Jason Furman, a professor at Harvard and former chairman of the Council of Economic Advisers, joined "Forbes Newsroom" to discuss President Donald Trump's tariff plan after he put a pause on most reciprocal tariffs for dozens of nations, kept the baseline 10% on most foreign imports, and continue to escalate the trade war with China.
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NewsTranscript
00:00Hi, everybody. I'm Bernie Lewis, a breaking news reporter here at Forbes. Joining me now
00:07is Harvard professor and former chairman of the Council of Economic Advisers, Jason Furman.
00:12Professor, thank you so much for joining me. Great to be with you.
00:16Certainly a lot to discuss. We have seen tariff chaos in the past week, so let's just break it
00:22down really quick to recap. On April 2nd, what President Trump dubbed as Liberation Day,
00:26he unveiled his sweeping tariff policy. They went into effect on Wednesday night right after
00:31midnight. And then a little over 12 hours later, President Trump completely reversed course.
00:37He paused most of the reciprocal tariffs. There's going to be a baseline at 10 percent on most
00:41trading partners. And he continued to ratchet up the trade war with China. From the perspective
00:47of an economist, can you make sense of the moment we're in right now? It's in some sense very
00:53difficult to make sense of because it's just so unprecedented, the speed with which all of
01:01this has happened, the amount that it's been changing day by day. But some things are quite
01:08obvious, which is the sign. Prices will go up because of this. GDP will be lower because of this.
01:17And just how much depends on all sorts of complicated factors that are still unfolding.
01:25I want to read something that you said yesterday, and that was before the pause. And you said this,
01:31I don't see how the president can get rid of what is now a massive amount of uncertainty,
01:35and that the only way to put that genie back in the bottle would be for Congress to take tariff
01:39setting power back to itself. Do you think that the genie is now in the bottle when it comes to
01:45President Trump deciding to pause the tariffs? And how much uncertainty is out there, considering
01:51the White House was going on for a week saying he's not going to pause, he's not going to blink,
01:55and then he essentially did pause?
01:58There is still a huge amount of uncertainty. You know, tariffs on a lot of countries are 10.
02:04They could easily go to 20. They could easily go to 30. By the way, uncertainty is both directions.
02:09They could also go to zero. If you think a tariff might fall, you're going to hold off on your
02:14purchases and, you know, wait to see if it falls. So that genie is still very much out of the bottle.
02:21So there's a bit more certainty than there was before the president announced the 90-day pause.
02:28But there's still just a huge amount of anything can happen.
02:33Do you think that President Trump's tariff policy is a bit right now like the boy who cried wolf,
02:38the president that cried tariff, essentially, because he had this is not the first time he's
02:43paused. He's paused before with Canada and Mexico. He's ratcheted up with China. I mean,
02:49what does that uncertainty do? What are those long and short term implications of that?
02:54In general, it just says you it's you're better off waiting before you make a decision. And if lots
03:00of businesses all reach that conclusion at the same time, they all wait, they all hold off on some
03:05capital plan because they don't know what's going on. That's the type of thing that creates a dynamic
03:12that leads to a recession. The thing you want to do as an economic policymaker, the most important
03:18thing is certainty and predictability. That's the first rule of economic policymaking. And that's the
03:24very last thing that's going on right now. Do you think that the chance for any type of certainty
03:32is gone now considering this whiplash that we've seen within the past week?
03:38Yeah, I continue to think that unless Congress takes back the power to set tariffs, it is their
03:42power. They granted it to the president. Or if the Supreme Court says you're not allowed to do this
03:49because you're not allowed to make up brand new massive areas of policy all on your own, absent one
03:55of those things, President Trump is president for three and three quarters years. Trade deficits,
04:01that's his biggest frustration. They're still going to be with us. In fact, we could see those trade
04:06deficits growing with countries like Vietnam and Japan as things that used to be traded with China
04:13end up coming from those countries. I know there have been escalating recession fears after President
04:20Trump unveiled his sweeping tariff policy in the beginning of April. And earlier this week, the chief
04:25economist at Moody's Mark Zandi said that he believed that the chance of a recession this year
04:31was at 60 percent. And the only reason that wouldn't happen is if there was some sort of off ramp.
04:37Now that we're seeing this pause, what do you think about a recession? Do you think that this was
04:42an off ramp?
04:43This pause is a partial off ramp for sure. And it's eased my recession fears some, but they're still
04:53very, very elevated because not just the direct effect of all of it, but all the uncertainty that
04:59we've been talking about, the pessimism that consumers has, you know, what's going to start
05:04happening when you really do see this at the stores you're shopping at and delay.
05:10President Trump was asked about his motivation behind pausing the tariffs. And it was reported
05:17that he paused them largely because he saw the bond markets reaction. He said it was because he saw
05:23people getting queasy. He also used the word yippee. What are your thoughts on his reasoning behind
05:28pausing the tariffs?
