- A master class on tariffs, trade, and Trump.

This week on "Firing Line."

- I always say tariffs is the most beautiful word to me in the dictionary.

- [Margaret] Donald Trump loves tariffs, (audience applauds) but most economists, including conservative economists, do not.

- It means higher prices.

It means disrupted supply chains.

It means job losses.

This is not good.

- [Margaret] Glenn Hubbard was chair of the White House Council of Economic Advisers in 2002 when President George W. Bush imposed new tariffs on imported steel.

Hubbard told him it was a bad idea, but the president proceeded anyway.

- I learned something especially in this episode afterwards when he said, "You know, I agreed with your advice, but, you know, you never really told me how to help the people and places that I was trying to help."

That statement stuck with me for the whole rest of my career and I've been working on it ever since.

- [Margaret] The result was Hubbard's book, "The Wall and the Bridge," arguing that bridges are better than walls like tariffs at creating economic opportunities for ordinary Americans.

With U.S. tariffs now at their highest level since 1903, what does economist Glenn Hubbard say now?

(bright music) - [Announcer] "Firing Line with Margaret Hoover" is made possible in part by: Robert Granieri, Vanessa and Henry Cornell, The Fairweather Foundation, Peter and Mary Kalikow, Cliff and Laurel Asness, The Meadowlark Foundation, The Beth and Ravenel Curry Foundation, and by the following.

Corporate funding is provided by Stephens Inc. (bright music continues) - Glenn Hubbard, welcome to "Firing Line."

- Thanks.

Thanks for having me.

- Last November, when Donald Trump won the election, you wrote in "The Wall Street Journal" that voters had signaled they were "ready for an economic awakening."

This month, Trump has announced steep tariffs on America's trading partners.

It seems to have raised the risk of a recession, damaged America's reputation with our trading partners.

Glenn, is this the economic awakening you had hoped for?

- Not exactly.

I chose the awakening metaphor for two reasons.

One, I thought people were ready to grow again, ready to build again, ready to aspire again.

I also chose awakening because of the religious analogy to awakenings where you reach back and marry something traditional with something new, and that I thought that President Trump could bring together traditional pro-growth conservatism with his more populist base.

The tariffs are not the answer to either one of those questions.

They are certainly not pro-growth.

And they certainly are not going to help the populist base of the party.

But I think the awakening was why people voted for him.

- You wrote that, "voters want an economic awakening, a new way forward that uses traditional economic policies to achieve Mr. Trump's goal of more jobs for Americans whose fortunes have been harmed by technological change and globalization."

Trump was on to something.

- He was totally on to something, and I think that's why he's president.

I think that he saw that these structural, big tectonic shifts of mainly technological change, but secondarily globalization, had really buffeted many people and places in the country.

He saw that in a way a lot of people did not.

There are answers to how to address that.

I think there are different policy path than the one we're on, but I think it was that zeitgeist that put Mr. Trump in office.

- Trump promised that tariffs will bring jobs and factories, quote, "roaring back into our country."

Is Trump's premise correct?

Is a manufacturing renaissance what America needs?

- Well, gosh, there's so many parts to a question like that, Margaret.

First of all, with the tariffs and jobs, even if you protect some jobs, let's suppose we have tariffs on steel and aluminum and we protect those jobs, Americans know that steel and aluminum, you don't buy those in the grocery store.

They're intermediate inputs into production.

So how are you gonna rebuild manufacturing if you make the inputs into all the rest of the manufacturing more expensive?

Look at what the car companies are saying here.

So I think tariffs are not the way to accomplish that.

- You mentioned steel.

President George W. Bush imposed steel tariffs when you were- - Yes, and I told him not to.

- The chair of the Council of Economic Advisers and you presented very strong economic evidence- - [Glenn] I thought so.

- Opposing the steel tariff policy that Bush proceeded to implement.

A Cato Institute analysis has found that the Bush steel tariffs had, quote, "no notable positive effects" on the steel industry employment and negative effects that lasted years after they were lifted.

Do you agree with that analysis and how do you look back on those Bush steel tariffs?

- I do, and it's very similar to the arguments I made to the president before his decision.

I took him a chart that showed job losses around the country.

And he said, "Well, wait a minute, what do you mean job losses?

I'm protecting jobs."

And I said, "But sir, you're protecting steel jobs.

But what about everybody who loses steel?"

But, you know, I learned a lot from President Bush in working for him and I learned something especially in this episode afterwards when he said, "You know, I agreed with your advice."

And then I said, "But you did the other thing."

And he said, "But, you know, you never really told me how to help the people and places that I was trying to help."

Politicians have to live in a more balanced and nuanced world than their advisors and I think what President Bush was quite rightly saying to me is, you know, if you had told me a different way, I might have done it.

That statement stuck with me for the whole rest of my career and I've been working on it ever since.

