Demystifying Trade, Tariffs, and the Economy

This event was part of the 2025 CFR Local Journalists Workshop, which is made possible through the generous support of the John S. and James L. Knight Foundation.

TRANSCRIPT

VOGT: I hope it inspires confidence that I needed to be shown where the stairs were—(laughter)—my ability to lead our conversation today.

Hello, everybody. I’m Justin Vogt. I am executive editor here at Foreign Affairs, which is published by the Council on Foreign Relations. Very, very pleased to see you all this morning.

I will say this is one of my absolute favorite things that the Council does every year. I will tell you that I imagine it must be really sort of annoying, as people who work in local journalism, to be constantly told by people, oh, you know, I love local journalism. It’s so important. It’s so important for our democracy. And then you kind of—I imagine you go back to the office and you’re faced with shrinking budgets and shrinking staffs and difficulty with subscribers. And you may think, as some of the economists up here would say, this is a case of revealed preferences, of people constantly saying that they like one thing and then their behavior doing something else.

I just want to say, before we start, I think we do not have a demand problem with your business. We have some kind of combination of the supply problem, the business-model problem, all the kind of, you know, hot air that you might hear about what you do and how important it is.

I can tell you that, at least speaking for the four of us and for the rest of the Council, we really mean it. We’re so glad that you’re here. If there’s some small way that we can make it easier for you to do your work, that’s what we want to do, because we really believe in it. I’m going to try to do my best, and I know my panelists are going to try to do their best to do that, because we really do believe that when we say that. So thank you for being here. Thank you for giving us the chance to help you do your jobs.

OK, that said, let me introduce our terrific panel. These are the kinds of people that I’m so lucky to have the job that I have, because I get to talk to people like this. I’m really excited to hear from them this morning.

Shannon O’Neil. She is senior vice president and director of studies and the Maurice R. Greenberg chair here at the Council on Foreign Relations.

To her left is Jonathan Hillman. He is a senior fellow for geoeconomics.

And to his left is Rebecca Patterson. She is a senior fellow here at the Council on Foreign Relations.

You have more info about them in their bios. I won’t bore you with all the details. Suffice it to say they know what they’re talking about.

OK, we have talked a little bit amongst ourselves before this, and I’m going to, you know, tear down the fourth wall. I’ll tell you that we did a little bit of prep here, precisely because we want to make the best use of this hour. Here’s what we’re going to do. I’m going to ask each of our panelists basically to tell me and to tell us what is the one thing that, when they see coverage of the topics we’re talking about this morning—trade, tariffs, competition, economic competition—what is the thing that they often feel they just sort of want to scream at the top of your lungs, ah, you’re not saying this or you’re missing this or you’re missing that? We’re going to hear about that from them.

I might follow up a little bit with them, but mostly I’m going to back off, because I want you all to be able to ask them questions. The more I’m out of the way, the better here. I may use my moderator prerogative actually to ask some questions of you at the end if we have time, because I’m interested in what you have to say about these topics. I’d actually like to learn a little bit from you all about this as well.

So why don’t we get started with Shannon? I’m going to make you go first. You’re the director of studies, so you get to go first.

O’NEIL: Great.

VOGT: The thing I know, when we spoke, you know, the way I would describe what you talked about was goods versus services. And I’d like to hear you explain that to everybody, why you feel that that’s the topic that’s often missing in these conversations.

O’NEIL: Excellent. Well, welcome to CFR. It’s great to have you all here. And I got the chance to sit in last night on David Sanger and Mike Froman’s conversation, which I hope you all enjoyed. I certainly did. And look forward. Hope you have a great day today, and hope we will do you proud in starting off.

So, you know, the thing is, I read lots of the trade and tariff conversation that is going on. The thing that really is missing to me is services. And as I look at this—and we all know that the U.S. economy today is run on services, right; 80 percent of the jobs and basically GDP of the U.S. is services.

But I do tend to see that the conversation around services is often, you know, the idea that these aren’t actually sort of the jobs of the future, right? We think of services. We think about, you know, maybe your server at a restaurant or, you know, the retail clerk or something, that these aren’t the sort of jobs that people want.

And, you know, if you start looking at the economic data, that’s actually not true, right? First, services jobs on average pay 25 percent more than manufacturing jobs. So if we’re really looking, you know, to build prosperity—and, look, I grew up in a small town in Ohio; I know lots of people from all over the United States—there are real challenges out there, right? These are the ones that—these are not—you know, we are trying to address these challenges. There’s lots of reasons why we have gotten to the place we are. But services actually are better jobs on average.

Now, of course, there’s all kinds of services. But you look at the United States and more people are employed in, you know, financial services, banking and insurance and those services. More people are employed in all kinds of hospitality. You know, every airline flight that we take, that’s a service, the pilots and the like. Lots of people are doctors and nurses and lawyers and technicians and people who are involved in all kinds of computer services. There’s all these services out there. And they pay significantly more than manufacturing.

So one is, if we’re trying to make America more prosperous, we’re trying to spread wealth and reduce inequality, why are we not focused on those jobs?

The second thing is that when I look at trade, and tariffs in particular, you know, in this conversation, we are a servicing-export powerhouse. We export over a trillion dollars’ worth of services every year in the United States. And it’s one of the areas where we are most competitive. We have—you’re talking about trade deficits and surpluses. We have with the world a $280 billion surplus in services. And this is the part of trade that’s actually growing the most.

You know, services are traditionally less traded than fiscal goods and the like. As we’ve seen kind of globalization of the last forty years, more goods have crossed borders than services. But if you look at trade over the last, you know, five years, goods trade has kind of stagnated or been pretty flat. Services is just on this uptick and growing, growing, growing. So it’s a growing space to get into. And we’re better at it than lots of other countries.

And so I guess, as I look at these debates, if I’m trying to think about how to solve the problems of the United States, I would focus on this. I would double down on how we do this better and how we get our services out into the world so we benefit here at home. So that’s what I think is missing.

VOGT: And the idea that if you focus on goods and you’re using tariffs as a kind of tool to increase manufacturing so you’re making more stuff and selling it, that has some kind of downstream effect on those service jobs, right?

O’NEIL: Yeah. So, you know, we look at the United States and even the challenges and uncertainties. We’re pretty close to full employment, right?

VOGT: Right.

O’NEIL: Right? We don’t have a lot of—you know, if some of the other policies that are coming down the pike, we don’t want to bring more people into the United States in terms of migration and the like, we are not going to see a growing labor market or labor pool that needs to be sort of employed. And so if you want to bring back manufacturing, those workers are going to have to come from somewhere. And so they’re going to have to come from other parts of the economy. You know, you start cannibalizing from other parts.

The other thing I’d say with services is this is not just a, you know, financial center like a New York or a D.C. This is not an East Coast or West Coast or coastal phenomenon, right? Some of the biggest—for instance, financial services is Texas. It’s Arizona. It’s Florida. You see red and blue states alike have services and have exports of services as well. So this is something that is pretty broadly based across the United States.

VOGT: I’m glad you made that point.

Jonathan, you had told me that what you wanted to zero in on was this problem of having a national-security justification for a lot of our economic policies. Tell me why you think that’s a problem.

HILLMAN: Right. So today a lot of the tariffs are being justified in the name of national security. There’s a whole set of reciprocal tariffs that are being negotiated right now, but then there’s also a whole set of 232 tariffs that are being done through the Commerce Department, only some of which have actually been applied, right? But there’s many others that are being investigated and that we expect to see further action on, probably in the not-too-distant future, so in areas like critical minerals, semiconductors, copper, lumber. And then we’ve got additional cases on autos, trucks.

I’m probably missing one or two here, but that’s because we’ve now seen more of these cases in recent months than we’ve seen in recent presidencies. So just the use of this tool has really ticked up. And I think we need to ask what are the national-security impacts of using this tool, even in the name of national security?

