Larry Summers

Martha, as you well know, the vast majority of financial thinking emphasizes changes in the earnings prospects of companies associated with the strength of the economy as a major source of stock market fluctuations. And if you look at dividend strips, if you look at what's happening to analyst revisions,

That's got a lot to do, negative prospects for the economy has a lot to do with why the economy, why the stock market has turned downwards. The foreign exchange market's very big. And it's a big referendum on whether people have confidence in the United States. And somehow tariffs reduce imports, are supposed to reduce dollar selling and make the currency go up.

And not only is the currency not going up, It's going down substantially. So we're seeing a pattern. Maybe it's all just due to one Japanese hedge fund, but maybe we're seeing a pattern that looks pretty much like the Argentine patterns.

I have three questions for you. One, can you name a single trade barrier that was reduced by the United States associated with China accession. A single restriction that existed in the United States that had not been in place for five years before that we removed during China's WTO accession. Can you name one? I don't think we should have done any of it, Larry.

We threw up in our markets the Chinese goods. What restriction Your thesis is that we threw open the market and therefore we exposed ourselves to all of this China thing. And the question I'm asking you is, can you name – any restriction on Chinese exports to the United States that was in effect in 1999 and was removed by our WTO accession in 2000? Can you name any such restriction?

Just name one for me.

We had given them MFN status 15 years before. No one, they had MFN status. They had it for 15 years. There was not a single reduction in a barrier to Chinese trade. So the way in which you're describing it is just bears no resemblance to

The point of bringing them into the WTO was to use the leverage that we had to win a whole variety of concessions that enabled us to export more to China. This is an extraordinary idea. It's called reciprocity.

Just a minute. I just want to know that the whole argument you are making is about increased exports to the United States that had bad consequences. And so I'm just going to keep asking you. what barrier that previously existed got removed. Okay, I'll name them.

Number two is, he believed that- Have you looked at the data on export flows from the United States to China? It actually did happen at a quite substantial rate.

China was a surging, growing country. reforming economy, growing at double-digit rates. That it was before there was any WTO agreement. The WTO agreement did not change a single rule that represented a US restriction on imports from China.

It did change a variety of rules, not as far as I would have liked, that let the United States export more to China and that protected United States intellectual property in China and that brought China more closely into the international system. You need a counterfactual for what would have happened if China had been excluded from the World Trade Organization.

That counterfactual is not that they would not have sold goods to the United States. That principle had already been crossed 15 years before. Not a single restriction was reduced. Anything you would have done differently? I don't get the whole mindset here. I understand that we should have done more as a country for the Rust Belt and invested in it much more heavily.

If I was worried about dependence and strategic and all that, the last policy I would have wanted to abolish was the CHIPS Act. That's the largest, boldest thing the United States has ever done to avoid dependence in a national security area. Great.

The Trump administration has killed all of that.

Larry, go ahead. Let's see if we can find a little bit of agreement. Please. Here. I agree with Chamath's agenda. I may not agree in every detail, but I broadly agree with Chamath's agenda. And I'll go a little further than that, Ezra. I think Joe Biden's attachment to energy security was kind of selective and heavily oriented to green technologies, not others.

I thought canceling the Keystone Pipeline was a clear mistake. I I thought the stopping a variety of things involving liquid natural gas were a clear mistake.

So I think the Biden administration's approach to regulation that empowered every NGO with respect to stopping transmission lines, with respect to constructing power plants because of the importance of democratic constituencies was a mistake. So I think energy security is a central objective of policy and that there's a lot of room to move beyond what the Biden administration did.

I actually believe that very strongly and agree with Chamath and David. What I don't understand is... Chips? Absolutely right. The CHIPS Act was all about making there be an American semiconductor industry with production in the United States as a central priority. The Trump administration has declared war on On that rare earths, we want to have a strategic petroleum reserve for any rare earth.

You want to do more mining in the areas that Chamath says we should in the United States or in friendly countries. I am all for that. Here's what I cannot understand, Chamath. They don't see how your resilience agenda drives anywhere near Liberation Day and the emphasis on tariffs. It drives towards a set of specific industrial policies, perhaps including tariffs in some particular product areas.

But steel from Canada? Anything from Lesotho? Any natural resource product across the board tariffs on everything. I think you are absolutely right about resilience and that traditional conventional economics has given it too little thought and that COVID pointed that up as a central issue.

What I can't understand is why Donald Trump's echoing of Lee Iacocca from the 80s about tariffs is responsive to any of that.

I would like to hear a defense from somebody. Ezra and I agree, specific policies. I'd like somebody to explain to me why it's a remotely sensible theory to say that the United States is being exploited by any country where the overall pattern of trade is is such that we are running a trade deficit.

