Panel On Tariffs

>> John Cochrane: Nick is presenting, then Steve Davis and Steve Redding, and finally Andrew Grotto. We start with economic history, then we have economics and history, and finally national security, because I'm kinda gonna plug you with that. I especially invited Andrew cuz that's a discussion we're having so much at Hoover, is the economists who tend to be free trade and the national security types who tend to, let's say, not and have other priorities in mind.

And aircraft carriers are expensive too, so is trade. So I think that's a discussion that we really need to have. With that, we're going to go in order, hopefully 10 to 12-ish minutes each. We have an hour and 15. I'd like to ask us, we do ask questions here, we talk a lot.

But given the amount of wonderful material we're gonna hear, if we could hold down the scale of the questions and the, quote, questions that are really speeches, that would be lovely. And then have a little bit of time at the end for Q&A. So try to keep it in context and as short as possible.

With that, Michael, let's go.
>> Michael Bordo: Okay, so this is the title, it's provocative. And this picture tells you why we're here. The average level of Trump tariffs bring us right back to where we were 80 years ago, okay? And what this figure tells you is that tariffs been falling for a very long time.

We've been in a process of trade liberalization for 80 years and there's a lot going good reasons for that. And now guess what, we're right back to where we were.
>> Speaker 4: What year is the peak?
>> Michael Bordo: I couldn't tell you crap. 80 years ago,, seem to be before 1945.

No, it's been falling ever since. Yeah, yeah, okay, so again, these slides are a bit provocative. The Trump tariff strategy seems to ignore an abundance of adverse historic analogies. And I'm the historian, so I actually put together five, but they're sort of hidden in here. President Trump's a mercantilist.

He views the world as a zero-sum game. For him, an adverse trade balance means that we're being ripped off. He wants to restore US manufacturing as it was in the mid 20th century. Like Prebisch of Argentina 80 years ago, Nehru of India, he believes that import substitution will restore America's greatness.

Like what happened with the Smoot-Hawley tariff in 1930, Trump's tariffs are provoking retaliation and threaten a global recession, okay? In the 19th century, tariffs were a primary source of revenues as well as land sales. And they were used as protection. And they were a really controversial issue. We don't have time to go through it.

But they were not exactly popular across the country and in a sense accentuated this schism in the pre-Civil War period that led to the Civil War. In fact, because of the inefficiencies as a revenue collector, that's one reason why we got the income tax in 1913, okay? Also, President Trump aims to end what we're in today, which is called the second era of globalization, because for him, it led to two things, the advance of China and the hollowing out of US manufacturing.

If this happens, this will isolate US. Now, I'm gonna go on about this. So the historic pillars of the Trump tariffs, all of them have been disproved in the past. The doctrine of mercantilism that goes back to the 17th century viewed the world as a zero-sum game. And what countries were supposed to do was to maximize the balance of trade surplus.

They did this by the navigation acts that restricted shipping between the British Empire and its colonies by all kinds of other restrictions, okay? And of course, this was refuted in Adam Smith's Wealth of Nations in 1776 and by Ricardo's doctrine of comparative advantage. Another pillar was the infant industry argument which Alexander Hamilton suggested in the beginning of the 19th century.

And that which was followed led to rent-seeking and protected monopolies and inefficiency. As far as the revenues go, they would be insufficient to finance current deficits and they would harm the economy as well as generating inefficiencies. And the hope of returning to the 20th century era of labor and capital intensive US, it doesn't make sense because it ignores the technological advances that have occurred.

And the fact that US comparative advantage has evolved away from labor to human capital intensity, and services throughout the 20th century have been replacing goods. So all of this is not being counted on. The US benefits from international trade and relies on capital inflows to finance innovations. And capital flows are the mirror image of the trade deficit.

So it seems that the tariffs address the symptoms and not the causes of the US problems. Okay, so I'm gonna give you a historical perspective on this. I taught a course in globalization for 20 years. I've been doing this for a long time, okay? And it came out of a conference we had at the NBER 20 years ago where we considered all these issues.

And at the time, most of us thought this was going to be great. But there were some, Harold James and Clive, who predicted exactly what was happening today. Okay, so the story is the free trade movement in Britain in the first half of the 19th century, leading to the repeal of the Corn Laws, they were taxes on wheat in 1846.

And by the way, I belong to the Reform Club in London when I go there. And there's a big picture, Richard Cobden. Now, he's the guy that led the Anti-Corn Law League, okay, and the reforms that occurred in the 19th century in the UK. And then the Cobden-Chevalier Treaty in 1860, what it did was it reduced tariffs in a reciprocal way through the most favored nation clause.

And that led to a reduction in tariffs across Europe. And the free trade that came out of that benefited Europe and the US, which was a high tariff country. So in the 19th century, the United States is an emerging country, and it ran large trade and current account deficits during the Second Industrial Revolution.

And the rapid growth that occurred in the In the later half of the 19th century was driven by capital, by capital investment, by advanced productivity and by immigration. And a key part of that, capital inflows, both the import of imports of capital goods, okay, and then financial flows.

And these were critical to economic growth. But of course, at the same time as this is going, and also there's a growth in migration, okay, there's a backlash that starts at the end of the 19th century. In Europe, landowners were threatened by new world agriculture. And in the US workers were threatened, felt threatened by immigration.

And that led to tariffs. In Europe, the end of the 19th century, restrictions on immigration, beginning then with the restrictions on Asian workers. Same thing happened in Canada, Australia, Argentina. Okay, this, these two pictures, this comes from Chris Meisner's really great book on globalization. This is what I thought my course on.

So you see there's a U shaped pattern in globalization. On the left you've got trade. So world exports to GDP, they rose from the 15th century all the way through the 19th century. They were accelerated by the reduction in tariffs in Europe and by technological advance in transportation.

So you have the first year of globalization, it peaks with World War I and then it falls off like a rock with the war. When you get capital controls, then you get many tariffs, etc. And then it comes back in the second year of globalization. On the right we see a similar but not quite as strong U shape.

Financial growth of financial capital inflows was huge through the late 19th century. It ends with World War I, completely ends through the 1930s and then comes back in the post war. And this next slide shows you the same show for migration. In addition to tariffs, the question is, will Trump's immigration policies end the era of the rising foreign born share of the US?

And you see again, this U-shaped pattern, and here we are at the peak. Will that go down? Okay, so I'm almost finished with my part. So what happened, of course, is that this first year of globalization ended with capital controls, exchange controls, etc., in World War I. Then after the war, the US, which was always a high tariff country, really cranked up the machine with the Fordney-McCumber Act of 1922.