I think the defense industry is actually a good area to look at when we’re thinking about this, and maybe some of the unintended consequences of these tools. A lot of the defense products that our military uses are dependent on quite complex supply chains. So an F-35, for example, very complex, has got over 1,600 suppliers. It involves suppliers in over forty-seven states, and over 1,200 of them are small businesses. So that’s just a vast set of companies that are involved in that supply chain, many of whom are now having to adapt to business conditions that they weren’t planning for and, you know, for which it may be very difficult on the margins that they operate on to continue to get by on.

And so, as we know with tariffs, ultimately the producer of a good usually passes that cost down to the consumer, right? There’s sort of debate sometimes about how much of that cost is passed on, but typically the cost gets passed on to the consumer. So in this case, who is the consumer? It is the U.S. government, right? The U.S. government is the consumer of these defense items. And so it feels like it’s a little bit of some self-inflicted harm here.

And then we’ve also got some second- and third-order consequences where, as partners and allies who are involved in these supply chains and who have been customers of these defense goods, are now incentivized to, when they are raising money, as the EU is doing, to spend on defense items, to spend it on specifically European companies and not U.S. companies. And so we’re messing with something that is very complex, and it’ll have real impacts, too, for a whole set of small businesses across the country.

VOGT: What do you say to someone, though, who—I can think of a likely rejoinder to this being, OK, look, you need some justification to take these steps. You know, this one’s kind of on the shelf. We’ve used it a lot for a lot of other things. Is it really, you know, that harmful to just stretch it a little bit? You know, is there—can you put a finer point on, like, why should that particular justification should we be wary of, compared to just—you could come up with all—you know, Trump has used these kind of emergency declarations. Maybe that’s part of the problem is that there’s just kind of an improvisational quality to a lot of this agenda. Can you talk about that a little more?

HILLMAN: Sure. So I think the application of these tools, the 232 in particular, has really—

VOGT: Can I interrupt you?

HILLMAN: Sure.

VOGT: What is a 232?

HILLMAN: So this is an authority that is used—typically the Department of Commerce will do an investigation on whether the import of a good is having a negative impact on national security. Traditionally, the bounds of that investigation has focused primarily on two areas, impacts on the defense industrial base and impacts on U.S. critical infrastructure.

Also, traditionally, we’ve made a distinction among sources of supply. So we’ve said, OK, if we’re getting something from Canada, for example, that feels safer to us than getting it from an adversary, right, so trying to distinguish among sources of supply.

Right now we seem to have sort of enlarged the scope in both respects. We’ve gone—we’re including things, I think, outside the bounds of defense and critical infrastructure, and we’re not distinguishing enough among sources of supply. And so that’s going to capture just much more. And there hasn’t, at least to date, been much of a willingness to make exemptions, which has been another way historically that you use the tool a little bit more surgically, right? So you say we’re going to carve out this country or this set of goods from the application of this tariff to reduce those negative impacts. So that’s something we could see in the future. We just haven’t seen it yet.

VOGT: Interesting. Interesting. So foreign equals bad is kind of the problem here if you’re not distinguishing between allies, rivals, trade partners. That’s interesting.

OK, Rebecca, tell us a little bit about the problem that you see where you have debates about trade and tariffs going on, on the one hand, and then a sort of separate conversation happening about tax policy and the reconciliation bill that we’re hearing about in Congress. You see a very clear connection between these things. It was interesting to me when you pointed it out. I’d love to hear you explain it, because I think it’s very interesting and valuable.

PATTERSON: Thank you. Thank you. And thanks again to all of you for being here today.

I don’t know if it’s in my bio or not, but I actually started life as a journalist at the St. Petersburg Times, interning down in Florida. And then my first beat, actually, was general covering Washington, D.C. My very first story was Clarence Thomas and Anita Hill. That was a great way to break in, trying to find my members of Congress afterwards in the scrum and not having a phone to see what they looked like or find them. So I’m a huge fan of everything you do and just really happy to be here with you.

So I left journalism after about eight years to go to the dark side, into finance. And I’ve spent about thirty years as a researcher and investor. And I started my life in finance covering currency markets. So it’s really interesting to me today to have an administration that wants to continue to maintain the dollar’s globally dominant role but also try to weaken the currency partly to help make manufacturing stronger through more competitive exports.

So, as you said, we’ve got this trade policy going on with the White House. And then within Congress we have the reconciliation bill being debated right now, a lot of conversation today on the Hill. Secretary Bessent, the treasury secretary, is probably in between. He’s probably the main link between the two.

And what I think is missing, in when I read the media every day, is the link between the two. They’re almost being treated as silos to me, from what I read and watch. And I think about them as heavily interconnected.

So, just to give you an example, when we think about what’s happening with trade policy today, we’re seeing that the dollar is selling off. The dollar against a basket of peers is down about 7 ½ percent from January 13, which was its peak early in the year. We’re seeing stocks selling off. Now, U.S. stocks have bounced quite a bit in recent days, but they’re still one of the worst—I think the worst-performing major equity market in the world so far this year. And we’ve seen bonds initially sell off. So the yields rise, prices go down. And then they’ve sort of stabilized.

But usually, in this kind of environment, you’d see bond yields fall. You’d see prices go up as there’d be a flight to safety. That’s not happening. So when you see all three of these things happen at once—everything sells off—it tends to suggest a flight out of that market, which normally you would associate with emerging markets like Turkey, not the United States. So that in itself is unusual.

But the thing I would hone in on here is what’s happening with foreign capital coming into the U.S. ties over to what we’re thinking about with the fiscal situation. And there’s a couple of different ties, but let me just focus on one right now. Foreign investors own a fairly large percentage of the total U.S. Treasury market. The Treasury market is huge. It’s about $30 trillion, by far the biggest government bond market in the world.

Foreign investors have been what we call price-insensitive buyers. They don’t really care what the yield is. They want them for the liquidity and the safety. So whether the yield goes up or down, they’re buying it. And by doing that, they help keep our borrowing costs low. And that translates into how much we have to pay to service our government debt.

And if you look at the Congressional Budget Office or other reports that are tracking our fiscal situation, how much we have to pay to service the debt is ticking higher pretty steadily. And think of that as dead money, right? That’s revenue that the government’s bringing in, and instead of it going towards infrastructure or education or defense, it’s just paying the interest on our bills. So it’s not getting any productivity. It’s not doing anything to support growth in the country.

So as foreign investors decide they are going to buy fewer U.S. Treasurys—and that’s what appears to be happening, albeit slowly; it’s not a crisis, but it does appear that they’re rethinking how much they want to own in U.S. Treasurys—all else equal, that pushes up the yield on the U.S. Treasury bond.

And that has lots of impacts, right? If you have a higher ten-year Treasury yield, it means a higher mortgage rate. So it hurts the housing market. It means it’s more expensive for you to take a loan to buy a car. But it also translates—these higher costs translate into higher interest costs on our debt, which means Congress has less money left over from the rest of the revenue they generate to spend on stuff that actually translates into growth.

So what I would love to see more of in my—if I could click a switch—and the hard part, I think, with this is that it’s not simple. A lot of these issues are very nuanced and complicated, which is why they’re hard to explain. I mean, when I started at the St. Pete Times, I always thought, OK, how do I explain this so my mother understands it, right? She has an education, but she’s not necessarily an economist, Ph.D. She’s not a finance professional. How do I get it through, all of its complexity? But I think there’s a real service to be done today to explain how what happens on trade affects the fiscal, and what happens on fiscal affects the trade. And what’s happening to the dollar affects both.

VOGT: I want to ask you whether you think some of this, what you’re explaining, the realization is behind what looks to me like a bit of a retreat on the tariffs. Is this sort of starting to sink in a little bit?

PATTERSON: Definitely. So it was very interesting to me earlier in this administration when both the treasury secretary and then the president, a little bit after, both started talking about the ten-year Treasury yield. Now, in Trump’s first term, he talked quite a bit about the equity market. It almost felt or I think people perceived that it was a barometer for his feeling about how well he was doing.

