Mark Zandi, chief economist at Moody's Analytics, joined "Forbes Newsroom" to weigh in on President Trump's trade policy, tariffs, and the economy.
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NewsTranscript
00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes. Joining me now
00:07is Mark Zandi, chief economist at Moody's Analytics. Mark, thank you so much for joining
00:12me. Thank you, Brittany. It's good to be with you. President Trump's second term is only
00:17two months in, and in that time, he has threatened, started, paused and escalated trade wars with
00:24our partners worldwide. The markets and economists alike have indicated that they are not fans
00:29of this tariff whiplash. And earlier this week, you said that President Trump came into
00:33office this second time around with a rip roaring economy. But the chance for recession
00:38now is high. So to start off the conversation, how did we get here in such a short amount
00:43of time? Is it because of his trade policy? Is it because of the tariffs?
00:48In part, yeah. I mean, I think we're here because of economic policy and big changes
00:55in policy. The tariffs, the I think you can even call it global trade war at this point
01:01because we're raising tariffs and other countries are retaliating. So that's a trade war. It's
01:07creating a lot of havoc. Of course, there's the doge cuts to government jobs and funding.
01:14That's at least it looks quite haphazard and that's creating a lot of angst and uncertainty
01:22costing jobs. There's the immigration policy, the changes there,
01:29aggressive deportation, still early days. You know, I don't know that it's a big macroeconomic issue,
01:34at least so far, but it's starting to play a role. You've got all the things that are going on
01:39with regard to tax and spending policy, fiscal policy. Congress is working, both the House
01:45and the Senate, on a very large reconciliation bill. And of course, the Treasury debt limit
01:50battle will soon rev up again. It isn't on the radar screen yet, but it will be soon. So there's
01:56a lot of policy balls in the air and all those things are creating a lot of angst and uncertainty
02:02and making businesses, consumers and obviously investors very nervous. And that is starting to
02:08have very significant implications for the economy. And that's why recession risks have risen so
02:13quickly. And President Trump himself hasn't done much to quell economic fears. He said
02:19that we are in a period of transition. He also hasn't ruled out a recession. So from your
02:25estimate, I mean, how close are we to a recession? Well, kind of the way I try to articulate that is
02:34what is the probability? This is very subjective, you know, based on all the things I'm reading and
02:39thinking about and all the data that I look at, but still very subjective. What is the probability
02:44that the economy will enter into a recession at some point in the coming year? And I'd say it's
02:52about 35 percent. And I just saw another survey of economists and it feels like that's roughly
02:57the consensus. But just to give you context, kind of in a typical, well-functioning economy,
03:02the probability would be closer to 15 percent because we have a recession every once, once
03:08every six, seven, eight years. So you do the arithmetic, that's about 15 percent. That's the
03:12unconditional probability of recession. So 35 percent, it's less than 50, which is really good,
03:19but it's uncomfortably low. Let's put it this way. It's uncomfortably high and it's rising.
03:26It's moving in the wrong direction. And then I guess, how do we right that ship here? Because
03:32no one wants to hear, especially those who lived through the Great Recession of 2008, 2009. No one
03:37wants to go through a recession again. How do you steer the ship back? Because from what you're
03:42saying, there's a lot of policy balls in the air. Is this a Trump-inflicted recession?
03:49Well, it's really easy to get this back on the rails, and that is end the uncertainty, end the
03:56global trade war, be much more judicious and circumspect with regard to the kind of efforts to,
04:04you know, the Doge efforts to address costs and fraud and other issues within the federal
04:11government. So you take a step back, be more cautious, pull back on the trade war. I think
04:20the economy gets its footing very quickly. Now, with each passing day, I see that with less
04:25confidence, because confidence is eroding. Sentiment is very fragile. And it feels like
04:33that's becoming more the case with each passing day. So if anything else comes along, any other
04:40policy effort or anything else that we're just not anticipating could very well push the collective
04:45psyche over the edge and we go into recession. You know, Brittany, at the end of the day,
04:50recession is a loss of faith. Consumers lose faith that they're going to be able to hold
04:56on to their job. Businesses, they lose faith that they're going to be able to sell what it is they
05:00produce. And you get into this kind of self-reinforcing negative cycle. We're not there
05:04yet, but it feels like we're right on the edge of that happening. But I think if the president kind
05:10of figures out a way to pivot, we can declare victory and we move on here and end the trade
05:16war, we should be OK. Does it look like he's going to do that? Because I've had a lot of
05:22people here talking about the tariffs. No one has been a fan of them. Economists, politicians,
05:28everyone in between. Does it look like President Trump is going to listen to this guidance of,
05:34hey, the markets don't like this? We could be headed to a recession. The economy was,
05:39as you said, rip roaring two months ago. Does it look like we're going to change course at all?