And then the famous Smoot-Hawley tariff of 1930, which would peak at 20%. That led to retaliation, by the first country to retaliate is Canada. That's where I come from, okay? And that led to the creation of, of new trading blocs that exclude the US. so the Ottawa Agreement of 1931, what it did was all the British Empire countries in A sense, lowered their tariffs between them and put up a tariff wall against the US and other countries did that.

So, in a sense, the US Ended up losing from that policy. That, of course, led to the Great Depression and the collapse in global trade. And then my last slide is, of course, after the war, okay? During the war, in fact, in the US Cordell Hull was the Secretary of State, and others believed that the collapse of trade and capital and everything really contributed to the war.

And there was a concerted effort to create a new global order, which the US Led. And we know, we're all familiar with that. In trade, it was GATT, which set a system of universal rounds of tariff reduction, okay? The Bretton Woods adjusted peg, the World bank, the IMF, and then in 1990, the WTO.

But while this is going on, there are notable departures to this that have important lessons because of the Great Depression, okay, which slammed Latin America, and also a fall in the terms of trade of Argentina, in a sense, proposed this plan of import substitution, of using huge tariff walls to create new industries in Argentina.

All the Latins took this on, and this followed 70 years of complete stagnation. India, when it became a country, the independent followed exactly the same pattern. Their economies floundered. So I'm going to turn this over now to Mickey, who's going to really bring it to the present.
>> John Cochrane: You didn't mention Alexander Hamilton.

>> Michael Bordo: I did mention him.
>> John Cochrane: I got.
>> Michael Bordo: I said, he's the industry guy.
>> John Cochrane: Yeah, those tariffs seem to have worked.
>> Mickey Levy: So what I'm going to describe is basically what we and the economy and financial markets are now living through and are going to face. So Trump's policies, basically, you know, they aim to change the world order.

And in addition to tariffs, Trump favors intervention into markets to achieve desired outcomes for the dollar and for interest rates. He wants to maintain the US Dollar as the world reserve currency, but he also favors a weak dollar to help US Exporters, which is potentially inconsistent. He favors low bond yields, and he always has as a real estate guy.

And he wants the ability to influence the Federal Reserve. And as you know, just these interventions are very. They involve costly distortions and uncertainties. Amid all this, the US has changed its tone. Just the tone and perception of the US and its role in the globe has changed.

So the US Is cutting subsidies for European defense. It's cut soft dollar subsidies to LBCs. Trump has been, and his Vice President been nothing but belligerent to allies, and has suggested banking out of global trade agreements. So this is the this kind of new world order. And I hate to use a term like that, but that's what he's proposing.

And as Mike said, new alliances would form away from the US and, and they would isolate the US like the 1930s. So you've all been reading about this day in, day out. But it does pose tests for the economy, the US and global economies and global trade, markets, and importantly, the Fed's credibility and reliability.

So we think about markets and the correction in the stock market. Markets have appropriately priced in expectations of recession and lower profits. So markets have, you know, if you cut through the day to day volatility and the risk on risk off days, the market is. Is pricing in a hit to the economy and the profits.

So this is a moving target. But if you take where we are right now, and don't hold me to this, but I come up with, if fully enforced, about $820 billion in tariffs. And that's based on 145% on China minus the variance on the iPhones. 10% globally, 25% on steel and aluminum, the vast majority of which comes from Canada and Mexico, and then 25% on autos, but not auto parts so far.

So if you take that, if they collect all the revenues on that. And by the way, you might be interested, the Customs Bureau only accepts checks. You can't wire your money to them to about 2.8%. Yes.
>> Michael Bordo: A lot of bribery,
>> John Cochrane: white envelopes.
>> Mickey Levy: Nope. Michael, I do know somebody who's had some funds coming back and the check got lost in the mail.

So it seems like the. And Valerie, this is your field, but it seems like I would think the impacts of the tariffs on the real economy would have a larger negative fiscal multiplier than a tax on the same amount, reflecting not just the higher uncertainties, but the supply chain disruptions.

If you just think about Canada, Mexico, US Businesses have been setting up supply chains and building them out for the last 30 years and then retaliation. So, I'd put however low you think fiscal policy multipliers are, and I put a higher multiple on these. And then, of course, Trump's erratic behavior and policymaking, this has created a huge amount of uncertainty that Steve's going to talk about.

And we have to remember this has a very large impact on small and private businesses that may not have capital to back themselves up. The left hand table, if you just look at the right column, it shows where we were as of April 9th. And this is out of the Federal Reserve bank of Richmond, a study that shows effective tariff rates by country of origin.

So China 135 sticks out like a sore thumb. But the tariffs assessed on imports from everywhere are far, far higher than they were, say, in 2024, which is the second column. And then, of course, on the right is Steve's Economic Policy Uncertainty Index. That's gone through the roof.

Now, I'm gonna switch over to the Federal Reserve. And so, if you think about this, the tariffs are on an absolute collision course with the Fed's dual mandate. We should expect these tariffs to have negative impact and the uncertainty related with them hits to consumption and investment. The uncertainty is a decided negative for business investment.

I might note in Trump's first term, when we look at the imposition of the tariffs, they had their largest negative impact on imports of capital goods related to investment. And so then in addition to hitting the economy, they should raise the general price level. They should not add to persistent inflation unless inflationary expectations rise and those higher expectations become embedded.

So this makes adding to the difficulty of the Fed, if you think about it, the tariffs lower expected rates of return, real return on capital and should lower some natural rate of short run, natural rate of interest which makes the current fed funds rate higher. Mike and I had a piece in the Wall Street Journal recently basically arguing so if you think about it, these tariffs and the uncertainty should involve an inward shift in aggregate supply and an inward shift in aggregate demand.

And the Fed which is in the business of managing aggregate demand, shouldn't be responding to policy induced negative shocks, and it should resist pressure, including pressures from president to do so, but let's think of reality. It's most likely the Fed will respond. And if you look historically the Fed has responded much more quickly and aggressively to weakness in labor markets than it has to higher inflation.

So our thought is if the impact of the tariffs hits the economy, and you have modest increases in inflation, but inflationary expectations remain well anchored. Then, the Fed's gonna respond pretty aggressively to higher unemployment. And I might note if you look at for example at not market based surveys of inflation expectations, but that if you look at market based surveys rather than consumer based surveys like the five year, five year forwards have actually moved down a touch.

