Trump's address on Iran war fails to calm global economy

[0:00] Time now for my favorite block, money power politics. Today, oil prices spiked 11 percent [0:06] after Trump's vow to hit Iran extremely hard over the next two or three weeks. His comments also [0:13] roiled the stock market. After a volatile day, the S&P and Nasdaq both closed on an upswing, [0:18] while the Dow declined slightly. Natasha Sarin, former Treasury official and Yale law professor, [0:23] is here with us, and Brendan Greeley, contributing editor for the Financial Times. Brendan, so Trump [0:29] didn't really seem to allay any fears with his speech last night, did he? No. In fact, we [0:37] immediately saw in the price of oil that it rose. And one of the things that we're seeing is that [0:41] it's rising much faster with Brent than it is with West Texas Intermediate. The difference there is [0:47] the easiest way to think about it is WTI is the price for Americans. Brent is the price for [0:53] everybody else in the world. And what we're seeing all over the world, particularly in Asia, [1:00] is that the price of oil is going to rise. And that's going to rise. And that's going to rise. [1:00] And that's going to rise. And that's going to rise. And that's going to rise. And that's going to rise. [1:00] What we find alarming in the U.S. is kind of a disaster and an emergency in other countries. [1:05] You're seeing the Australian prime minister, you know, urged Australians to cut back on oil use. [1:11] This is unthinkable in America. You've got farmers in various countries thinking about [1:15] not planting because they can't afford to pay for oil and tractors. These are very real-world [1:20] consequences that are happening as we see what analysts are referring to as an air gap approach [1:26] various Asian countries. And what that means is, for the duration of this war, [1:30] so far, oil has been steaming on ships that have already been through the Strait of Hormuz to these [1:35] various countries in Asia. But it's stopped. And there's a gap with nothing coming to fill it [1:40] behind it. So one important thing to remember is, one way in which Trump is right, we're seeing [1:45] prices go up at the pump here. That has political consequences in other places in the world, [1:51] particularly in Australia, Asia, Japan, the Philippines. What we're really seeing is [1:58] an approaching disaster. [1:59] Yeah, I can't imagine that that endears us very much to our allies. Natasha, the Yale Budget Lab [2:07] looked at the larger impact of rising oil prices on the United States economy and found that, in part, [2:13] energy shocks have less bite than they used to, but are still significant. But we're seeing the [2:20] impact start to show up in different places at this point. United Airlines, for example, [2:25] raised its checked bag fee by $10 because of climbing fuel prices. [2:30] Do you think we're going to see more of this, that there are more ways in which the costs, [2:36] the price increases due to this war will show up beyond at the gas pump? [2:41] Yeah, and I want to be clear, it's not that those impacts aren't significant even at the gas pump, [2:46] where you're already seeing prices above $4 a gallon. In fact, because of advancements in [2:51] fracking and oil supplies, the shock has less of an impact than it did in the 70s. But still, [2:56] you're shaving something like 0.3% off of U.S. GDP. [3:00] Next year, from a prolonged straight of Hormuz closure, that is billions and billions of dollars [3:05] in lost economic activity in this country on that dimension alone. And then you think about the fact, [3:10] Catherine, it's not just that checked bag prices are going up. It's also that airlines are thinking [3:15] about whether, particularly in Europe, as Brendan was starting to describe, they're even going to [3:19] be able to offer certain lines of flights over the course of the summer, a very busy travel season. [3:25] And those flights are important, not just for European travelers, but also for U.S. [3:30] travelers who are going to feel pain on those dimensions. We also know there are really [3:33] significant impacts, for example, on fertilizer prices, because fertilizer flows through the [3:38] straight of Hormuz. That impacts American domestic farmers who are right at the beginning of a [3:44] planting season and having to make really difficult choices as they explore input costs that are [3:49] actually higher than the cost that they're actually going to be able to sell those goods for [3:53] once they're produced. And so all of this is really quite significant, and the cascading [4:00] costs are quite large. And by the way, there is no magic button that one can turn. Even if tomorrow [4:06] this conflict is resolved and the straight of Hormuz is opened, these effects are going to be with us [4:11] for months and months to come, and there's no sign that we're anything close to that. [4:14] Yeah. Helium, fertilizer, lots of other things. [4:19] Aluminum. [4:19] Aluminum, things