This time there’s been a relatively greater focus on bond markets, which, again, given that it does impact businesses’ ability to borrow money to grow their companies, right, and households’ ability to buy a home, buy a car, et cetera, it makes sense that that’s a focus, as well as just for the fiscal outlook. So it is a switch.

And after the liberation-day tariffs were announced and we saw that trifecta of dollar down, stocks down, bond prices down, yields up, and Treasury Secretary Bessent and then President Trump—I think Trump’s word was that it was queasy. The bond market was queasy.

VOGT: Yeah, it was queasy or people got—what was it?

PATTERSON: Yippy. Yeah, I saw—

VOGT: Yeah, yippy. They got yippy.

PATTERSON: I saw “yippy” and “queasy.” So—(laughter)—but interesting, right, that the president focused on this at all. And to me that’s quite telling. And I think it did contribute to the ninety-day pause. And it’s definitely something they’ll continue to watch.

VOGT: Let me ask you one last follow-up, and then I’m going to ask more of a round of questions before we open it up. The retreat on China has seemed sort of—I don’t know if I want to call it a retreat. The change on China has seemed a little erratic. And I don’t know—where do you think this is going to land? And, you know, it just seems to me that—

PATTERSON: Aww.

VOGT: Right. Yeah, you can tell. (Laughter.) You can just sort of—everyone write this down. You can know where—you know, how to bet. But I really—I really would love—I mean, I’m watching this. This has been true a lot over the last couple of months. I just have no idea where the plotline is here. Maybe you don’t either. But you’d have a better sense than I.

And I guess what I’m wondering is, it looked to me like what you just described was a—you know, there was this big liberation-day announcement and then kind of a freakout, and then pulled it back. Is that your sense, that the same kind of dynamic is happening with China? Because it seems to me that China has been treated somewhat separately, partly for the reasons that you’ve been talking about, Jonathan, this national-security justification. Is it the same script, or should we consider them different?

PATTERSON: I honestly don’t know if there was a strategy to these sequences or if it was more—I’m going to borrow your word, because I like it—improvisational. It was interesting to me that Secretary Bessent, after they had the meeting in Geneva, hinted in his public comments that the initial trade steps have been too aggressive, and now they were on the right page. He was—it was almost a slight against maybe some of his colleagues in the administration. It's an interesting quote, just to go back and rewatch what he said in that press conference.

I think President Trump and the administration very likely got an earful from donors, from large U.S. corporations, maybe from other governments, saying you’re going to have empty shelves. I mean, we know that, right? That was in the press, that some companies said you’re going to have empty shelves in weeks. And I don’t think the president wants, even if it’s short-term pain for a long-term gain, to have that much short-term pain that could hurt him and his party in the midterms.

So I would—again, all of this is my speculation, because I can’t read the president’s mind. I mean, it would be pretty extraordinary if I could. I could be so wealthy. (Laughter.) Just kidding. That was a joke. That was absolutely a joke. (Laughter.) Not for attribution.

Anyway, I don’t know if there is a grand plan except that he is cognizant of keeping support at home and supporting the economy.

VOGT: There do seem to be some kind of guardrails. It’s not exactly procedural ones, but almost emotional ones or psychological ones, I would think, yeah. Go on, yeah.

PATTERSON: I would just add, not just the CEOs probably getting an earful but consumer sentiment, right? We’ve seen a lot of polls that show that people are really worried about inflation, that consumer sentiment is turning. And so I think those matter as well, just to add to the guardrails; and members of Congress, right? We saw during the spring recess, when people went home, there were some pretty vocal, you know, townhalls around the country. And I would guess some of that came back to the White House as well.

VOGT: Yeah. I’m hopeful we might hear a little bit more about those responses from the people in this room who may have been seeing it firsthand in a way that we weren’t.

Shannon, regardless of where this kind of all lands, I mean, I think we can assume that at some point in the next few years that there’ll be some kind of clarity about what the Trump trade policy is, or at least what the basis of it is. They may keep improving all the way through. It’s, you know, kind of a dance. But we’ll have a little bit of clarity.

I’m wondering if you’d kind of step back from that and think about the kind of larger changes that we ought to be expecting or thinking about, if it’s possible to think past these things. What is it that, when you put on the kind of—when you put those binoculars on, like, what do you see coming down the pike in that way?

O’NEIL: I mean, there is—as we’ve just talked about, there’s lots of fluidity in what’s happening. But I do think we have seen a sea change that will last probably for these four years, if I’m crystal-balling it too, you know, with all the opacity that that entails. But I think we have seen a change.

And I think, even in the walk-backs and the pauses that have been put in place, we see that this administration is very committed to a 10 percent tariff on pretty much everybody else from the world. So we saw that with, you know, one of our closest allies, the U.K., this trade framework that was laid out just this week. There’s a 10 percent tariff there. We saw it with a geostrategic rival, with China. There’s a 10 percent base tariff as well as some other tariffs because of fentanyl and the like.

And I think that is something that’s going to stick. And that is, you know, if you’re thinking about it vis-à-vis, you know, 40 percent tariffs or 145 percent tariffs, 10 percent doesn’t seem like so much. But 10 percent tariff from the United States on the rest of the world is a fundamental change from, you know, January 1, 2025.

And those, I think, will, you know, continue to go on and not to—I will totally attribute this to Rebecca, because we were talking in the green room earlier, but it adds to the point is that, back to her, you know, the balance of the trade policy and the fiscal policy, if the fiscal policy that gets passed, the trade, the tax bill that gets passed this year, calculates in those tariffs as revenue-generating, it will be very hard for any future government to take those tariffs off, because you’re going to have a—you’re going to have a deficit regardless in all the—you know, the plans that have been laid forward. But you would have an even bigger deficit if you took those tariffs off. So we have tariffs that are here to stay.

And I think that has sort of longer-term effects. I think it has fundamental ramifications as we go forward for the U.S. economy, the fact that we’re a less open economy. I mean, to be clear, the United States has never been, or not in the last—you know, in all of our lifetimes here, has not been a trade-dependent economy. We are one of the more closed economies in the world, right? Trade as a percentage of GDP is just about 25 percent of GDP. You look at other countries—you know, you look at a Mexico or a Europe, we’re talking 60, 70, 80 percent.

PATTERSON: And you’re saying trade imports plus exports.

O’NEIL: Yes, right.

PATTERSON: So exports alone are about 11 percent of GDP.

O’NEIL: About 11 percent, yeah. So taking trade broadly, it’s just not that important, because we are a big country. We have so much that just goes between—you know, is made here and consumed here. It’s services that are, you know, performed here and consumed here. It’s not that big a part. But it is an important part, and it is part of what is competitive.

And as I look at sort of the future of the United States, right, we have 340 (million), 350 million people in the United States. You know, demographically we’re, you know, better off than some countries, but we’re not going to see a huge growth as we look forward to the next twenty, thirty, forty years. You know, there are—95 percent of the world’s consumers live outside of our borders. And if you want to cater to them, if you want to provide for them—and, you know, that’s a way to grow is to cater to the 8 billion people that don’t live in the United States—that’s going to be trade in some way, shape, or form.

So I guess, as I look forward, I do think we’re setting in a more closed economy. We’re setting in frictions that make it, you know, more expensive to bring things in that are inputs that go into the things that we buy here. It also makes it—you know, adds just another kind of barrier or another, you know, something you have to overcome if we’re trying to reach those other 8 billion consumers that are out there in the world. So it sort of adds just a little bit more of a weight.

And, you know, as we go forward, I think, we will see more of it. It’s going to be—even at 10 percent, that’s going to be a fundamental change for, you know, big corporation, you brought up, but actually for the small and medium-size businesses that are looking to clients abroad, right, looking for customers abroad, or are bringing in inputs, pieces, parts that go into what they make for U.S. consumers. So it really is something that hits smaller and medium-size businesses that are, you know, all over the United States, perhaps more than the big corporations that can balance because they already have a global footprint.