So inflationary expectations look like they're in pretty good shape.
>> John Cochrane: Just expand on one small point. We agree it's not a good idea to respond to a supply shock with increasing demand. You said well, but there's the uncertainty demand shock. But does it do any good to lower interest rates to offset an uncertainty demand shock?

Is anyone going to invest in the US no matter what the low interest rate is? Steve might have an opinion on this too.
>> Steven Davis: Well, the basic option value weighting story says you're less responsive to shocks, including interest rate changes, in a period of high uncertainty because the inaction ban widens.

So that's one of the leading theories for why uncertainty matters. Not the only one, but it's probably part of the story. It basically says stimulative fiscal policies are probably less responsive on the margin because of the high uncertainty.
>> John Cochrane: That's a reason why lower interest rates would not offset uncertainty.

That's excellent, thank you.
>> Steven Davis: At least a reason why to recognize they'll have less impact.
>> Mickey Levy: Let me just add this point, that the uncertainties in the tariffs lower expected rates of return, which should lower interest rate, the natural real rate. So that makes the current funds rate higher than it would be otherwise.

So now, let's get to this issue of credit credibility and fiscal burdens. And I and John, I just hope that you don't end out saying, see, I. I told you so.
>> John Cochrane: But I think there's a lot of that going on in the room but go ahead.
>> Mickey Levy: If you think about the combination of a loss in US Government credibility and reliability and the rising US debt burdens, it's really a toxic mix.

And so there is this concern, and you've seen the decline in the dollar, that this loss of credibility could jeopardize the U.S.. Treasuries as this global safe haven and put U.S. debt in the current account at risk. And so once again, if you think globally, the loss of credibility reduces risk adjusted expected rates of return on dollar denominated assets, say relative to euro or yen denominated assets.

And that has resulted in a falling dollar, so the dollar has fallen. So we can ask the question that nobody knows the answer to. How much does the dollar need to fall in order for global portfolio managers to want to reduce their exposure to dollar denominated assets? And then you have to add the credibility issue.

And so right now foreigners own about a third of all outstanding publicly held debt. If you look at U.S treasury yields adjusted for inflationary expectations, they're still higher than other leading foreign debt. However, we have seen recently spikes in treasury yields. And what I really am alarmed about are some of the daily movements like when you have a risk on where the stock market goes up, bond yields go down and the dollar is moving up.

But then when you have risk off days, you have the stock market falling, bond yields going up and the dollar falling, and that's alarming. And so the US exorbitant privilege could go in reverse. And as Ben Franklin said, it takes a long time to build reputation and credibility, but you can destroy it pretty quickly.

And then there's the Fed is aware of these issues it's extremely concerned. It's working behind the scenes looking into alternatives for adjusting regulations that would allow U.S commercial banks to own more treasury, to own more Treasuries. They don't hold capital against it, but they do have liquidity requirements.

And the last thing we want is for the Fed to have to be forced into action to stabilize things. This left hand chart, the blue line is the interest yield spread between us 10 year treasuries and 10 year German buns. And then the right hand side shows the Euro dollar exchange rate and you see this huge divergence.

And this is, it's telling us something and the but the right hand side, you've seen, well, ex ante real treasury yields have gone up. They've remained in a range and we have to follow those closely so I tried to develop a scenario analysis and this is.
>> John Cochrane: I want to preserve time for everybody else to have a chance.

Okay, so take a minute.
>> Mickey Levy: One minute.
>> John Cochrane: But no.
>> Mickey Levy: Okay, one minute. Scenario one, best outcome, everybody negotiates tariffs, send out 10%, we still end out with a mild recession. I put a 15% probability on that highest probability is the less worse case, Currently tariffs stay about 25%.

Moderate retaliation, ongoing uncertainties. You do have a recession and you do hit potential growth by maybe a quarter of a percent. Worst case scenario three was current tariffs plus loss of credibility and reputation lead to a Treasury debt crisis with sizable stock declines, US isolation and a much bigger hit US potential.

And then my worst worst scenario four is scenario three, but with escalating trade war with us. Add to that the deportation of millions of immigrants, cuts in funding and pressure on the Fed. And so you put your own scenarios on this, it's all a moving target. And why would I put the highest probability on the second least worst case?

Simply two things, and I say this hesitantly. Number one, as we've seen in the last couple of weeks, Trump responds to pain thresholds and backs off. And number two, Congress eventually wakes up and pressures Trump.
>> Speaker 4: Question if you see the world moving away from the dollar in trade, what do you see it moving into?

>> John Cochrane: I can answer that quickly. You don't need to own a lot of dollars even to transact in dollars, so holding of dollars is very different from transacting in dollars. You transact in dollars, you don't hold what's in your wallet, you don't hold a lot of dollars. But I want to move on to, we're eating into Steve's time, which is unfair.

So Steve, who is an expert on policy uncertainty, you must feel happy for your research, if unhappy for the country.
>> Steven Davis: That's exactly right. So thanks for organizing this, it couldn't be more timely. I'm going to speak in a different register than is customary in an economics workshop and I'm going to hold any questions until after my prepared remarks.

So we are living through an astoundingly destructive period in US trade policy. Jumble headed thinking and reckless decision making are harming the economy, damaging US relations with allies and trading partners. And destroying the already tattered trading order that supported prosperity and security for 80 years. Uncertainties around US trade policy are at unprecedented levels.

Here is a newspaper based index of trade policy uncertainty that my co authors and I constructed more than a decade ago. You can see that there's just in the last two months is unlike anything that we've seen in recent decades and probably anything back to at least far as the Smoot Hawley Tariff.

This is also spilling over to other countries. These are analogous newspaper based indexes constructed by ourselves and others for three major US trading partners. Again, record levels, the extraordinary nature of the trade policy rupture is also apparent in the stock market and other financial markets. I'll give you one example that's just striking and vivid.

If you look all the way back to 1900 through 2023 and you systematically assess next day newspaper accounts of what drives large daily jumps in the US stock market, and large here means. The stock market moves up or down by at least 2 1/2% in a single day.

There are exactly 10 such jumps out of roughly 1200 that next day. Newspaper accounts attribute to trade in the short period from March 26 was the first new Trump tariffs and 17 April trade policy news has triggered 4 or 3, depending on exactly how you count daily stock market jumps greater than this threshold.

So we've had a roughly 800 fold increase in the frequency of trade policy shocks that drive major stock price gyrations. And there's been quite a bit of action since I put these slides together, even though it was a week ago. So you can also see this is just some of that action.