05:45Not at the moment. But if you go back to President Trump's first term,
05:52you know, he engaged in a trade war, not on the scale that we're talking about here. It was
05:57just to give context. Right now, there's tariffs, higher tariffs on about $800 billion worth of
06:01imported goods coming into the country. And that's going to rise on April 2nd, in all likelihood,
06:07when we go to reciprocal tariffs. Back in 2018-19, at the peak, the tariffs were on
06:15$350-$400 billion of product, mostly coming from China. So the scales are very different. But if
06:21you go back to that previous episode, when the economy did start to struggle under the weight
06:27of the trade war, manufacturing was going into recession. The farmers were getting creamed. In
06:33fact, President Trump had to cut checks to the farmers to compensate for the lost sales of their
06:38agricultural products to China. He pivoted, you know, he found a way to cut a deal with the
06:45Chinese. He declared victory and the trade war by the end of 2019 was fading away. So if that's your
06:53case study, then, you know, it's not unreasonable to think that that's what's going to happen here.
06:59But I say that with a very low level of confidence, and with each passing day, less confidence,
07:06because it is, the damage is starting to mount. And he is speaking about, he and the administration
07:12are speaking very differently this time than in his first term, you know, talking about the need
07:17for paying now for gain later, or look, there'll be some disturbance. Even he said, I can't rule
07:26out a recession. Those are the kinds of things that, you know, I think is probably adding to
07:31the angst, because it's certainly making me nervous that, you know, he isn't going to pull
07:33back on the trade war or some of these other policies that are doing damage.
07:39And hearing the president say, we're not necessarily, a recession is not out of the
07:43realm of possibility. Hearing you say that too, hearing you say, hey, I'm nervous. Hey,
07:48we are uncomfortably close to a potential recession. As an economist, what do you think
07:53is missing from this conversation? When you think about President Trump's economic policy,
07:57when you're looking at tariffs, when you're thinking how we're inching closer and closer
08:01to a recession, what's missing here? Well, it would be really nice if I get,
08:10we got a sense of, we all got a sense of what, what's the motivation, you know, behind the trade
08:17war? You know, what, what are we doing here and why? I mean, is it about the trade deficit?
08:23But the trade deficit really isn't playing much of a role in terms of economic growth.
08:27Is it trying to keep and attract businesses here? But what business person in their right mind would
08:34invest here, given the uncertainty around these tariffs? I mean, they're here today,
08:38they could be gone tomorrow with the stroke of a pen. Is it, is it about striking specific
08:44deals with specific countries over who knows what, Benton or immigration or USMCA, or is it
08:52about revenue? Is it about raising tariff revenue? You know, what's going on? You know, what's the
08:58end game? So to get a better sense of that, so they can have a real fulsome discussion around
09:03whether the trade war actually will achieve those goals. But we don't, I don't, and I don't think
09:08anyone really has a sense of, you know, what's the motivation, what's driving all this. And
09:13I think it would be, go a long way to help if we kind of understood that. Now, I suppose the other
09:19side would say, well, that's this uncertainty is a feature, not a bug, I guess. But we'll see. I
09:26mean, this is an empirical question. We're going to find out pretty soon, you know, whether the
09:30trade war is going to work or not. And I think that's a really interesting point. And just a
09:35few hours ago, I was speaking with a congressman in Kentucky. And he said within because of these
09:40tariffs, the bourbon industry in Kentucky is going to be absolutely slammed by this. And he
09:46said, I don't see a reason for these tariffs. There's not one clear definition of why we're
09:50doing this. President Trump has said for the tariffs, it's everything from fighting fentanyl,
09:55fighting an immigration crisis, making putting America first, getting America back on its feet
10:01in terms of manufacturing. If there was a clear goal of we're doing the tariffs because of this,
10:07does that ever make sense as an economist? Does that ever work?