And maybe in the process, you could explain to me why my grocery store is exploiting me, because I'm running a massive trade deficit with that.

I can choose one other country just for the sake of it.

If President Trump had announced a big broadening of anti-dumping law, to confront a variety of instances of what the administration, after careful economic analysis, saw as inappropriate subsidy. I might or might not have thought that they were doing that in the right way, but we wouldn't be having this argument.

The front pages would not be about tariff policy day after day, and the stock market would not be down by $5 trillion. The central thing we are discussing is not whether there are sensible modifications to trade policy to respond to bad practices in other countries or to promote resilience. Those are technical debates that, frankly, aren't that interesting to a large number of people.

The question is whether declaring that we need a whole new era of US economic policy around universal tariffs against everything is a rational step forward or using bilateral trade surpluses as a judge.

This is dangerous work with a sledgehammer on a pretty sensitive machine, which is the global economy that's having really serious consequences. First, it's important to understand that there's more tariffs that are around than you described.

Even after the big back off, there's a 10% across the board tariff, a range of structural tariffs like on steel and automobiles, and a range of new tariff threats like on pharmaceuticals. Here's a kind of market-based estimate of what the damage that the market thinks this is all doing to the US economy is. Market's down. Let's take today's number, 9%.

You guys have me completely confused.

I would like somebody to explain to me here. They understood Chamath. Chamath, resilience, central, four sectors. Are we more resilient in the four sectors? What's the answer two years from now? I got that. I agree, all that. I cannot make any linkage between a 10% across the board tariff

a tariff on steel, a tariff on automobiles, and much of what the rest of the president says, and your very valid objectives. I hear David give this free trade has destroyed America, and we're going to undo that. And viscerated the heartland and all this stuff. And I just want to understand how we'll know whether we have fixed it.

One more time, because you are just not speaking truth. I want to know one restriction that the United States had on Chinese products that was changed in the year 2000. You've said seven times, throw open our market to Chinese products. I want to know one example in which the United States opened its market in 1999 or 2000. Just one. Do you have one?

If that's right, that would be about $4 trillion. Of course, at $4 trillion since Liberation Day, of course, markets were down coming into Liberation Day because of some anticipation of these policies. So let's be conservative and say these policies have taken $6 trillion off the stock market.

Now, the stock market only measures the adverse impact on corporate profits, not the adverse impact on workers, not the adverse impact on consumers. So you need to add to that stock market number. One way of thinking about adding to it would be to say that corporate profits were 10% of the economy.

So you could argue for multiplying by a factor of 10, but maybe that's being too exaggerating or too bold. So let's multiply by a factor of five. And what you get is a loss in the $30 trillion range as the present value as estimated by markets of what's being done. Now, I know the Trump administration sometimes likes to say it's working for Main Street, not Wall Street.

I am... all for information gathering. I agree that the Biden administration did not do as good a job as it could have of maintaining relations with the business community. I agree that it's a good idea for there to be quite extensive connection.

I am also appalled by the half dozen phone calls I have gotten from prominent people in business who have said, I'm used to being shaken down when I try to do business in some parts of the world. It's a new experience to be shaken down by representatives of the president of the United States. What's the shakedown? When you have close connections, you help us, you contribute this way, you do this.

I noticed that they were pretty excited about the stock market rally yesterday in a way that wouldn't really go with not caring about markets. So I think what markets are seeing is what's true, which is three things. This is an inflation shock because you're adding to prices. CEO of Amazon got it right. The Secretary of the Treasury got it wrong.

That makes no sense at all.

What the president has been trying to do is encourage domestic investment. Maybe it is an erroneous perception to which I have been exposed. Repeatedly. Total nonsense. But it is a pervasive. Total nonsense.

It is a perception that is shared by almost everyone who has experience in the conflict of interest area, who has looked at the situation of Trump administration officials and and those working as special government employees in the Trump administration.

There have been a variety of OGE resignations because of their discomfort with being overruled by your colleagues in the Trump administration. So the suggestion that you have been held to the same ethical standards that I was held and that other members of previous administrations, including the Bush administration, were held, unfortunately, is not right. No, that's false.

I can assure you that your experience- is not the experience of quite a number of the nation's major law firms. It is not the experience of quite a number of the nation's business leaders. It is not the experience of quite a number of the nation's universities that I am neither the first nor the hundredth

person referencing efforts at extortion to use the movie The Godfather as a metaphor for aspects of the way in which our country is being governed.

Increases in tariffs of this magnitude, the overwhelming part of them will be passed on to consumers. So you've got an inflation shock. when you raise the prices of people and their income, at least in the short run is the same, they're poorer and that means they can afford less stuff and that pushes the economy down.