But again, I need updates to chart given what's happened recently. You can also see this in another that in another way. This is a newspaper based equity market volatility tracker for trade policy that my colleagues and I constructed in another paper. It's essentially a two part process. You construct a newspaper based index that tracks the vix.

You can do that quite well in real time. And then you parse the newspaper articles that feed into that tracker index. And if you look at things from that perspective as well, the extent to which stock market volatility is accounted for by trade policy developments has reached record highs.

The overall U.S. economic policy uncertainty Index, you saw a version of that earlier, this is a weekly version here, so it's updated through mid April. And we are now at levels that exceed anything that we saw during the financial crisis or during the pandemic. Okay, this is the overall US Economic Policy Uncertainty Index, not just trade policy.

So unlike these previous peaks in policy uncertainty, this one is almost entirely the consequence of ill-advised policy decisions. No financial crisis, pandemic or war drove us to the present moment. We did it to ourselves. Now this tremendous uncertainty around tariff rates is making consumers anxious and fearful. That will lead to cutbacks in discretionary consumer spending.

It will also cause businesses to cut or defer investment spending as they wait for clarity about tariffs. You can't make sound decisions about what to produce, how to source inputs or where to invest when tariffs are subject to drastic changes at the President's whim. So you wait, this wait and see behavior by households, which we chatted about briefly earlier, means less demand for labor over time and fewer job opportunities for American workers.

Historically, based on my research and research by many others, industrial production tends to start falling in a serious way about three to four months after upward policy and certainty shocks with peak responses at about six to eight months employment effects settle in more slowly, with peak effects occurring after about 10 to 14 months.

Thus far, the hard data show little evidence of a slowdown in U.S. economic activity. But remember, it's really only been three or four weeks since something hit the fan in a big way. New claims for unemployment insurance benefits have yet to rise, that's a commonly used early indicator.

But here's here's another newer measure which does give some reason to concern this is a a measure there are multiple out there of U.S. job openings. It's available at a daily frequency and you can see that there's been a roughly 5% decline in new job openings in the United States by this measure just in the last few weeks.

Now let me talk about another negative effect that doesn't get a lot of attention now, and I'm talking about a negative effects of the tariff policy uncertainty now and for the foreseeable future. The chief priorities of many business executives are a to grapple with the uncertainties around trade policy and B to lobby the Trump administration for tariff breaks.

That diverts attention and energy from serving customers, developing products, training workers, and improving operations. It creates incentives for businesses to focus on rent seeking rather than socially productive business activities. If you find it hard to grasp this point, ask yourself the following question. Are we better off when Apple's CEO Tim Cook, Nvidia's Jensen Huang and Microsoft's Satya Cedella focus on A or B instead of how to improve iPhones, computer chips and software?

Obviously, not. So just multiplied that that question to thousands or ten tens of thousands of other business leaders and their staff and you'll see why this need to grapple with uncertainty and this increased incentive to engage in rent seeking activity will be harmful. And of course, if you incentivize business leaders to succeed buyer rent seeking, that's what you will get.

So let me turn to the financial markets, recent financial markets briefly. We've heard of some about that already. In the period from April 4, two days after Liberation Day to April 11, the yield on 10 year concept maturity U.S. treasury securities, both the inflation adjusted version and the nominal version, rose by close to 50 basis points and the dollar fell by about 1 1/2% on a trade weighted basis.

Both developments are extremely unusual occurrences in a period when the US Stock market is falling and there's a spike in uncertainty. As you remember when you think back to the pandemic experience or the financial crisis, financial crisis did to a considerable extent originate in the United States, but nonetheless there was a huge rush to buy safe liquid US treasury securities driving down their yields and driving up the exchange rate value of the dollar.

The opposite has happened in this period, that's extremely worrisome. It's extremely unusual and as Mickey has already discussed it suggests a heretofore rare, rare doubts about the safe haven status of US Treasuries and a loss of confidence in the US capacity for sensible policymaking. Why is this important?

It's obvious in some respects, but let me spell out some of the details. First, higher treasury bond yields mean higher borrowing costs for businesses and households because treasury yields are benchmarks for interest rates throughout the economy. That will deter long term business investments, and that it'll make it harder to and more costly to obtain mortgages.

Banks will be less willing to extend mortgages, so that will be the dampest investment. Dampen investment, hiring residential construction and consumer spending that is affected by borrowing costs. Second, it means higher debt servicing costs for taxpayers and Mickey has already made that point. Let me just run you through a little bit of arithmetic.

US government debt held by the public is roughly 1.2 times annual GDP currently. So a 50 basis point rise in treasury yields across the maturities spectrum sustained rise raises the. The US government's debt servicing costs by $180 billion. That's 0.6% of GDP. That's more than Doge has claimed to save so far.

Just to put that in another perspective. And the Trump administration, like the Biden administration before it, displays no serious intention to address the unsustainable US Fiscal trajectory. So the negative fiscal policy, act of policy actions that undermine confidence in the United States, its economy and its government will intensify over time.

Recent US Tariff policy is also helping drive a tremendous loss of goodwill in the rest of the world. And so here is a picture that captures that. It comes from a morning consult which interviews thousands of people every day around the world about a whole variety of things, including recently how they view the United States.

And there's just been an extraordinary loss in how favorably average people in the rest of the world view view the United States. And you might not be surprised, one of the beneficiaries of that tremendous loss of goodwill in the United States appears to be our chief geopolitical adversary.

In the interest of time, I skipped the charts for Mexico and China, but the loss of goodwill towards the United States in Mexico and especially China is actually much deeper in those countries. So again, we are kicking allies and friends, trading partners, in the face. And not surprisingly they don't like that.

So my foregoing it should be obvious to the economists in the room that my foregoing remarks give very little attention to the standard economic arguments against tariffs and in favor of free trade. So I'll just hit the bullet points. Comparative advantage, specialization, variety benefits, scale economies, competition, idea, diffusion.

Those arguments are well understood among economists and for the most part uncontroversial among economists. I don't review them here in the and just for the sake of time, because I want to focus on these more unusual aspects of the present moment. But I do want to note that even if we get past all of the uncertainty and craziness of the moment and eventually settle at a new equilibrium with much higher tariff rates than in recent decades, it will harm America and other countries beyond the negative effects of the present disruption.

Okay? So let me close by quoting Doug Irwin was a nice article in a recent issue of the Economist magazine. He says, look, Trump's this is right around the time of the Liberation Day speech. Trump's tariffs blow an enormous hole in the liberal order that America has led and fostered since the Second World War.