VOGT: And there’s really no going back, We’re going to be locked in in a lot of ways—

O’NEIL: We’re going to be locked in.

VOGT: —as Rebecca pointed out.

Jonathan, here’s a sort of devil’s-advocate sort of question. And I’m saying devil’s advocate in the sense that, you know, if, broadly speaking, everyone on the stage—and the Council sort of is interested in a kind of—in free trade and in global markets and, you know, the kind of liberal order that, you know, trade is part of, when I take a step back from this and I try to see this from the perspective of other countries, governments in other countries, businesses in other countries, just, you know, looking at what’s happening and being on the receiving end of the tariffs, the kind of, you know, somewhat abusive language, I sometimes think to myself, if I were in a country that’s, say, not China—let’s say, I don’t know, Indonesia or Brazil—if I had—if I see this as a choice, I’m not really sure what my choice is except to sort of play along to the best that I can.

Are there really, like, realistic alternatives to—you know, is there really a world that you can see geopolitically where other countries—smaller, medium-size countries—somehow work around the United States or choose China as a kind of pole to attach themselves? Is that really realistic? Or is part of what we’re seeing just the fact that the United States, because of its immense military, economic power, its market dominance, if we want to improv, like we kind of can, and everybody else just has to follow along? Is that—what is that point of—why is that not correct?

HILLMAN: So I think that there is—there’s some truth to the fact that the U.S. is a large economy. We are the provider of many public goods. We have longstanding relationships, and economic relationships in particular, and it’s difficult to flip the switch off on those, right? And so I do think that there is some resiliency baked into all of this. And so we’re not going to overnight, you know, wake up then in a world in which the U.S. has been entirely isolated.

However, there’s a lot that can happen between, you know, that scenario and where we are today. And to me, I think, the sort of most concerning signs are when we see close partners and allies beginning to view the U.S. as a source of risk and to—I mean, we’ve spent years trying to encourage companies to move out of China and to sort of derisk some of their supply chains. And in some respects that is the future that we may find—we may be sort of China in that scenario.

VOGT: We’re the risk that they need to mitigate.

HILLMAN: Yeah. So, I mean, people—you know, some CEOs talk about, you know, not China-plus-one strategies but U.S.-plus-one strategies, right, for their supply chains. The level of uncertainty now is very difficult for businesses to operate in, for partners to operate in.

I sort of made an allusion to this in the beginning. But we’ve got close partners who should be spending money with us on joint military systems who are now considering spending that on their own systems. And politically it’s very difficult for them to justify otherwise.

And then you’ve got, I think, a whole set of activities that we’re just seeing the beginning of, attempts for countries outside of the U.S. to come together and to lower their own borders, deepen their own integration, because many of them still see opportunities in that path and are not going to, you know, wait for the U.S. necessarily to decide whether it wants to be part of that.

VOGT: You know, as you’re speaking—and this will be my last question. I’m going to direct it to you, Rebecca, and then we’ll open it up. Underneath what you’re talking about I think is the issue of trust—reliability and trust. And that those are things that investors and just people all over the world, ordinary people, have sort of tended to associate with the United States. You know, Rebecca, you’ve written about the dollar a lot, especially recently you wrote a—I recommend everybody read this great op-ed that Rebecca did in the Times recently on what—you know, why a weaker dollar is not necessarily a good thing. Even underneath that, when I was reading that I was thinking to myself about this whole web of things that sort of makes America slightly different.

A lot of it has to do with sort of the rule of law, the recourse that people have to courts, to all the parts of our kind of deeply embedded system that we just kind of take for granted. You know, well, if something goes awry you can sue somebody, and then, you know, you’ll have your day in court. There’s a regulator that’s there, that’s watching, that can see—you know, make sure there’s no—everything’s on the level. One thing I’ve really worried about in the last couple of months is that that is starting to crack a little bit. That there are norms that are shifting. And that—I wonder about the perception, you know, about the U.S. as being riskier. How much of that has to do not so much with our foreign policy—with, you know, what we do about tariffs and where we deploy troops or whatever—but how we regulate markets here, and how we deal with, you know, basic sort of rules of the road. Have you—does that worry you as well?

PATTERSON: Yeah, in Trump’s first term I was looking at this, not just because of the United States. A number of countries around the world getting my attention. And I just wanted to see, is the nervousness that some people feel, does that actually have an economic or financial market impact? Or is it getting overblown in sentiment surveys and maybe in certain—not here—media articles, and it’s actually not as bad as we think it might be? And so I got data from Democracy Index and a few other providers that track measures of institutional power, freedom of institutions, freedom of elections, freedom of the media, et cetera, et cetera. And you could create an index. And then also include sovereign credit downgrades. And you could track it at different countries. And the data go back about fifty years. Dozens of countries. So it’s a good dataset.

And what I found is that when you got these institutional strengths scores coming down, it did tend to have a correlation, if you will, with credit scores. So if you were seen as less functional as a government or a society, you tended to get downgraded. You also tended to see over time relatively less capital coming into your country. So, foreign direct investment. You tended to see that translate into slower growth. You tended to have equity markets underperforming relative to the rest of the world. So there was a real impact. It took a couple years. It wasn’t in a month or a quarter. But it didn’t always work. I thought, OK, what am I missing? When it didn’t work—when that pattern didn’t work it was usually because the government would influence the central bank to have extremely loose monetary policy, so cut interest rates to juice the economy. And so the equity market did better. The economy did better.

But that’s not necessarily a good thing in the long run, if that’s your way to solve it. So it’s—there is a pattern there. And to me that’s important, because it was a way for me to quantify that trust and institutional strength actually has a cost and a benefit. I’m not suggesting that we’re seeing that happen here. I think who knows. But the fact that we have seen this pattern over the last several decades across dozens of countries of different types makes me think that it’s an area to keep an eye on. You know, I’m very focused on the Federal Reserve. And I believe it will continue to be independent. But it’s now a question.

VOGT: And the next leader of the Federal Reserve is going to have a very interesting job.

PATTERSON: I feel—I mean, whoever takes over after Jerome Powell, whether he or she is completely independent, whether he or she is the best economist ever to lead this institution, there will be a perception that that person will have to overcome, that past Fed chairs did not. So it’s an added burden to the job that didn’t exist before.

VOGT: Oh, a hopeful vision of things to come. Thank you for that. (Laughter.) Not particularly on my list of things to worry about, but I’m going to—(laughter)—it should be.

OK. I want to open it up to questions. One of the great things about doing an event with a room full of journalists is I don’t have to do the usual reminder of, like, now make sure you ask a question. Like, you guys, you know how to ask really good questions. If it’s for one of the panelists in particular you can go ahead and direct it at that person. If you just have a kind of general question that you’d like to hear people talk about I can sort of figure out how to do air traffic control on that. But shoot.

Yes, ma’am, you had the—right there at—the first hand up. Please just tell us also who you are, and what outlet you’re with, and then fire away.

Q: Yeah. I’m Tracy Samilton. I’m with Michigan Public in Ann Arbor, Michigan.

And I had a question for Mr. Hillman about the use of the 232, because I see these coming down. And I’m seeing some related to China and their use of, you know, their IT and their telecommunications, you know, equipment. And of course, we do see that there are threats there. I haven’t seen a whole lot coming down for materials from Russia. And I’m wondering if you’re sort of seeing a complete absence of anything that we might be considering importing from Russia, because I know that Mr. Trump says he wants to sort of import more from Russia. So what are you seeing in terms of whether it is actually appropriate, in some ways, to use the 232 mechanism, the tool, for some of the things for coming from China.

HILLMAN: Thanks. So it is—I think we see China being impacted by several of the 232 cases that have been announced. And so, again, I might not get the whole list right here, but there’s been autos, trucks and truck parts, copper, aluminum and steel—which that is a big—you know, a China-oriented case—as well as semiconductors, which will be quite big potentially, and critical minerals, also quite big potentially. So I think those are—I guess those would be my sort of top three China impact 232 cases—the aluminum and steel one, critical minerals, and semiconductors.