- What did that experience teach you about the politics of trade?

- Well, it taught me that the politics of trade is very, very personal.

People aren't trying to remember Econ 101.

They're trying to say, "What's going to help me?

So if you can come up with policies that will help me survive globalization and technological change, if you can take my town that had a mill or a plant that's now closed and make it better again, that I'm willing to listen to.

But don't remind me, professor, that tariffs are bad."

- For example, you've written about Youngstown and how to revive a part of the country that was completely decimated by the closing of the steel mills and the hollowing out of the manufacturing base.

- I thought it was very important to take my students, business school students, to Youngstown, Ohio, because it was a place that was disrupted by both technological changes and globalization mainly so students could put a human face to the story, to see what happens when you have major changes in employment.

There was a day in September of 1977 when every steel mill in Youngstown closed all at the same time.

Think about that.

The livelihoods of a whole area with no warning done.

Youngstown never really recovered from that.

And there are a lot of lessons in there on what public policy could have done better to help Youngstown.

- You said when you made the case against steel tariffs to George W. Bush, in the end he agreed with your economic assessment but he wasn't sure what to do about it.

Was that effort to go to Youngstown, to look in the faces, the effort to define the policy solutions for that problem?

- 100%.

There's a huge opening right now for conservative policymakers to bring market solutions with a human face, with a local face.

The politician who does that, I think, manages to bring about that economic awakening.

- Is a manufacturing renaissance what America needs?

- Well, I think the opportunity for a great manufacturing sector is something that America needs.

And we work hard against it.

We have a regulatory state that makes it difficult.

We have a tax system that makes it difficult.

We need to fix those things.

We ought not to tie our hand behind our back.

But we shouldn't say that manufacturing jobs are necessarily the best jobs.

You know, I remind people in Washington that when I talk to my students about the job market, many of them want jobs that didn't even exist when I was their age.

So think about it.

If you're trying to plan for the future for anybody, you need to look at the world that is and will be, not the world that was when I was somebody's age or President Trump was somebody's age.

And so we have to look forward, and it's not at all obvious to me that manufacturing is the answer to that.

Even if we bring back a big manufacturing sector into the United States in terms of manufacturing output, and by the way, we're already a manufacturing powerhouse, we're not going to bring back manufacturing employment.

Manufacturing's one of the highest productivity sectors.

That's just a flip side for saying there are fewer workers per unit of output than there used to be.

That's not going change.

- Despite the pause on reciprocal tariffs, a 10% tariff on imports remains.

Tariffs on Mexico and Canada are still in place, and President Trump has raised tariffs on China to well over 100%.

The average U.S. tariff rate is still the highest it's been since 1903.

What does that mean for Americans?

- It means higher prices.

It means disrupted supply chains.

It means job losses and lost output.

So, again, a number of think tanks and Wall Street firms have looked at this.

Typically, you're talking about shaving about a full percentage point off GDP growth over the next year, substantial increase in unemployment, and an increase in inflation of about 2%.

This is not good.

I'm at least as worried about the uncertainty, because if you're trying to improve the business climate in America, it's about long-term planning.

What frustrated people about the previous administration was, "I can't plan, I can't build, because you're changing policy so much."

That uncertainty is gonna make it very hard for somebody to commit to a new plant or a new investment.

Whether that somebody is an American somebody or an overseas somebody coming to America, it won't happen unless we're more predictable.

- One of the common criticisms of tariffs is that they invite cronyism and favoritism as industries vie for exemptions and favorable treatment by the president.

We've already seen some companies jockeying for exemptions from Trump.

What does a system of favoritism mean for the future of our economy?

- Well, I don't even think of it so much as favoritism or corruption, as much as it is a total waste of time for business people who should be thinking about business, who should be think about new opportunity, new investment, hiring Americans, to be taking the shuttle to Washington to negotiate with bureaucrats and government officials.

That is not what it's supposed to be.

And you're seeing that in the electronics industry and the car industry.

If we just stepped back and said, "What are we trying to do," I think we could avoid this.

- The White House has claimed that more than 75 countries have reached out to negotiate as a result of the tariffs in this 90-day pause.

- I hope that's true.

- Well-known figures from the right have argued that Trump can now use the tariff threat to use the next 90 days to productively negotiate with all of these countries.

Is there a scenario that is plausible that the end result will yield more favorable trade agreements than we had previously with these countries?

- Well, it's certainly possible.

I think it's difficult because, let's say the goal were to encircle China.

Encircling means more than just us.

It's hard to make a circle with one country.

And so I would think you would try to get Japan, the European Union, Canada, Mexico, Australia, all of our friends with us in that activity.

But we started exactly the opposite with very heavy tariffs on those.

So I guess I go back to my question of what is the goal and what is the game plan?

I worry because we're not very clear what we're asking for.