You've already heard that from me and, and from Michael. They undermined every free, this is what I want to stress, they undermine every free trade agreement America has ever signed, including the one Trump signed with Canada and Mexico, the usmca, in his first term. So the key thing here is that at this point, certainly as long as Trump is president and maybe beyond, no one can sign a trade deal with the United States with any confidence that they will be, that it will have much durability and much reliability.

So all of this talk about how there's some brilliant negotiation strategy here going on, some genius at work is horse hue. So in addition to its economic harm, Trumpian trade policy has brought a huge loss of trust in the reliability of the US Government. And it will take many years, much work and internal US Reforms, I think, to repair the damage.

Thanks.
>> John Cochrane: I could just add to your point. These are undertaken under a declaration of national emergency. What are we doing with that? Let's pass on to Stephen Redding. I want to preserve everybody's rights to their 15 minutes of glory.
>> Stephen Redding: Thank you. Thank you very much, John.

Steve. So thanks very much for organizing this panel and the opportunity to speak today. So I wanted to speak a little bit on a kind of conceptual point related to some of the closing points that Steve made. But I think it's sort of sometimes lost in the tariff discussion and kind of really emphasizes sort of single point.

I'm going to spend most of my time on it. So what is that single point? Well, I want to start with an image of Babe Ruth. What does Babe Ruth have to do with trade and tariffs? Well, even as a Brit, I know that Babe Ruth was sort of famous for being a slugging outfielder for the New York Yankees.

Perhaps less well known that he began his career as a pitcher for the Boston Red Sox. And so why? Well, he was exceptional at both those activities, but he had finite time and resources. So what did he decide to do? He decided to specialize in what he was relatively best at, where he was truly exceptional, namely as a slugging outfielder.

And leave the pitching to somebody else. Even if an absolute science, he was a better pitcher for the team as a whole. It was better for him to focus on being a slugging outfielder. And we're all aware of that in our everyday lives. We don't try to grow our own food, make our own clothes, tend our own sheep and cattle and chickens.

You know, we're all academics. We specialize in what we think we have market demand for. We earn a salary from our universities and then we spend that salary in the market. We specialize in what we think we're relatively good at, and we get other Things through the market.

Well, of course, the sort of key conceptual point I want to make is that markets don't stop at borders and that these same arguments are equally valid for countries. Countries have finite resources, they can use those resources in different ways. What does trade allow them to do? It allows countries to specialize in what they're relatively good at and get the other good on international markets.

And so I'm going to illustrate that with a sort of figure from introductory microeconomics that you'd encounter in an economics class. And so I know there are sort of several non economists in the room. And so, please forgive me, I know this is a little bit inside baseball, but I want to use this figure to try to make a talk, make a kind of key conceptual point, and I'll try to draw it out.

So what does this figure show? Well, it shows sort of a conceptual world where we're going to think of there being two goods, cloth and wine. And our country can produce either of those two goods. The curved line that touches the two axes summarizes the economy's production possibilities.

It can only produce a certain amount of cloth even if it uses all its resources in cloth, just because it has finite resources. And it can only produce a certain amount of wine if it uses all of its resources in wine, again because it has finite resources. This curve is downward sloping.

Why? Because if I produce more wine, I move my resources into wine, I have to take them away from cloth, and that means I can produce less clothes. And so that curve shaped line is the economy's production possibilities. And if we didn't have international trade, we'd have to consume somewhere on that curved line.

And if markets are competitive and firms maximize profits, which point will we end up on? Well, we'll actually end up on point D where the straight line, which is the relative price of the two goods, is a tangent to this curved line summarizing the economy's production possibilities. Figure also shows consumers preferences.

They're the U shaped curves. And each U shaped curve is all combinations of our two goods, cloth and wine, that yield a given level of satisfaction to consumers. And again, they're downward sloping. If I give you more cloth, I have to take some wine away from you to keep your preference utility constant.

And so consumers would like to be on the highest U shaped curve possible because U shaped curves that are higher up involve more of both goods and hence more utility. And if we're in our closed economy and consumers maximize their profits, again we'll be at a tangency point where the price line just touches one of these U shaped curves.

And so point D is our closed economy outcome. Both consumers and producers are in equilibrium. And what do we see at point D? Well, for each good one and two, you're consuming exactly what you produce. And that makes sense. If you're closed, you have to consume what you have to produce what you consume yourself.

And so what's the big insight here? Well, what does trade do? Well, if two countries trade and they're slightly different from one another, they're not exactly the same as one another. Well, they're going to have different relative prices. And so when one of our economies opens up to trade, relative prices are going to change.

And what's the sort of fundamental insight here? Well, when relative prices change, firms can specialize at producing more of the good whose relative price has gone up, and the country can specialize in producing what it's relatively good at. Consumers can now substitute towards the good that's become relatively cheaper on world markets.

And so consumers can also respond to that change in relative prices and increase their utility. And so, the steepest stripe line is this sort of new set of relative prices once our economies open up to trade. And you'll see firms are again at the tangency point at sea, so firms are maximizing their profits.

Consumers are again, at a tangency point at A, consumers are maximizing their utility, so both those agents are in equilibrium. But what you see, well, A is not equal to C. They're not at the same point anymore. Why not? Well, trade allows you to separate what you consume from what you produce.

And this is the really big conceptual point that I wanted to make, which is that, I think we all would want any administration of whatever political, texture to deliver in terms of maximizing the welfare of Americans. But this sort of basic economic analysis just sort of highlights that there's a fundamentally wrong view of the world being put forward here.

The Trump administration makes this argument that America is being screwed in international markets, is being taken advantage of by other countries. And that's fundamentally a zero sum argument, that China is getting a bigger share of the pie, the US Is getting a smaller share of the piece. Whereas what this figure shows and what this analysis shows is actually trade is a mutually beneficial process that both countries can gain from opening up to world markets.

All you need is for relative prices to be different in the open economy to the closed economy, and you're guaranteed to gain from trade. It doesn't matter whether the Priceline gets deeper, whether it gets flatter, the analysis goes through. Doesn't even matter if China is more productive than the US it's everything, all you need is for relative prices to be different.

The US can still gain from trade. And so the really deep point that I wanted to draw out is that trade is Just like technology that trade is an alternative technology to getting what you want to consume. You can either produce it yourself, use your own production technology, or you can specialize in what you're good at, sell it on world markets, and get the other good in return.

And that's the really deep point here. Why does that help us understand tariffs? Well, it's a tariff, it's a tax on trade. So a tariff is essentially a tax on technology. We wouldn't typically think we should tax computers or artificial intelligence because we think this new technology makes us more productive.