There’s still, especially in the semiconductors piece, a lot of ongoing debate about how that might be scoped, and whether it’s going to be—people have been floating the idea of doing a component tariff, which is, you know, the idea that you’d look at a good and ask what the origin of the semiconductor inside of it is. And if it comes from outside the U.S., you would put a tariff on that. That’s got lots of challenges to that. One of them being that something like 40 percent of companies don’t know where the semiconductors are from. And so there’s just a logistics challenge, right? But there’s clearly a lot of interest in there. And I think that’s sort of directionally where we’re heading.

There’s also, within the Commerce Department but separate from the Section 232 tariffs, there is an office that does basically investigations of telecommunication equipment. And I expect that that could be used more actively going forward in the future. That’s something that sort of just toward the end of the last administration was finally fully scaled up. And so it’s like this muscle that exists, right, that didn’t—hasn’t existed for all that long. And so we may see some more activity there on things like drones and, you know, other Chinese exports.

On the Russia piece of things, I think it’s—you know, I think—big picture is that there’s very little trade happening right now, since Russia invaded Ukraine, but not none. And I think there may be, you know, something interesting there to look at, where even when sanctions were being applied to Russian entities there was some care done with that to make sure that the U.S. wasn’t disrupting certain critical supplies that come from Russia. So that, you know, it’s not zero, but it’s pretty close to zero. And I haven’t seen yet, at least in the economic data, any evidence of it going up.

VOGT: Yeah, in the middle of the room here. Yeah.

Q: Hi. I’m Ben Jodway. I’m with the Buckeye Flame in Ohio.

This is more directed towards Shannon. But as you were speaking about goods and services I was wondering, as there are goods and services that are owned by or service, like, LGBTQ+ populations or other minority populations. How does this tariffs, even if they’re gone tomorrow somehow, like, what are some of the long-term impacts of this? How could—is there any investment in the protection of these businesses that might be some of the—businesses and services that might be some of the most vulnerable here in the U.S.?

O’NEIL: No, it’s a good question. And, I mean, I think, as in my last answer, I don’t think they’re going to go away, right? They may go lower, but I think we’re going to have—we really are going to have tariffs to stay in a scale that we have not seen in the United States since—for decades. So I think we’re going to see that. I also think they will hit small- and medium-sized enterprises much more. And whether those are—you know, whomever those are owned by or operated by, I think it will hit them much harder because it’s just harder to—I mean, there’s down to—I mean, you know, one story, actually, that I haven’t seen written too much about is just how does customs handle all these new rules, right?

Like, they have a certain size workforce. They already have their hands full with a lot of things. And all of a sudden, now they have to delineate, OK, this good is coming in from the U.K., and the U.K. has a 10 percent tariff. And then this good is coming in from China, and that has a 34 percent tariff, because you have 10 percent plus another 20 (percent), and on some goods another. And then this good is coming in from Mexico and it’s partly compliant with USMCA, so that’s zero, but then another part—you know, and then if you get to, you know, what you were talking about, derivative, like, different components, you have to—you know, how does one even do that?

And so, OK, maybe for a big, you know, multinational, they can help customs because they can lay out all the bills and be, like, this is, you know, 15 percent from here, and this is our value, and all that. But imagine a small business in, you know, Ohio trying to do this, right? They’re just trying to bring in whatever they’re bringing in so that they can sell to consumers, or they can put it into, you know, the machinery that they’re making, and the like. And so how do they do that? And so I think that is just a huge challenge for small- and medium-sized enterprises in the United States, because so many are dependent on some inputs coming in, or for markets on the outside.

And that—I mean, here we’re sort of talking about the foreign policy side, but obviously there’s huge changes that are happening on the domestic side, and all kinds of rules, and, you know, who—you know, who benefits, who doesn’t benefit, you know, DEI and other policies that have been, you know, stood down, and the like. So I think there are just a lot of—in the Small Business Administration and other things—that kind of will reverberate on the kind of loans, on the kind of contracts and things that people are getting.

So I do worry. Frankly, I do worry a bit about what was already a kind of hard marketplace for small- and medium-sized enterprises in the United States, that this kind of added layer of uncertainty they just don’t have the kind of cushion or bandwidth to absorb some of it.

PATTERSON: I was just going to add, for anyone who’s digging into that story, how customs has affected how that flows through to small businesses. The U.K.’s decision in 2016 to leave the EU, Brexit, had a very similar impact. You had hour, hour, hour-long lines at customs for trucks to get in because they had a whole new process. They didn’t have a big enough staff. And it did feed through. And it’s still affecting growth today, almost ten years later. So it’s an interesting analogy to look at that issue.

VOGT: Yeah. Here in front, gentlemen here.

Q: Hi. Good morning. I’m Daniel Zawodny with the Baltimore Banner.

I have kind of a two-part question as it relates to the 232 tariffs and critical infrastructure. The first would be kind of where is the line defining critical infrastructure and the components and things that go into it? And is there any sense of whether they could maybe start to expand that definition a little bit, in order to, you know, not have to necessarily explain themselves when they are going to try to, you know, place a tariff on something, saying it’s because of this critical infrastructure piece?

The second part of the question is, you know, in Baltimore we’re paying, obviously, very close attention to the rebuild of the Key Bridge. And something that we’ve noticed, obviously, inflation has impacted building costs greatly over the past couple years. Baltimore has benefited greatly, you know, from the bipartisan infrastructure law, gotten a lot of federal investment. But a lot of those projects are now running at much higher costs because of this inflation. So the question is kind of then, how does inflation play a role in the sourcing of some of these things? And could tariffs and inflation be sort of a big one-two punch to just really skyrocket costs on a lot of the infrastructure projects that we’re trying to see around the country?

HILLMAN: Happy to take the first piece. So I think the critical infrastructure definition is broad enough that it allows the executive branch quite a lot of leeway. DHS has its own set of, I think, it’s sixteen critical infrastructure areas. So it’s quite, quite a long list. It’s basically—I mean, it’s, you know, power, transportation, telecommunications. There’s a lot in there. The impact, though, of the 232, I think without exemptions we do run the risk of having some unintended consequences. And there was a good example of this during the first Trump administration, the first time that they tried to do the steel and aluminum tariffs. So they imposed those for national security reasons.

And as they—you know, after they had been on for a little bit, we began to get into some issues with the cost and availability of inputs for part of a transmission component. And so basically, we had a critical infrastructure threat from the application of the 232 tariff. And so just a—I mean, that happened. And Commerce had to write a thing up saying, you know, we’ve had this—we’ve had these negative impacts of the tariff. And so I think it just shows you that tariffs, again, without exemptions, can be a pretty blunt instrument and have sort of, you know, these second- and third-order consequences. But I’ll defer to others if you want to take the inflation piece.

O’NEIL: You know, let me just add to that. I think, you know, what’s interesting, right, we have tariffs right now on steel and aluminum. We’re talking about tariffs on copper. We’re talking about tariffs on lumber. And if you think about not just public infrastructure, but building houses and building things, right, all those are inputs, and they’re going to be more expensive. So inflation and the costs there are important ones.

And then, you know, for those of you who have, you know, say, steel plants in the areas where you’re working, in the like, you’ll know that, you know, steel just isn’t steel, right? Like, why is Cleveland-Cliffs unable to recover? It’s not—because people make different kinds of steel. It’s not just—steel that goes into a car is not the same steel that goes into a building, that goes into, you know, the other things that we’re building. So you have very particular types. And it’s very hard to change existing plants and say, oh, you know, there’s car demand here. We want to make steel in the United States for cars. Well, we may not have the plants. And you can’t change a current plant to do that. You have to start all over again. And that’s a big—a big investment.

