14:56
Let's start with e-e customs. You were in the administration when Liberation Day happened. Uh, the tariffs aren't as high as they were right after Liberation Day, uh, but they're still uh, about three times higher than they were in early 2025. This is almost the highest level in the last century. What do you think was the impact of the tariffs on the US economy? The level of tariffs has changed from relatively low to still relatively low. That's average, right? So, if you look at the effective duty rate, it's somewhere around 9-10%. Uh, and you apply this to imported goods. So you're still
applying a, uh, you know, relatively low rate to a narrow range of, uh, goods. And so when we're thinking about the economic consequences, we should always take that into account. Uh, I also believe that considering duties in general is the wrong approach. Simply because there are all sorts of different duties, and they exist for different reasons. There are uh duties that are uh imposed by law for uh national security reasons. So it's like sectoral duties. Uh, and there are also tariffs that are imposed due to the unfair trade practices of our trading partners.
Uh, if I step back a little from uh, these specific legislative reasons for tariffs and just think about, uh, what uh, they do uh, for uh, the overall economy, uh, I think they can be viewed as uh, sources of revenue, very similar to uh, a consumption tax. Uh, but, you know, consumption taxes apply to consumers. These fees are a mix, a mix of who ultimately pays them. And, you know, a lot has been written about who bears this burden. But, I think What is your uh take on this? Uh my And I think that these studies on the impact are usually micro-studies. And these micro studies tend to look at tariffs, and by micro I mean partial equilibrium.
They simply look at changes in relative prices. And so these studies say, " Oh, look, we put in a tariff, and then the price of the tariffed good increases more than the price of other goods that are not subject to the tariff." And so my view on this type of evidence is that this is exactly what one would expect from a tariff, which is that it should change relative prices. But it has to change a bunch of other things. For example, wages in sectors subject to tariffs Um, as well as wages abroad in those sectors that have tariffs imposed. So, if you wanted to do a full assessment, you would need a somewhat broader conceptual framework that takes into account what we economists call general equilibrium effects, taking into account
internal factors. So I don't think there's much to say about it based solely on what's already been written. I mean, there are a lot of works now that take into account the results of Trump's first and second terms. We have an article in the Journal of Economic Perspectives from 2019 about fully shifting tariffs to consumers. We have the Quarterly Journal of Economics from the same year with a conclusion of full pass-through for the 2025 tariffs, as well as a new article in the Journal of Economic Perspectives that says 92% pass-through. The New York Fed also received a similar figure for February 2026-90% for a second Trump term. So is that what you mean? Are you saying you don't like these numbers?
No, why not, I actually agree, I think these numbers are completely normal. I'm just saying that these numbers don't indicate who exactly is carrying this burden. I understand. That's all I want to say. I actually think all of this research is great. They are written by distinguished scholars, some of whom are my friends and former colleagues. But what these studies do and what they find out is the effect of the tariff on the relative price. And the simple statement that the price of a product subject to a duty increases more than the price of a product without a duty does not in itself answer the question of who
bears this burden. Because there are other aspects of tariffs that are worth thinking about, such as what the impact is on wages both domestically and abroad. And, I think, there are also fiscal consequences. You mentioned that when they were first introduced and the Congressional Budget Office (CBO) estimated them, they generated about 1% of GDP. This is a very significant figure in the budgetary sphere. So I think that's something to keep in mind as well. And you have to consider some of the macroeconomic benefits of deficit reduction. Of course. I accept this general argument, but if you look at other macro indicators, there is no sign that tariffs are doing what they were intended to do.
You know, employment in manufacturing in September was lower than in January 2025. Real wages in manufacturing are 0.3% higher than in January 2025, but in recent months they have not kept up with inflation. Are there any signs of this reindustrialization? First, you see an increase in value added in manufacturing, starting, you know, if I take the beginning of the administration, you will see an increase in value added. Additionally, you see productivity gains in manufacturing. If part of your tariff plan is to produce more goods domestically, it could be with more workers, robotics, or automation-it doesn't matter. From my perspective, I consider this a success.
Another point: if you look specifically at employment in manufacturing, it has been declining for some time, right? It also declined during the Biden administration, even when there was some positive growth in production. So, this is worth taking into account. In 2025, there was a decrease in employment in manufacturing, but not as significant as in 2023 and 2024. And already in 2026 we see employment growth in this industry So these are just a few facts worth paying attention to. Another thing to look at is the growth in construction in 2026, and. I mean, it's AI, data centers, right?
This is not entirely true. If you look at the production of metal products, transportation, and the chemical industry, there is also an increase in employment there. I think these are signs that they are doing what they are doing. I mean, it's not just customs duties, just to be clear. I believe that there are other processes taking place, and it will be difficult to separate all of them. One major important bill provided many incentives for investment in the country I also believe that many companies are getting a certain signal from tariffs.
They see this and draw conclusions based on their interactions with China and the need to diversify supply chains. So I think it's a combination of tariffs with the tax breaks that I mentioned, along with an understanding of where the global economy is going. And all three of these factors together are driving increased investment in the country, which goes far beyond what is happening with data centers alone.