We want to use it, we want to benefit from that productivity growth. Well, it's exactly the same for international trade. We're taxing a technology here, and that's all that's going on. And that's the kind of really sort of deep conceptual point I wanted to make here. Of course, there can sometimes be reasons for taxing technologies such as artificial intelligence because they have income distribution effects.

But it's because of those income distribution consequences, and we're foregoing these aggregate gains. So I've only got a couple of minutes left, I'll just make a couple of other points here. When could one say, well, even though I agree with that, there can be arguments for tariffs, and I want to go away from that standard analysis.

But one argument you can make is, well, we tax lots of things and taxes are distortionary. Why don't we have a little bit of taxes on trade? It should be part of the Ramsey scheme of optimal taxation, and that's potentially a valid point. But tariffs have two characteristics that make them undesirable things to tax, what are they?

Well, when you impose a tariff, you actually distort two things, consumers choices and producers choices. The tariffs are particularly distortionary because they tax both firms and consumers in a way that a consumption tax would only be targeted on consumers. A production subsidy or production tax would only affect producers, that's one reason tariffs are generally not that desirable.

What's another reason? Well, the tax base is much smaller, the US trades imports about 15% of U.S. GDP. And we know that the distortion of a tax rises quadratically in the magnitude of the tax. So if the tax base is smaller than to raise a given amount of revenue, you need a bigger tax.

And so taxes on trade tend to be distortionary relative to taxes on, say, expenditure, which covers the whole of gdp. The other argument you can make for sometimes introducing a tariff is for a country that's large, such as United States, it can use its monopoly power to tax imports, reduce the quantity of imports and push the price down on world markets.

And again, that's a potentially valid argument for a tariff, but its big problem is retaliation. If foreign countries retaliate, as we've seen they've done, you can end up with no change in world prices. All you've done is tax trade and have lower amounts of trade, and hence, reduce welfare.

And then, the final point, of course you can make, is an argument based on industrial policy and national security. And I think my colleague to my right is going to talk more about that in a moment, so I'm going to pass that on to him a little bit.

But one of the feature of the Trump administration tariffs is they're not particularly targeted towards national security, industrial policy. These are broad based tariffs on all goods, it's pretty hard to justify that. And what do T-shirts have to do with national security? It's pretty hard to make that argument, I'm pretty much out of time, I'll just sort of flag that.

Myself and other economists have studied the tariffs of the first Trump administration and we find by and large that what you see happening in the data is exactly what standard trade theory would tell you would happen. This graph is a sort of event study star graph. The vertical line is when the tariffs of the first Trump administration were introduced and you see that import prices in the US rise by roughly the size of the tariff.

Most of the tariff is actually passed through into domestic prices. Very little improvement in the terms of trade pass through to consumer prices is only about 33%, about a third, but most of the price increase passes through to wholesalers, retailers, other US agents. And the counterpart of that is you see big changes in import value, which is again what standard economic theory would suggest.

So I'm pretty much out of time and I want to make sure I leave time to my colleague to my right. The only other point I'll make is that Michael compared these recent tariffs to the Hawley tariffs in the 1930s. There's sort of two reasons why these tariffs are a bigger deal now.

Firstly, they're bigger in magnitude and the increase is from a lower level, that's one reason. The other reason is that the US is much open now than it was in the 1930s. Trade is the biggest share of US GDP. And then, finally, in the 1930s, we tended to trade final goods, whereas now, we trade intermediate inputs in global value chains.

And these figures here are taken from a paper of another author who studied the tariffs of the first Trump administration. And he actually found that they lowered manufacturing employment rather than increasing it, why? Because the tariffs raise the cost of inputs for US manufacturers. And that's a kind of very important feature of the world that's different now to in the past.

So let me stop there. The kind of key point I wanted to make is that trade is like a technology. Tariffs are attacks on trade. While one can sometimes think of reasons to do that, generally you're foregoing the benefit of this new technology and lowering aggregate welfare. And I should stop there.

Thank you very much.
>> John Cochrane: Great. I want to move on to Andrew before I do. Why is he here? In addition to being a great colleague of ours, he's an author, co author with HR McMaster, a very interesting Hoover report on economic statecraft written before the tariffs went in and I think.

But if anyone's gonna say something nice at all about tariffs, I wonder. I don't know if that's what you're gonna do, but, well, go for it.
>> Andrew Grotto: So four economists and a lawyer walk into a bar. I'm reminded of that. The old Star Trek where Kirk, and Spock, and McQuoid would land on a planet along with some fourth random guy, you knew who was going to get it.

>> Andrew Grotto: I'm at this point, John, I'm not here to defend Trump's tariffs or even tariffs in general. I do have a slideshow and wait a minute for the team to put it up. While they do, I wanna leave you with two main points. The first is that tariffs are now a coercive instrument of state credit.

In the past, as our previous panelists laid out, tariff policy was usually driven by parochial, economic, domestic economic interests. And Trump has recast them as an instrument of state credit more akin to sanctions. So there's this shift from tariffs as a protective measure to a coercive measure. That's a pretty big deal.

There aren't a ton of examples in history where we've seen the tariff used in this way. So, for example, in the first round of tariffs that was against China, one of the rationalizations was China wasn't doing enough to tamp down on fentanyl right, not an economic objective, right, a policy, a geopolitical objective.

Why has Trump recast tariffs in this way? I wanna offer you four possibilities. I think all of them are true, but I'll present them as a hypothesis. I think the first is, great, yes. So I think there's at least four reasons why Trump seems to be so drawn to tariffs.

One is they can be done and undone unilaterally. So they put the executive in a position of commanding authority. Tariffs have the signaling virtue of being loud and clear as far as policy instruments go. For the targets of tariffs, it's relatively straightforward to understand how a 10%, 15%, 20% tariff might affect your business.

A third reason is that tariffs mobilize rent seeking. And I think for Trump, this is a feature, not a bug, because it means that corporate executives, to my colleague's earlier point, to Steve's earlier point, have to go to Trump and seek relief, which is a source of political power for the executive, right?

And last but not least, is that the retaliation that comes from tariffs, right? The actions that allies and adversaries alike have taken in response to Trump's tariffs. They're all done by foreigners, right? So there's a way in which Trump can potentially defend the tariffs as not his fault, but China's fault, Canada's fault, Mexico's fault, the Europeans fault.