And then I’m just going to put on my director of studies hat here, so head of kind of the research that’s done here. And, you know, Jon is being very modest, but your question about, you know, national security, economic security, he’s leading currently a task force with some CFR members and cochairs. So, you know, about six months from now he’s going to define all that for you. So you just read the report—(laughter)—and you’ll know what’s really important there, so. (Laughs.)

VOGT: That’s great. That’s great. Yeah, the lady with the hand up at that table. Yes, you’ve had—you’ve had your hand up a couple times. It’s your turn.

Q: Thank you. I’m Emma Hurt. I’m with the AJC in Atlanta. And I cover Delta and UPS, among—and Norfolk-Southern, all seeing these in different ways.

But I am curious if there’s any productive effect of the tariffs that you all are watching or interested in, especially if we look at 1.0 tariffs, much smaller version. But is there anything there that we should also be following?

PATTERSON: Productive in what sense?

Q: For the economy, for specific industries, for specific companies.

VOGT: Like, who have been the winners?

Q: Are there any winners out there, yeah.

VOGT: If we’re worried about the losers, who have been—yeah. Yeah.

PATTERSON: Yeah. I mean, we saw in Trump 1.0 that there were small increases in jobs created in steel and aluminum during that period. Single digit. I believe the numbers were something like 5 percent and 6 percent, respectively, in terms of jobs created in those very specific industries during a two-year period. The Federal Reserve—I believe it was the New York Fed but it might be the board of governors, did a research report a few years after saying that even though you had jobs created, so you did have benefits in those specific areas that were protected, because of all the secondary effects that my colleagues here are talking about you saw other jobs lost. And so their estimate is that 75,000 jobs were lost that wouldn’t have if the tariffs didn’t exist. So there was a benefit, but there was a much bigger cost on net, right?

And I think that’ll be the same this time. And, again, it’s important to remember that we can’t just look at the tariffs in a vacuum. It’s all these policies together. So even—we’ll see where the tariffs land eventually. Right now, the estimate is that they could take some—like, not even a full percentage point off GDP, but a significant amount off GDP. But then if the reconciliation bill passes, and we’ll see how that lands too, it could provide an offset, so then we’re kind of a wash. Then you can almost think of it as a redistribution, right? We’re taking from one hand, giving back on the other. But with a lot of disruption, and then relative winners and losers in the process.

And then globally, of course, we could talk about winners and losers. You know, one thing that was said earlier, when I think about countries that, in a way, are playing both sides—you know, President Xi is in Latin America this week. That’s Shannon’s original area of expert—she’s an expert at everything—but she’s especially an expert at South and Latin America. And, you know, you see a country like Brazil that gained market share from the U.S. in Trump’s first term in soybeans, right? There were retaliatory tariffs on U.S. farmers in certain industries, and soy, in particular, they lost market share that never came back. And so this time around, we’ll see what happens with agriculture, but I’m sure that Brazil is talking to China, figuring out what it can get out of this.

And at the same time, with tariffs on China there are other markets that Brazil might be able to take from China, because the tariff rate on Brazil is only 10 percent. So it’s significantly lower, and they have a relatively low-wage workforce, and they have a lot of infrastructure set up for manufacturing. So both in the United States and globally I think we’re going to see a lot of winners and losers shake out. But I don’t think it’s always obvious up front. It could take—it could take quarters or years to really see it play through.

HILLMAN: Yeah, I was going to mention Brazilian farmers as a potential winner from this. But two others sort of in the category of service providers—lawyers and lobbyists—(laughter)—are doing pretty well. And it’s because this is—this creates—every time something is announced you need to read the fine print, and it raises a lot of questions. And then we’ve been in, you know, several episodes here where what is announced is then amended or changed, or something else is layered on top of it. Often you need to seek professional advice in order to navigate that. And those are—those are often expensive services. And so probably especially burdensome for some of the smaller and medium-sized businesses.

VOGT: So, the swamp. (Laughter.) It’s not getting drained. OK. Yes, here up front. The young lady in the back here.

Q: Could you talk about a way for us to track any exemptions from the tariffs? Because, I mean, we know Trump doesn’t have a squeaky-clean ethical record. Is there a clearinghouse or any think tanks tracking this? Is there a certain part of the Department of Commerce website we could look at? Just, like, exactly what are the mechanics of tracking all of these exemptions?

O’NEIL: That is a great question.

HILLMAN: Yeah. So—

Q: Oh. Ashley Murray from States Newsroom, D.C.

HILLMAN: Great. Thanks. So, to date, there have been few, if any, formal exemption processes. The places where this would normally be tracked, and that it was tracked during the first administration, will depend on the authority that’s being used. So 232 tariffs will have their own exemption process and tracking. In that case, there was—there was also this dynamic in the past where you would request an exemption, and then there would be an opportunity for others to weigh in and say, no, you shouldn’t get that exemption because it’s going to hurt me in the following ways. And then, if an exemption was granted, sometimes it would be applied to others looking for the same thing. The process at USTR was slightly different, for 301 tariffs, but similar idea, you know, a public—there’s a public comment period.

And there were—actually, up until March there was still an exemption window left over from the last administration for a set of China 301 tariffs. Unclear how this current administration is going to use that, if at all. But I think this points to the idea that there—if there is a process, it needs to be run in an orderly way. I think there was some criticism in the past that this has been done in a way where, you know, there was—there were maybe exemptions granted up front and then some of them not utilized, or sort of that benefited—it didn’t benefit those who couldn’t get to kind of the front of the line. So lots of logistical challenges there. But so far, no formal exemption process. Only hints of, I think, an inclusion process, which would allow others to—in the case of some of the 232 tariffs—to suggest that they should be expanded to apply to more products.

PATTERSON: And where do you look to find this?

HILLMAN: So the—

PATTERSON: Today. We know where you looked in the past, but now?

HILLMAN: Yeah. So some of the information on exemptions during past 232 cases is still available publicly. And so that’s—it would be on the Commerce Department website. There were some third-party organizations that scraped the data and tried to do analysis on it to see kind of, OK, which justifications were more successful in getting exemptions than others. But a lot of that is still out there. And so maybe in the future we will have something similar, but it’s uncertain right now.

VOGT: Would be an interesting tool to build. You know, others are doing it, scraping the data, but presenting it really well and making it easier for Ashley to just see it all regardless of which authority, like, a big picture. Yeah, would be interesting to build.

PATTERSON: I don’t have a—I don’t know of any institution right now today that might exist, but I’m just saying, from my research, I haven’t seen anywhere that in a timely way is tracking this. I basically am trying to follow the executive orders that come out on a daily basis, and read them, and then whenever I see a deadline I put it in my calendar so I can make sure I know when it’s coming, so an announcement will happen. And ditto with the exemptions. You almost have to build your own little file. Maybe, Grok can help, but—(laughter)—I’m not joking. I mean, I use Claude, but Claude isn’t up to today. So you—and Grok is a little timelier.

VOGT: Yeah. Grok may be exempt. (Laughter.) Yeah, gentleman in the blue shirt here.

Q: Laurenz Busch, Bozeman Daily Chronicle, Bozeman, Montana.

In Montana a lot of the leading politicians continue to claim that agriculture is the state’s number-one industry. But, based on state data, it’s eleventh, far behind services and finance. But it kind of remains a strong part of the state’s identity. And I’m kind of curious on how that situation plays out with tariffs, where there’s this strong polarization around tariffs. There’s a lot of beliefs that come with it. I’m curious what you believe is the public’s greatest misunderstanding regarding them, regardless of the left or the right. What can Americans agree on as the biggest misassumption on tariffs?

VOGT: Can I direct this to you, Shannon, because you had—you’ve said this to me once before. You had this great line about the pie. Can you repeat that? Because I think this speaks right to your question.