05:31You know, look, it's good news that he pays attention to markets because markets tell us some
05:36really important things. And, you know, having some feedback mechanism and governor is a good
05:42thing. The bond market was definitely, I don't know exactly what yippee is, but I don't know exactly
05:48what was going on in the bond market either. So we might as well call whatever it was yippee.
05:55But it's still the case that the broad market equities are down about 10% this year. And that is
06:03because of the tariffs that are still in place. If he took away all of the tariffs, that market would
06:08go back up 10% or more tomorrow. So he's still somebody that is willing to tough it out to a
06:17greater degree than certainly I would have expected six months ago.
06:22In the same post where he announced the reciprocal tariff pause, President Trump said that he was
06:27ratcheting up this trade war with China. In that post, he said that the tariff would be raised to
06:32125%. Just before you and I hopped on this call here on Thursday, the White House said that they
06:38were actually at 145%. What do you make of this trade war escalation, this tip for tap with China?
06:46That China's our third most important trade relationship in the world. It matters an enormous
06:52amount to both our consumers and our businesses. Now 125, 145, even 104. All of those are almost
07:03prohibitive for a lot of things. And what you're going to see is things getting shipped from China
07:09to a neighboring country, you know, Singapore, Vietnam, and then coming from there to the United
07:14States and avoiding the tariffs. Now we'll try to stop that. But stopping that will be a game of
07:21whack-a-mole. So a certain amount of, you know, flexibility will and substitution will get around
07:28this. But, you know, not all, not everything can. And it doesn't seem as of now that the United States
07:34or China is going to blink. Every time the United States has imposed tariffs, China has responded with
07:41retaliatory tariffs themselves. Who do you think is going to blink first? Is there any indication,
07:45China or the United States? And what does this mean for the everyday American if neither does?
07:53Yeah. So part of it is who is more hurt by it? And I think right now it looks to me like the United
08:01States could be more hurt by this escalation of the trade war than China. China has long had a problem
08:09with not enough fiscal stimulus, not enough demand, not enough consumer spending. But they're taking
08:15steps to fix that. So they're doing some big macroeconomic steps to insulate their economy from
08:21the trade war. We're not taking steps like that in the United States. We'd have a hard, much harder
08:26time doing it here. So I think it's possible they can insulate themselves. They can tough it out.
08:32They don't have a political system of the type that we do. And so that they can outlast us and we'll have
08:37to blink. But, you know, if the two countries blink simultaneously, that's fine with me too.
08:44Through this policy, it really seems that President Trump views global trade as there is a winner and
08:50there is a loser. And he wants America to obviously always be the winner. From an economist's perspective,
08:56is that the best way to look at it? No, of course not. Gains from trade. You know,
09:02if you buy something from a store, the store is happy to have your money. You're happy to have the
09:07product. No one took advantage of everyone else. International trade functions in the same way.
09:14And it's not like with this trade war, you've seen, you know, people increasing the growth
09:18forecast for one country and lowering it for the other. They're lowering it for everyone. The only
09:23question is whose growth forecast is going down more than the other. So it's all about what share of
09:29the pain you're feeling. But I'd rather no one and especially not the United States feels any pain.
09:35And the only way to do that is to go back to a greater degree of trade integration.
09:40Americans have been having economic concerns since pre-November 2024. And that was the top
09:46issue facing voters this election. And within the past week, when I've talked to voters about the
09:53impacts and the implications of the tariff policy, the questions I've gotten are, is now a good time
09:58to buy a car. What does this do to my summer vacation? Will grocery prices increase? I don't
10:04even want to look at my 401k. Will that bounce back? I mean, when the everyday average American
10:10hears that President Trump paused this for 90 days, largely, what should the reaction be? I mean,
10:15how does this impact them?
10:18You know, first of all, for most people in the market, you're not going to be able to outguess
10:23the professionals. The professionals themselves aren't able to outguess and outpredict Donald
10:30Trump. So buying and holding is almost always the right strategy. That's certainly what I'm doing
10:37right now and think people should do. As you're doing consumer purchases and the like, you know,
10:44it gets trickier. You know, do you want to buy iPhones now while you still can? You know,
10:49or do you want to hold off on that purchase because you're not sure what's going to happen
10:53to your 401k? There's a lot of ways in which consumers will and should adjust to all of this.
11:00I think it's important in these tariff conversations to timestamp where we are right now,
11:05because things have been changing really by the hour. It's Thursday afternoon. What specifically
11:11are you looking out for next?
11:14I'm looking out for both unemployment is going to be going up and inflation is going to be going up
11:19what is going to be the ratio of those two and which of those shoes is going to drop first.
11:26So all of the macro data we've gotten so far is for the month of March. The job market looks great
11:32in March. Inflation looks fantastic in March. What happens when we get the April data? What happens
11:40when we get the May data? What happens when we get the June data? That's what my eyes will be on.
11:46Well, when we get the April, May and June data, I hope you come back on and join me.
11:51Thank you so much for coming on. You are welcome back anytime.
11:55Thanks for having me.