10:13Well, I'm hard pressed to figure out when, you know, I can't tell you. I mean, put on
10:20talk, put 100 economists in a room, ask them a question or broad based tariffs, good policy,
10:26bad policy, you can work on the question. You'll get 99 of them saying it's a it's a bad idea.
10:33You'll find one that probably says it's okay. Maybe it's good. I don't know who that person
10:37would be, but I'm sure you could find them. But that's how, you know, constipate everything.
10:43Right. We argue over everything. You can find economists on either side of almost an economic
10:48issue, not on tariffs, not on broad based tariffs. That's pretty uniformly the case,
10:53because history is very clear here. We know what's going to happen. So, you know, I think,
11:01you know, hopefully we find a way to get beyond this without doing too much damage.
11:06I think my last question for you is April 2nd. That's been touted as the big day in terms of
11:12reciprocal tariffs from the Trump administration between now and then and on April 2nd in two
11:17weeks from now. What specifically are you looking out for next? Well, is it actually
11:22going to be April 2nd? Brittany, I'm not sure. We'll see. You know, I do think that's the first
11:29big question. Yes. Will it actually be April 2nd? I don't know. But let's say it is.
11:33I guess that's the question. Yeah. Well, if it was, we're getting closer. First of all,
11:39I'm not sure anyone believes it's going to be April 2nd. So, you know, the natural answer would
11:45be, well, as we get closer to April 2nd, things are investors are going to get nervous. Stocks
11:49are going to fall. You know, people are getting more cautious. Businesses are going to be hurt.
11:56I think that's the case, but I'm not so sure because no one really. Is it really April 2nd?
12:01And what happens on April 2nd? So and we'll hear what the administration has to say between now
12:06and then, because, you know, it does feel like it's, you know, if people if stock market starts
12:11going down and this is not a bad thing per se, but the administration responds and says something
12:17to try to kind of take back. So we'll see. I mean, I don't know if it's April 2nd or April
12:2312th or May 3rd or June 5th. And that's a good question, because what does that do
12:30to the economy? This real uncertainty of you're saying, I don't know if this is April 2nd or this
12:35day or that day. What does this uncertainty do to the stock market and the economy as a whole?
12:41Well, I don't see any upside to it. All I see is downside. I mean,
12:45you know, it's like a corrosive on the economy, on markets. I think people just
12:52they're just going to sit on their hands. Right. They may they may not start cutting,
12:56but they're not going to move. I mean, again, going back to the business person
12:59trying to make an investment decision. How can you make an investment decision? You know,
13:03if you're in manufacturing or agriculture that are directly affected by the tariffs,
13:08what do you do with the with this? You don't know which countries, which which products,
13:15which companies over what period of time. So you just you're frozen in place. You go into a deep
13:21freeze. That's not a great place for an economy. You know, if it's not moving forward and it's kind
13:24of frozen in place, it could get knocked over pretty easily by something else coming along.
13:28But I suppose if this does extend, if the uncertainty does extend into
13:32May, June, July, at some point people are going to say, hey, you know, they're going to start
13:38going to start cutting. You're going to start laying off workers, going to start cutting back
13:41on investment. And that's that's your recession. That's how you get to recession. Well, there's
13:46certainly a lot to look out for between now and April 2nd. And if there is another date,
13:51Mark Zandi, thank you so much for joining me. I really appreciate your
13:55perspective here. You are welcome back any time. Oh, you're very kind. I appreciate that.
14:00Hopefully next time I'll have clearer answers. We've got problems that aren't clear at all. So.