O’NEIL: Oh, yeah. (Laughs.) So I have two thoughts. We were having a chat the other day. And I was sort of saying, you know, the way I see sort of this policy, and the improvisation within notwithstanding, is that it’s sort of this idea that, you know, the United States economy is a pie and you want a bigger slice of that pie, right? And so you protect it and the like. But you’re not thinking about growing that pie or adding anything to the dessert table, right? You just—this is the size of the pie, it’s only 340 million people. And I want a bigger slice of that. But you’re sort of—by doing that, through tariffs and the like, you are just ensuring that you don’t—the pie doesn’t grow. So this—you know, you can have a bigger—you can have more of the slices, but you’re not going to have a—you know, one slice is not going to be any bigger down the road. So that, I think, is a challenge.

Let me say, you know, actually what’s interesting, and sort of what I think is actually also missing a little bit in our conversation. So one is, you know, tariffs, especially for agriculture, because we are big. I mean, it’s interesting. The United States, we export kind of high end and low end. So on the one side we export very high-end services. You know, we lead on, you know, data and all these kinds of things. We’re sort of the best in intellectual property, and on that side. And then in other ways, if you look at our export mix, we’re kind of, like, an emerging economy. We export a lot of commodities, right? We export energy. We export all kinds of agricultural goods. I mean, this is kind of the profile of, you know, kind of an emerging economy, not one of the more advanced industrials. So we kind of—we have both of this in it.

And as we think about, you know, exports out of the world and sort of retaliation that might happen—and we just saw this with the kind of back and forth with China, which has now been paused, at least—agriculture is one of the first to be hit, right? So in Trump one, as Rebecca said, you know, soybean buys and the like, and others stepped into the market. But the other thing that actually I think is not quite being covered, which actually affects agriculture—and if you expand agriculture not just to sort of soy and corn, but you add in beef and other kinds of, you know, products and the like, is while we have been pulling back a little bit and pulling back from our free trade agreements, lots of other countries are out there signing free trade agreements. And we’ve had—you know, in the last ten years we’ve had some of the biggest free trade agreements in—you know, most comprehensive signed around the world, and we have not been part of it.

So one is the—what was the TPP, is now the CPTPP. So that includes sort of the Trans-Pacific Partnership, lots of countries along the Pacific coast on both sides, Asia, and, you know, Canada and Mexico is part of that, as well as some down into South America. We’ve seen RCEP, the Regional Comprehensive Economic Partnership. That’s a group of twelve-plus countries around Asia. That includes China, South Korea, and Japan, among others. And what these agreements have done is actually lower prices for those countries within to sell to each other. And that matters for agriculture. So, you know, Canada and Mexico can sell beef and agricultural products to Japan, to others who are part of the CPTPP, at rates that we—they don’t pay tariffs, and we do, right? So they’re going to be more—you know, more competitive. Same for soy. Same for other things.

And, you know, we have seen even just in this last, you know, three months a response around the world has been other countries have been out saying, OK, we’re going to go sign free trade agreements. So the EU has, you know, a long-awaited one with Mercosur, with the South American countries, that they’ve signed they haven’t ratified. Maybe it gets over the finish line because of what’s happening now. They’re out there negotiating with the UAE. They’re negotiating with India. We have seen kind of other countries going. And if these agreements, some of them, are signed, that means U.S. exports are going to pay tariffs into—like, as we look forward five years, or whatever amount of time for them to be implemented, U.S. exports, including agriculture and others, are going to pay tariffs into those economies, while other people are not going to pay tariffs. So overall, the sort of playing field, or kind of the table, will be a little bit stacked against us because we’re not participating in that. So I think that’s a story that’s a bit uncovered.

PATTERSON: And I think President Trump is very focused, and Treasury Secretary Bessent, on increasing access in other countries for U.S. agriculture goods. I mean, you hear that come up in almost every conversation. But access doesn’t mean actual sales happen, right? If the prices are higher or the tariffs are reducing global GDP so there’s just less demand, both of those factors can mean you build it, but they don’t come. And I think that’s a risk that we have to acknowledge.

VOGT: Hmm. I’m going to use my prerogative here to answer—to give you an answer to the question that I—that I think is right, and stems from chatting we were doing earlier. But, you know, the way I look at it, if you’re looking for a simple way to get past the kind of polarization here, I don’t know, maybe this won’t get past it. But the way I see things is the United States right now, America’s is bullying its rivals and its friends alike. And I think if you’ve attended school, you know that in the short term, bullying works. It gets you status. The bully kind of comes out on top, right? Sometimes that middle school playground bully becomes the captain of the football team, the homecoming king, whatever it is.

Here’s the thing, check on him when he’s in his mid-forties. (Laughter.) And he’s sitting around and he’s talking about the good old days. That is not the trajectory that I think anybody wants the United States to be on when it comes to trade, the economy, global influence. Short term gain, long term pain and decline. That’s how I would answer that question. OK. I’ll get off my soapbox.

Yes, in the back here, with the pink headband.

Q: (Laughs.) Thank you. Morgan Rothborne, Ashland News, Oregon.

My city is going through its biannual budget process right now. And we almost had to cut 1.5 million from our parks department just because we have a lot of parkland for how small our city is, and all of these economic factors are impacting our budget projections for the future. We’re a full-service city. We have our own ambulance department. We offer our own internet service. A lot of things that require services and goods that are a little bit more unique. But for a lot of municipalities, the budgets are going to be affected. So for those of us covering that kind of thing, what are some ways that we could think about that and conceptualize that, with everything that you’re talking about?

VOGT: Hmm. How does this trickle down to local budgets, yeah.

PATTERSON: I can—yeah. I mean, one thing I’m watching very closely was the reconciliation bill. Is when they’re trying to find ways to save money to pay for the tax cuts, there is a lot of flow through from things like Medicaid to state budgets, which will then trickle through to the local budgets. So to me, that’s probably the biggest one. I’m sure there are other examples of that. But I do think you’re going to see an increased burden—fiscal burden on states and municipalities over the coming years. And then how do they pay for it? Do they have to cut back somewhere else? Do they increase taxes of some sort on the state or local level? Do they, you know, reduce employees working for the state? But if they’re taking on an increased burden, right, if we’re reducing FEMA, for example—and President Trump has suggested that this can be handled at the local level—OK, then who are the actual bodies that are going to go do that?

You know, growing up in Florida I think about hurricanes. I think about the one we had last year—this year? Last year. Last year. And it all—since the pandemic, it all merges. But FEMA was really important after that. Certainly, you know, across the Southeast. So who’s doing that in the future? Someone has to pay for those workers and the equipment they need. So that’s—I don’t think it’s necessarily being discussed as much as it could. So I think it’s great that you’re talking about it and writing about it.

VOGT: Can I ask you a little—like, just a quick follow-up question about that? When you are talking to people, when you’re doing reporting in your community, and you’re talking to people about the sort of cuts that are coming down the line, are they connecting it in their own minds with the stuff we’re talking about? Yes.

Q: Yes. My town is very small, but it’s university town. So there’s a higher education level than you would typically see in rural Oregon. And there’s also—there are a lot of—there’s a higher percentage of nonprofits than normal, and a lot of people who are exporting things because we don’t have as much of a consumer base. We’re also having to import things in. We don’t have a lot of manufacturing. So we’re really dependent on things coming into our area. And so we’ve already been experiencing supply chain slowdowns. I mean, we’ve been waiting a really long time for a needed fire truck just because things like that are slowed.

And so it’s odd, even though we’re kind of disconnected being in a semi-isolated rural area, we know how dependent we are and how affected we are by these outside forces. So, yeah, I mean, as the city manager has tried to justify the budget cuts—I mean, 5 percent in each department, 10 percent for parks—that she’s called for, she said it’s because of uncertainty, because we’re not going to be able to get—we were hoping for a $500 million FEMA BRIC grant for our new water treatment plant project. Not anymore. It doesn’t exist. Wildfires. We had the most expensive wildfire season last year on record for Oregon. So, yeah, we’re very aware of how much these things affect us.

VOGT: Yeah. That’s interesting.

PATTERSON: I think you’re a story. Your town is a story. (Laughter.)

VOGT: Yeah, it is.

PATTERSON: Yeah.