you wouldn't even think of that are affected by all of this. [4:23] Brendan, I would be remiss if I did not wish you a very happy Liberation Day, [4:29] since it has been exactly— [4:29] Those are the best things. [4:30] Those are the best things. [4:30] Those are the best things. [4:30] Those are the best things. [4:30] Those are the best things to celebrate, yes. [4:31] For those of us who celebrate, it has been— [4:33] This table. [4:34] Exactly. There are dozens of us. Yes, so it's exactly one year since Liberation Day when Trump [4:40] imposed his sweeping tariffs. Today, he placed a 100 percent tariff on brand-name drugs that are [4:47] produced abroad with a carve-out if companies move production to the U.S., he says. This comes as we [4:52] are dealing with the economic impact of the war, as we've been discussing. So does anyone in this [5:00] room have any statistics? [5:01] Пока, Donald, I do think it's so important to start off the conversation with the American economy, [5:03] because all we've seen in the last 20 years is how much of a financial crisis people are facing when it comes to these costs. [5:07] What are some of the cities that consumers are facing when it comes to these costs and the fact that these tariff costs are, in fact, passed along in, at least in part, to consumers? [5:11] Yes, absolutely. But I also think that the way he's rolling these tariffs out show that he's somewhat weakened from the proud display of blanket tariffs that he offered us a year ago. [5:24] He is, if it's possible to describe Donald Trump as chastened, he is somewhat chastened. So he's using a different legal authority for these tariffs. [5:31] OK. [5:31] tariffs. This is something that he can do through what's called Section 232 if he can say that [5:34] something is a security emergency and he has to use a tariff. But also, when you dig into those [5:42] 100 percent tariffs, there are all kinds of carve-outs on pharmaceuticals. So if a country [5:47] has already decided to actually onshore production to the United States, then their rate is [5:53] dramatically lower. If they've already reached a trade deal with Trump, their rate is dramatically [5:58] lower. So that headline number is supposed to be impressive and strong and Trumpy. And what we're [6:04] actually looking at is a lot of exceptions that reflect the fact that Trump does not have the [6:10] political power or even the legal power that he was claiming one year ago today. [6:15] Natasha, let's talk briefly about 401ks. With the war's impact on markets, things have been [6:21] tough for people's investments. Meanwhile, the president earlier this week, or the administration [6:26] earlier this week, rolled out a new rule. [6:29] That proposed rule, anyway, that would allow employees with 401ks to invest in things like [6:34] crypto, private equity, other alternative investments. The president is encouraging [6:39] people to invest in these riskier assets, arguably at exactly the same time that some of these [6:46] assets are on rocky ground. I'm thinking about things like private credit, which people are [6:50] worried could blow up. What's your take on all of this? Yeah, I'm pretty nervous about all of this [6:55] and frankly, somewhat nervous about private credit. So you're [6:59] the nature of how private credit works is essentially rather than going to a bank, [7:03] if you're a company to get your loan, you go to one of these firms, you go to the Apollos or the KKRs [7:08] and you ask for loans. Those loans tend to be offered at terms that are more attractive than [7:13] banks in part because what these companies are able to do is they avoid the types of regulatory [7:19] scrutiny that banks face that make it expensive to offer loans to risky borrowers. And so we know [7:26] that and there were some tremors in the market in the first place. And so we're going to have to [7:29] see what happens in the fall when you started to see potential areas of fraud that we know that there's [7:34] some uncertainty about the nature of the types of investments that these firms have made. And at [7:38] exactly that moment when investors are starting to get a little wary asking these firms, can I have [7:44] my money back that I've invested with you? It's primarily wealthy investors right now who are [7:48] invested in this asset class asking for those redemptions. At exactly that moment, you're seeing [7:54] this administration propose a rule that would make it easier for retail investors to invest in [7:59] their 401k savings in an asset class that is looking increasingly risky. And I actually think that's [8:04] deep cause for concern and in fact illustrates why it has actually been difficult to invest your 401ks [8:10] in private credit and in crypto in the past. We want to keep those retirement security secure and [8:16] not actually make some risks by associating it with these types of asset classes. Yeah, I mean, [8:21] I think it's going to be normal people who are left holding the bag.