And so I think that's why he seems to be so drawn to this particular policy instrument. Let me go to the next two slides or two yet, right? So in other words, the goals for tariffs may be mixed. They're economic and political reasons, but there's also potentially geopolitical reasons, whether fentanyl is one example.

Let's go on to the next slide. And I think the result is that critiques rooted in arguments about the negative economic impact, obviously important and worth raising. But compared to the recent past, past few decades, they're gonna prove less decisive or persuasive, which creates a challenge for those of us who think that this whole tariff business is fundamentally misguided.

Let's go on to the next slide. So I wanna spend just a moment talking about China. Next slide, please. So I was struck a few weeks ago when that latest round of tariffs was announced. The White House spokes comms team made a big point of saying, this is not a negotiation.

We're not doing the tariffs because we wanna negotiate. Now, over the last couple hours, we've seen some signs coming out that maybe that's not the case. That was what they said two weeks ago, which begs the question, what is the goal, right? We've heard from our economist colleagues that the economic case for tariffs is weak, which puts a heavy burden on the geopolitical case.

Let's go to the next bullet. And so to what geopolitical ends is it to recast the global trading order in US Interest? It's not obvious how the tariffs could possibly do that, cuz all they're doing is uniting US trading partners against us. Next slide, please. Could they be used to recast alliances, right?

So part of the critique of Europe has been that the US subsidizes European defense. That's the argument that Trump has made repeatedly. And the tariffs are, I think, a way in his mind to begin to make the Europeans pay, right? So again, it's the goal to recast lines.

It's not obvious how that's gonna happen, because we have obviously a bunch of other shared economic and security interests with the Europeans. Many of those interests cannot be achieved solely through military or diplomatic power. They require economic power. And a great example of this, whether you're in favor of export controls or not, the Europeans, particularly the Dutch, have been a big ally of the US in export controls and semiconductor manufacturing equipment to China.

And I'll note for you that on April 1st, the Dutch government was due to put out an updated set of controls. Those controls have not been put out yet, why? I think that the Dutch have decided to wrap that into this broader debate on tariffs. Could the goal be to isolate and decouple from China?

Well, that's, I think, wishful thinking. If anything, we are pushing our ally with China, at least economically, when it comes to these tariffs. So the bottom line for me is we've heard the economic case against them. The geopolitical case is every bit as weak, I just don't see it.

That's not to say that there isn't necessarily a role for tariffs or any coercive instrument of economic statecraft in US grand strategy. It just means that those instruments need to be part of a grand strategy, which is clearly missing. And I'll conclude with just a next slide, please.

This is the report that HR and I put out last month. Several of you were involved in providing us really valuable feedback on it, thank you for those who did. Our argument is that the Trump administration needs to have an integrated strategy for how these different pieces of the economic statecraft toolkit.

Whether it's tariffs, sanctions, development, cooperation, industrial policy, fit together as part of a broad grand strategy for pursuing US economic, political, and geopolitical objectives. And I'll stop there.
>> John Cochrane: So Potentially useful, but in this case, singularly counterproductive. We have till 1:20, so I'd like to invite questions and maybe let's have a bunch of questions first rather than so that everyone gets a chance to talk and you don't even have to have a question mark at the end of the question.

So yes, we'll start here and go around.
>> Speaker 8: Well, I just wanted to offer some additional factual information. None of you discussed what's going on with our friends with whom we're trying to negotiate trade agreements in which the lead examples that are given are Britain and Japan. So I can give you an update on what's going on with Britain and Japan as of yesterday.

I had good conversations with relevant officials in Washington on yesterday and cuz it's revealing Japanese case, the Japanese have been told their economic minister met with Trump. The atmospherics were wonderful, the substance was zero. They've been told that, of course, the Japanese are greatly concerned about the sectoral tariffs on steel and autos, that they've been told those sectoral tariffs are non negotiable.

But they're interested in having a conversation about 24% reciprocal tariffs. But the Americans are having trouble even presenting position as to what they want from the Japanese in exchange to yet relaxation of the reciprocal tariffs. And I won't even comment on the bureaucratic chaos they're encountering and trying to figure out who to talk to about what.

The British case is more interesting still because the British worked very hard and the vice president is supposed to be actually personally chairing a task force to try to get something done on this. What the British have encountered is that again, sectoral tariffs are non negotiable and Nobody goes below 10%.

And since the British are at 10%, there's really nothing, there's nothing left to discuss. So the British actually were prepared to pay various things and had come up with a whole list of things, basically paying the Americans for some sort of relief. But now they're kind of realizing that there's simply nothing there.

And the Americans, of course, would like some sort of trade agreement with the British that they could announce just to show that they're doing some deals with someone. The British, having come to the conclusions I've just described, decided, you know what, we don't need to be in a super hurry.

And so this morning a lady in Washington, Rachel Reeves, who's in Washington, kind of made clear that Britain is in no particular hurry to sign this deal and is not gonna kind of waive all of its health regulations and so forth to rush into something. Yesterday also, like, one of my contacts talked to a very senior Trump economic official who this senior economic official was speculating aloud, gee, maybe we just ought to create a whole new wto.

My contact had been a trade negotiator and commented that, that would be a fairly challenging negotiation and might take some time. The Trump administration officials said maybe this new WTO could be based on the OECD, which is an intriguing thought because the idea is these would be the free economies the basis of the OECD.

And maybe you just have a rebooted WTO, but that only included the OECD countries and so forth. But I mentioned this because it also touches a little bit on Andrew's commentary because you can see in the context with Britain and Japan, for example, how can they ask them to do stuff on China in that negotiating context?

>> John Cochrane: Yeah, get till 1:20. I've got Mike Paola, Ken and Sebastian Edwards, keep your eyes on the clock.
>> Michael Boskin: I want to speak very rapidly about a few points. First of all, John Taylor and I have been involved in negotiating trade agreements. And if you think that a trade agreement, if someone comes down to the mountain with some tablets and says the good news is I've got them down to 10, that isn't exactly how they happen.

They're long involved, you have to define every product, everything, etc. There's lobbying on definitions around the edges, etc, and many of these will have to be approved by Parliament. So this isn't gonna happen. If they come up with a framework, that would be remarkable. That would be, but that's all they'll be able to do.

I agree with virtually everything that's been said. Even more strongly and for some of them, slightly less for others. I think to Steve Redding's point, remember, openness is at the margin. So the average is understating the openness of the US Economy. We buy or sell more oil or soybeans at the margin, even though we have net reproduce we are.

