Dr. George Calhoun is a Teaching Professor in the School of Business at Stevens Institute of Technology in Hoboken, NJ, comments on the possibility of an economic recession as a result of the Trump administration instituting tariffs.
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00:00The tariffs, in the view of the headline writers, is certain to cause inflation.
00:06And there's kind of a basic logic, right?
00:09You add a tax on top of a product's price, and the price goes up.
00:13The consumer's end price goes up.
00:16So that's sort of the starting point.
00:18And the thought process I went through was, is that the right way to look at it?
00:24Are there other ways to look at it?
00:26And it turns out there are other ways to look at it.
00:29My name is George Calhoun.
00:31I'm a professor of quantitative finance at the Stevens Institute of Technology.
00:37Trying to anticipate what the effects of now changing from a very low tariff regime,
00:44we were the lowest tariffs in the world until the end of 2024,
00:50to a high tariff regime, to try to anticipate those effects is not,
00:55you can't just easily go back and draw on history for that.
00:58The history is too out of date.
01:01And that's, I think, what creates the uncertainty around this question.
01:06The question is always, is it different this time?
01:09And that's the question in every time there's a crisis in the financial system,
01:14or in this case in the trade system,
01:16a shock that is out of proportion to what the historical trend was,
01:22you want to try to anticipate,
01:24is it going to change the behavior of the system in some fundamental way?
01:28And I think there's a good chance of that,
01:31particularly with respect to the Chinese-U.S. trade relation,
01:36which may well be the focus of this whole theater.
01:40The action and the changes and the significant game-changing aspects of this tariff war
01:49are going to manifest themselves in the relationship between China and the U.S.
01:54It's hard to say what the two parties are after here.
01:58I think China is in a weaker position, generally speaking, than the U.S. in this battle.
02:07It doesn't mean that we won't have some pain,
02:08but the U.S. is economically starting from a very strong position.
02:15The models that are being put together to try to estimate the inflationary impact of tariffs
02:22are producing potential inflationary impacts that are actually quite small
02:29relative to this range of measurement imprecision,
02:34which is not to say that there isn't inflation,
02:37but it's to say that we want to be careful not to overreact to something
02:42that is actually perhaps within the margin of error, so to speak,
02:46or in the noise of the measurement itself.
02:49Even if it does mean that there's an extra tax on top of a particular product,
02:56that's a one-time event in the view of most economists
02:59that does not necessarily then translate into what inflation really is,
03:05which is a sustained trend of price increases.