And so you've got higher inflation and you've got more, less demand and therefore more unemployment and all of that's bad for the economy and companies. And the last thing, which I think is profoundly important, is we are trading like an emerging market country right now.

I think that Ezra is broadly right about the promiscuous distribution of the veto power. He's broadly right that we need to be able to do more things more quickly in the state if we're to be an effective government. I think we need much more reform. I think Democrats have allowed themselves excessively to become hostage to

particular groups, particular traditional concerns, and have lost touch in important ways with an American mainstream. And I think that insofar as the election outcomes in recent years have not been what they wanted, that is an important contribution to how that has happened. And I agree with David that Donald Trump represents a transformative,

and profoundly different ideology that has been present in governing America before. I do believe that it is fundamentally not new under the sun, just new in America. It is the Juan Peron approach, which is very familiar to students of Latin American history in particular.

And that the general experience of that approach is that its leaders, particularly when they have galvanizing personalities, can be very popular for a substantial period of time, but that they are very rarely remembered well by historians of their countries. And so my best judgment is that this project

For serious countries, for the United States, the pattern is that when the world gets riskier, the bonds go down in yield and the currency goes up in value because people come for the safe haven. When you're a country like Argentina, then the assets all move together. Falling stock prices go with higher bond yields, go with a weakening currency. And so because of our erratic behavior,

is going to end in disastrous failure, despite having put its finger on some important concerns and issues. Of course, there should be much more aggressive reform of the government than there is, but that does not excuse or mean that it is likely to work out well for some of the mindless savagery that the Doge is bringing to traditional American institutions is going to work out well.

And to take just one example, my belief is that the revenue loss from the Doge's destruction of significant part of the functioning of our nation's tax collection system is likely to exceed in terms of contributing more to the deficit than any savings that is successfully realized.

We are firing on mash. people whose job it is to audit people like you. And the result of that is that we are losing revenue directly. We are losing revenue further because people once audited go straight in subsequent years. And we are losing revenue because more and more people are playing the audit lottery, engaging in problematic practices in the expectation that they will not be caught.

I'm well aware of everything you just said, and I have no doubt about your personal integrity.

Less than a quarter of people with incomes over $10 million are audited. So it's just not true. Let me ask you a question. It's not true that everybody is audited.

We have changed the zeitgeist surrounding America from the traditional zeitgeist surrounding America to the kind of zeitgeist that surrounded Juan Peron's Argentina. And that goes with all the other things that are happening.

Counterfactual is focused on necessary strategic investments in infrastructure, in making America the leading country unambiguously in the world in technology, particularly disseminating in large scale artificial intelligence for collective benefit. building a larger network of alliances so that we are in a position to counter

China, both with hard power in the form of increased military expenditures and with moral strength and the world as a whole behind us as a central organizing theme of foreign policy, and reinvent

our education system at every level to pick up on Ezra's notion of being about results and doing all of that while you're doing the abundance agenda as well of freeing stuff up so that we're in a position for government to get things done. I believe the country is best governed from the center, not best governed from a radical fringe. And I believe moving to a transactional model of leadership

is the approach of Latin American strongmen, and history does not find it to be a successful model. And so I would venerate rather than denigrate the rule of law as part of governing the country.

The more protectionism, denying the independence of the central bank, fiscal irresponsibility, breakdown of traditional boundaries between government and business, substantial cronyism as a strategy, authoritarian tendencies towards the opposition, lack of total respect for the judiciary. Keep going, Larry. Keep going.

What we're seeing is a pattern of America being governed on the kind of Juan Peron Argentina model. And that sometimes produces some benefits for some people in the short run. That sometimes generates popularity for it. Peron kept coming back in Argentina. But ultimately, it's extremely costly for a society.

If you told me any of that a few days ago, I would have believed you, and I would have thought the consequences would be a substantially deteriorated American economy and a substantially less secure United States.

It's not any surprise. There's nothing surprising about the fact that the United States has the power to extort Lesotho. And that's the country that was singled out in the Trump formula for the highest level of protection. There is no surprise. in that. There is no surprise that the United States has the capacity to isolate itself from China. It will be very, very costly.

Never would have occurred to anyone with experience in government that the United States would have any difficulty getting any major country to come send a representative to the United States to have a discussion and a negotiation with the United States on a matter that was of concern to the United States. Then Larry, why didn't they? Never could possibly have come as any surprise.

Why do markets think it's so terrible for the American economy? Maybe the market's just completely wrong, but at least another possibility is that the market's judging this. I mean, job of markets is to look forward. It's to look past the immediate. It's to see what the long run consequence are going to be. And markets are making a pretty devastatingly negative judgment.

with all the threats in the world when alliances are very important. And when we engage in the kind of threatening behavior we have engaged in, we make things much more dangerous in an already dangerous world.

What, you looking for the stupid guy here?