VOGT: I mean, what would be really interesting to me would be, OK, so the city manager is connecting it. The question is are the voters when they hear that, yeah, are they saying, oh, OK, I see it. Or they’re going to say, no, there’s—it’s corrupt local politicians who are, you know, right? Yeah, interesting. OK, there was a hand in the front here. I didn’t get you before.

Q: Hi. I’m Liz Ruskin, with Alaska Public Media.

I was just wondering about state-level data of these things, of where the tariffs are going to land. Do you know any sources of state-level data that we can look at for who is—who these tariffs land on, who’s importing? And also the impact of—I’m especially interested in air cargo landings, and if there’s—you know, I’ve never tracked it before. I was just wondering if you had any sources of these—you know, where to go, documents, publications?

PATTERSON: I would—I mean, my immediate just first thought to you would be trying to talk to a couple of the major airlines that do a lot of the cargo, and then also the industry organization representing air cargo airlines, or airlines in general. If anyone has tracked that data, I would think it would either be one of the major airlines or the industry group that’s lobbying on behalf of the airlines to the government. That would be where I would start. But I have not seen any good state breakdowns yet. But maybe you all have? Not yet? Part of it, it’s changing, literally, day by day. So, you know, here at CFR we have trade trackers, we have constant meetings within the staff to figure out who’s writing what and how we can put this together for people like you. And in—we’re now—you know, we feel like a newsroom. We’re, like, it’s changing every day. It’s more like a news wire.

O’NEIL: You wanted to come in. You had a source.

VOGT: Yeah, you were interjecting. Did you have some data?

Q: (Off mic)—oh. The Census Bureau has state-by-state import and export data. I mean, it lags. I think the latest dataset is 2023. But you can look up each commodity, or, I don’t know what’s the right word. Each whatever the Department of Commerce breaks it down—

O’NEIL: Yeah, those, like, six-digit codes.

Q: Yes, six-digit codes. You can look up each state’s import-export data. I can find—I can give you the link.

O’NEIL: Thank you.

VOGT: That’s great. Thanks. Yeah.

Q: Hi. I’m David Scharfenberg with the Boston Globe.

I wanted to follow up. You talked about the connection between the reconciliation bill and some what we’ve been talking about here around the tariffs. I was wondering if you could just flesh that out a little bit? We’ve heard a couple examples like maybe the tariffs will be locked in long term. Can you speak a little bit more as to that connection, what you’re seeing there?

PATTERSON: Yeah. I mean, oh, there’s so much. So if it’s not passed by Congress it can’t go in the reconciliation bill, but they want to use the tariff revenue to help pay for the bill. So that’s part of the reason that you’re seeing the Treasury and the administration raise questions in a public way around the Congressional Budget Office’s process. So the Congressional Budget Office scores the reconciliation bill and says what the policies will cost and what they’ll do to our fiscal outlook. They do not include tariff revenue because it’s not part of what Congress passed in the bill. But the government wants to use it. So they’re saying, well, ignore the CBO. Now, the CBO is trying to remain relevant, and it has been a guardrail and a piece of the process for many, many decades.

So one thing they’re doing differently this time is they’re going to show the budget with current policy and current law. So current law, the TCJA would expire at the end of the year. And so any extension would cost money, because it’s new. Current policy says, well, what’s in place today is already done so it shouldn’t cost anything. And that difference alone for the cost of this reconciliation bill, we’ll see what the final number is, but the estimates I’m seeing at this point—again, it’s all still fluid—are well over $2 trillion. I’ve seen higher numbers as well. So it matters.

How this pulls back into the balance of payments, the dollar, the financial markets, you know, there’s a couple links that I think are important. But to me, the most important one of all of them is borrowing costs for the U.S. economy. So if—because the reconciliation bill is using current policy—and, again, we aren’t there yet, so we don’t know if that’s the path they’ll take. But if they use that to put more of the tax cuts through, you’re going to have a higher budget deficit. It is going to push up our debt-to-GDP ratio significantly higher, regardless of what Congress says. We will have to issue more debt to pay for all this stuff. And so we will have a higher debt-to-GDP ratio.

That is going to push up borrowing costs. And all else equal, that will slow our economy. So what we’re doing in the short term might juice growth, right, for a couple of quarters, but over the longer term it’s actually a drag on growth. And if we have a drag on growth, that affects earnings for companies. And if we have lower earnings, we’re going to have less excitement by investors to buy U.S. stocks. And they may be looking at other countries. Which means we’ll have a weaker dollar.

VOGT: And it’s another great example of one of those independent functions or institutions, right, like the CBO, the Federal Reserve chair, that we just sort of—it’s baked in, and we take it for granted, but.

PATTERSON: Yeah. There have been a few Cabinet members who have said, well, the CBO says that U.S. GDP will be 1.8 percent. And that’s wrong. It’s been higher than that. So why should we use their number? Well, anyone in this room who’s studied economics, if you’re projecting for the long term, ten years, twenty years, who the heck knows, right? The world changes a lot. And so what people normally do, as a respectable, credible placeholder, is they put in what the country’s trend growth is. And for the United States in recent decades, that’s been about 1.8 percent.

So we don’t know what will happen year by year, if we’re 3 percent, 1 percent, or a recession. So just to smooth it over ten years, we’re going to say it’s going to average 1.8 percent. It would be awesome if we were 3 percent again this year or next year. That’s great. But to say because of that placeholder it’s just wrong and we should ignore the whole process feels more politically motivated than something based on economic data.

VOGT: OK. We are out of time. But I do want to do one last thing with each of our panelists. I want—I’d love it if each of you—we’ve had a good conversation about some resources you can use. CFR is just chock full of resources that you might find helpful in your reporting and your coverage. I would love it if each of you could just name—it’s like the end of a podcast where they say, like, what are three books that, you know, you’re reading, or whatever. What’s one CFR, tool, resource, report, something that you—that if they don’t see anything else that we produce on this topic, they should look at this.

Go ahead. You first, Shannon.

O’NEIL: So we have, you know, eighty scholars here that do all kinds of work, but one especially for this panel is we have a hub on trade and tariffs. And there’s all kinds of things there. There’s data. There’s written pieces. There’s videos. There’s interactives. There’s all kinds of stuff. So go check that out. We can give you the link. And there’s lots of stuff there on this—on these topics.

VOGT: OK, Jonathan.

HILLMAN: Yes.

O’NEIL: Featuring many of panelists. (Laughter.) Go ahead.

HILLMAN: You stole my thought there. But something that you’ll see cited there, I mean, we use some of the data sources that we’ve been referring to. But one I hadn’t mentioned yet called Global Trade Alert. And so we—it’s a great resource for showing not only sort of what the U.S. has done in terms of using tariffs, subsidies, investment restrictions, but what others are doing as well globally. And it paints a pretty stark picture. And so you’ll see some of that used in visualizations on our CFR.org Trade Hub.

PATTERSON: Oh, and I would just—I mean, there’s a lot. There’s a lot on the CFR.org that I find incredibly useful all the time. Given the focus on China right now I’d highlight a colleague that I would be following closely, who’s Zoe. And you’re going to tell me her last name again,

O’NEIL: Liu.

PATTERSON: Liu. L-I-U.

O’NEIL: Yes.

PATTERSON: Yes. Who has been absolutely phenomenal in terms of her insights and take on some of the U.S.-China trade evolution specifically.

VOGT: And I’m going to put in a plug for Foreign Affairs.

PATTERSON: As you should.

VOGT: There’s one article—if you’re going to read one FA piece on this, it’s called “Trade Wars are Easy to Lose.” And it’s by Adam Posen of the Peterson Institute. I think it’s a very good overview of just how risky some of this improv might turn out to be.

Well, thank you all very much.

PATTERSON: Thank you.

VOGT: I want to remind everybody that you have a fifteen minute break now. The next session is called “Press Freedom and the New Era of Reporting.” That’s going to start at 10:15. Thank you to all of you as well.

PATTERSON: Thank you. (Applause.)

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