- Indonesia, Malaysia, Cambodia.

Oh, look at Cambodia, 97%.

- The numbers, when the president had his chart in the Rose Garden, I had no idea what he was talking about in terms of how the, or I know how the tariffs were calculated.

They were calculated incorrectly.

But the real point is it's very hard to negotiate with other countries if you're not clear about which tariff or non-tariff barriers you're after.

And of course, that's going to differ country by country.

- Over the last couple of weeks, we've already seen the global economy start to shift away from the United States in some senses.

The EU seems to be seeking help from Beijing.

What damage has this last episode done to confidence that people have in American markets?

- Well, you know, it's a great question.

I think of the Don Rumsfeld known knowns and known unknowns, unknown unknowns.

The known known of this period is really the possibility of a short-term recession that we talked about.

I'm actually even more worried about the unknown unknown of a loss of confidence in the nation.

We are seeing, the reason for American exceptionalism, from an economics versus a political perspective, is that we're seen as a safe haven.

This is a predictable, rule-of-law country, solid courts and financial markets and institutions.

It's a place where you can do business.

And so I think trifling with that strikes me as even more problematic.

And so I worry about that unknown unknown that people might lose confidence in the dollar or in U.S. debt.

- Do you think President Trump and the people around him are aware of that risk?

- Oh, President Trump is a very intelligent business person, and I'm quite confident he's aware of that.

He's got talented people around him.

I'm sure they're all aware.

My point is you have to be careful because you can't just pull it back.

You know, credit comes from a Latin root word credo, which simply means I believe.

That's really what credit is.

And belief, confidence, they can be fragile.

The global financial crisis comes to mind in that, when people suddenly lose belief.

So that's what I worry about.

We don't have an infinite ability to make a mistake and pull it back when you're talking about credit markets.

We have to be much more careful.

- In a recent editorial in "The Free Press," former Trump national security aides Matt Pottinger and Lisa Tobin argued that the U.S. and China aren't just in a trade war, but in a contest for control in the 21st century.

To what extent can tariffs be used to pursue America's national security goals?

- They can be.

It's not the only one, perhaps, or even the most effective.

China has many things.

I guess I'm less concerned about who makes children's toys as I am who makes defense equipment that goes into aerospace.

And so I think we have to be careful.

Like, what do we mean when we say we would like to decouple from China?

And if that's a decision, and that's not a decision from economists, it comes from political people, military people, if that's the decision, what are the tools to do it?

And those probably are more export restrictions, technology restrictions.

- Not tariffs.

- Not tariffs.

And would require partnerships with the rest of the world to make sure that those other countries would prefer to use the American standard for that technology or that equipment or that communications device as opposed to a Chinese standard.

It's also the case that we can never truly be decoupled from China.

We live in a world in which there are global public goods and bads.

COVID was an example.

Climate change is another example.

So the notion that we can pretend we can do things over here and China can do things over there.

- That we can be insulated.

- That's not the way it works in pandemics or crises.

So I don't think we can ever be, quote, free of China.

We have to decide where are the areas that really matter, get politicians to tell us that, and then hopefully advice from economists and military specialists on what's the best way to deal with that.

- In 1969, William F. Buckley Jr. hosted a discussion about tariffs on the original program.

Take a look at this.

- It is one thing to set up tariffs as a political weapon against a foreign power, quite another to attempt to set it up as an economic weapon.

In other words, it is one thing let us say for the United States to refuse to buy, oh, say, West German steel.

But it is another to attempt to make it competitive with American steel by doctoring the tariff structure so as to- - Well, I know of very few examples where the United States has used its tariffs for political purposes, or even its trade.

It doesn't work very well in a country of this character because if you use one industry for political purposes, there will be quite an outcry against such a thing.

- You knew Buckley.

- Yes.

- What do you think he would think of this moment we're in?

- Well, you know- - He was a free marketer.

He was, you know- - I think two things.

One, at an ideological level, he'd probably be somewhat uncomfortable.

But I think what's more important about Bill Buckley is how practical a conservative that he was.

He wanted things that worked, the art of what works.

And I think probably his biggest concern or bigger concern over tariffs was not the ideological explanation, but simply that they're unlikely to work.

- Howard Lutnick, the Commerce Secretary, and Scott Bessent, the Secretary of the Treasury, say the U.S. would definitely win a trade war with China, no question.

They've both insisted on this.

They have said that China has a losing hand in a trade war, given its reliance on exports to the U.S. Who has the stronger hand?

- Well, I guess I would start from the premise that no one wins a trade war.

And so the notion of winners, losers, I would guess, what are the costs and benefits to either side of a trade war?

I think the U.S. could gain against China because China does need access to the broad U.S. market.

And so if that's what Secretaries Bessent and Lutnick meant, I'm all for that.