And if you look at the current account right now, remember in the last dozen years, fracking and the immense increase in oil production in the United States has decreased our net oil import bill by $400 billion a year. Okay, so just get an idea that there's been something that would be even larger still.

I want to just reinforce the point about whether the existing system, economic and geopolitical system, that the post war, secure, post war security and economic Commons was really sustainable given a lot that's happened. So I think something was going to change. Now I don't like what Trump's done, I think he's been a blunderbuss.

I think he has this exaggerated notion that if he can negotiate bilaterally his power be maximized, I think he also thinks if he produces some uncertainty in game theory terms that gives him a little bargaining advantage, etc. But I think that's really dangerous. When we talk about repeated interactions with our allies and especially non aligned nations who have to make some judgments, not just economic but geopolitical and military, I want to emphasize the importance if this stays around in some, even some watered down form that understanding value added trade accounts will be very important.

There's been some progress on that. They're far from perfect. The last 10 years or so there's been some progress on that. And I know Mark Milletz has an interesting Armington model where he talks about the subdivision and trade across the parts and how you can get just immense gains from trade in that regard.

And I think that's what you're getting at to some extent, Steve. But here's some of the things that are worth thinking about in sustainability, okay? Number one, we've had the big expansion of global trade rounds. Trade tariff productions in various rounds, but combined with technology, particular sectors of our economies, particularly in advanced industrial countries, really blue collar workers in old industries, to take the most extreme case, have been hit very, very hard.

So our theory that tells us we win, win from trade doesn't talk about the division of the spoils, including the losses. And probably we've done a poor, even though we have some trade adjustments, poor job of understanding when they get concentrated so much repeatedly and when they're even made vastly worse by technology.

The typical job in a factory now is operating complex electronic equipment, not a bunch of bulky guys hauling crates around. And then illegal immigration and the vast expansion of welfare states since World War II, especially in the last 30 years in Europe. And the need to reorder the defense priorities from a massive disinvestment in American military.

We've been spending $100 billion a year less in inflation adjusted terms on our military than a dozen years ago before we started. Worrying about Russia and China and maybe so much about Iran. So all that's kind of a jumble of all this to which my conclusion is, well, I agree with everything that's been said and I have a lot of opprobrium for what's being done.

And I think that both the first and second moments are very risky, are very dangerous, as Steve, Steve Davis emphasized. And I think that we wouldn't have seen nothing happen that isn't the proper baseline to think about geopolitically in the context in which these policies are going to be formed.

>> John Cochrane: So the political pressures, Pallav and Ken and Sebastian Edwards online, and you're down to a minute and 30 seconds.
>> Paola: Yeah, so I have a really quick question which was not touched maybe vaguely by Steve. It seems that you all agree the only person that is not here is a political scientist.

And the question is, it seems that you can, none of you can, none of us can rationalize what happened. I'm actually, I keep on going on and on and says, what about the advisor? There are some people that we know and they seem more reasonable and clearly nothing.

So the question is rules, because if you want to calm the uncertainty, the only thing you could do is basically put a cloth in front of Trump because on Trump mouth. You think about what he did with the Fed, something like that. if you think what he did with the Fed was pretty much I'm going to remove Powell, then I'm not going to remove Powell, and so on.

So every day is a different one. So to what extent Congress has the ability to sa this is not a role that the President can play, so these tariffs should not be part. And so we go away from the 10% or anything else, and then maybe we go to zero action.

But zero action at this point is probably better than this action.
>> John Cochrane: Ken,
>> Ken: good morning. First of all, this is not the first time tariff was used as a coercive element in geopolitics. 1941 Oil tariffs against Japan did result in retaliation, and I don't think anybody criticized FDR for it afterward.

But anyway, this has happened. My real question here is why would anybody make any deal with Trump? Because he acted under this 1977 law that gave him emergency powers. Now, that was long before NAFTA. Apparently Canada and Mexico knew about this emergency thing and felt fine to negotiate nafta and then also the next one.

And there were many other agreements and Everybody knew about this 1977 law, but now I think nobody ever thought we invoked for this purpose. But now, given that Trump has done that, how can, with that law in place, anybody sign an agreement knowing that he's going to could rip it up the next day.

>> John Cochrane: Sebastian.
>> Sebastian: Thank you, thank you John. This has been very interesting and I was glad to hear Michael Bordeaux talk about Raul Prebisch. I think that until maybe a month ago, any economist, when he or she heard the words tariffs and industrialization in the same sentence, they thought about Latin America and they failed.

Import substitution industrialization. So the US Is becoming a Latin American country finally.
>> Paola: Yes, it is.
>> Sebastian: Let me and there's a long literature and lots of people, including Ann Krieger and Jagdish Bhagwati and others participated in the Latin American perspective. Let me just point out to three concepts that were very much present in the Latin American debate that I think should play a bigger role in our conversation.

The first one is the tariff equivalence of non tariff barriers. It's mentioned, but I don't think that there's been any effort on behalf of the administration to calculate those. So if you look at the report by the US Trade Representative that came out a few weeks ago, Chile has one page because there are no terrorists.

It has a free trade agreement. Brazil has six pages and Japan has 11 pages And most of the Brazil and Japan pages are non-tariff barriers. But in order to have the conversation, what we tried to do in Latin America was find the tariff equivalent equivalent of that, that's number one.

The number two concept is the rate of effective protection. I think that Steve or someone put up, or maybe Mickey, the effective tariff chart. But effective, it's different. The effective rate of protection. It's a concept that was developed by Harry Johnson and Anne Krieger and so on, Max Corden.

It took into account the tariffs on inputs and many, many sectors ended up having negative rates of protection, all exports. So if you export Boeing jets and X percent of the inputs are imported, Boeing jets are going to end up having a negative effective rate of protection. It's a concept that has disappeared from the literature.

It had some problems, but I think it's very illustrative. Finally, I think that maybe Mickey mentioned it briefly, but it's something that has been around in the Latin American discussion. Capital controls was part of the conversation and we did not discuss. Maybe John, you should have a new meeting on Stephen Myron's idea of imposing controls on capital inflows into the US which was, I just had.

I gave a talk for Argentina earlier this morning, and that's one question that they are beginning to address. Finally, capital controls on inflow. So maybe there's something, three issues that come from Latin America that maybe we should take into account in our conversations. Thank you.
>> John Cochrane: There are so many bad ideas about migrating.

Thank you, everybody.
>> Sebastian: That is true. So you don't want to stay Latin American. You want to be not Latin American.
>> John Cochrane: Chili wasn't bad.
>> John Cochrane: Thank you, everybody.