0:00–3:22
2
How did markets react to the April 2 tariff announcement?
3:22–7:04
3
Why does Brad say the tariff formula is “bad economics”?
7:04–11:14
4
What are the underlying imbalances in U.S.–China trade that the tariffs target?
11:14–16:13
5
How could the tariff regime reshape the U.S. trade strategy with allies?
16:13–19:24
6
What realistic de‑escalation paths exist for the trade war?
19:24–23:37
7
What are the potential long‑term economic consequences of the tariff shock?
23:37–26:37
8
How might future policy choices affect global growth and trade dynamics?
26:37–30:21
Speakers
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