But that's not really a victory for the U.S. in the sense that we could have accomplished some of our same goals with China with narrower, more targeted instruments that certainly weren't applied to other countries at the same time.

Keep in mind, China is a lender to the United States as well.

And lenders have options, right?

They can do business elsewhere.

So I don't think it's a battle that either side wins.

- In 2013, you and Tim Kane wrote a book, "Balance," that warned about fiscal imbalances that have toppled great powers throughout history.

You wrote, quote, "the only existential threat facing America is from America itself."

And that was 12 years ago when the debt was 20 trillion dollars less than it is today.

How urgent is our national debt as a threat right now?

- I think it's urgent.

The point Tim and I were making in the book, "Balance," is that if you look at great empires, which we did throughout history, they didn't fall from military adventure, from somebody coming in and conquering them, as much as they fell from rot within that typically came from rent seeking and interest group politics and from fiscal imbalance.

Most people don't know that if you looked before 1970 and you asked, "What does the debt to GDP ratio look like.

Plot it for me," it would be mountains and valleys.

We fight a war, we borrow money, the economy grows and we pay it down.

Since 1970, it's been straight up.

And that has little to do with wars.

The defense spending has come down relative to GDP.

It's a story about our entitlement and our social insurance programs, and we need to fix that.

- Ray Dalio, who's founder of Bridgewater, one of the world's largest hedge funds, said recently that Congress needs to get deficits down to 3% of GDP or the consequences could be, quote, much worse than a recession.

Would this help?

- If we really wanted to get deficits down long term to 3% or less, we would have to address problems in our entitlement programs.

And I have to name names.

There's Social Security.

- Social Security.

Medicare and Medicaid.

- Medicare and Medicaid.

And each of those has political constituencies.

Now, it turns out it is possible to make the changes we need to make in those programs and in a way that protects lower and moderate income Americans.

It is possible.

But it's not difficult because of economics.

- What's difficult?

- It's difficult because of politics.

We have to be able to make the political case to the American people.

I would rather us be able to fight the next war if we had to fight it, to have the capacity for disasters, to be able to protect our children's futures as opposed to old age entitlement programs and interest.

- As the GOP Congress is looking to negotiate and draft and extend President Trump's 2017 Tax Cuts and Jobs Act, what do you, as a conservative economist, think are the nuts and bolts that should be included in that package to help address the current economic circumstances that we're facing?

- Well, to me, the place to start is what I really liked about the Tax Cut and Jobs Act to begin with, which was on the corporate side, the very pro-investment tilt.

President Trump deserves an awful lot of credit for that.

His leadership helped accomplish that.

It's super important.

Not to be too boring for listeners, but a big piece of that was expensing of investments.

When I go out and buy a capital good, I could write it off rather than depreciate it over time.

I do more investment as a result.

While the low corporate rate, when we went from 35% to 21%, that's permanent, the expensing is not.

It's already phasing out.

So bringing back expensing I think is very important.

And there are plenty of offsets to do that.

You could certainly do it.

- We haven't had a chance to really get into this, but I'd love to end on this.

How would you address this moment and take advantage of this opportunity where we are in our economy to address the real concerns of Americans who have been left behind by sort of manufacturing and globalization, technological advances?

What are Glenn Hubbard's solutions?

- Well, the good news is President Trump has the opening of a political lifetime to do this.

And that's the awakening that I originally wrote about when he was elected.

And I would start with, what does it take to change our aspirations that we can build and invest here again?

So to me, that begins with regulatory reform, some things that are big in people's minds, but other things that are small, like the way we do permitting for construction, the way we permit our new energy grid and electricity grid that we need.

Could we do better in business taxation?

So I would start there.

Then the second is how do we change possibilities?

Rather than cutting research, I'd be doubling it.

That's our future.

Basic research is what is tomorrow.

When we spent a lot of research money in the space program, in military applications, the spillovers to the private sector were enormous.

We can also then locate applied research centers all over our country.

You know, we used to know how to do this.

In the 19th century, America did land-grant colleges everywhere.

It was a genius idea of President Lincoln- - Lincoln.

- That we needed to change the supply side of education.

Not just give what today we would call financial aid, but build new things that are fit for purpose for the time.

We could build applied research centers.

We could support much more heavily the community college infrastructure that trains and retrains people for work.

We can do all of those things.

We can also help places left behind.

That's what a modern markets for the people looks like.

We don't have to have protectionism, whether it has a center-left flavor or a center-right flavor.

We don't need that.

- Is anyone in the White House listening to you?

- I don't know.

I hope so.

- Me too.

Glenn Hubbard, thank you for joining me.

- My pleasure.

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Corporate funding is provided by Stephens Inc. (bright music continues) (bright music continues) (bright music continues) (bright music) (bright music) - [Announcer] You're watching PBS.