Mary Childs
Appearances
Planet Money
Tariffs: What are they good for?
And that means that car prices are going to be artificially higher. Foreign cars will be subject to this, you know, import tax. But also U.S. carmakers use foreign parts, which also face the same import tax. And there will be less pressure on U.S. carmakers to keep their prices low because their foreign competitors have a big price disadvantage in the U.S. market.
Planet Money
Tariffs: What are they good for?
So, yeah, likely higher prices all around. And that means consumers will likely buy fewer cars.
Planet Money
Tariffs: What are they good for?
And the rollout of many of these tariffs has been a little chaotic. This year alone, we have seen Trump go back and forth on tariffs on different countries, and that uncertainty has a cost. It makes it hard for businesses to make decisions about which plant to build or where to hire, and waiting is expensive.
Planet Money
Tariffs: What are they good for?
And one study found that the washing machine tariffs actually did create jobs. 1,800 new jobs in the USA making washing machines at an average cost to U.S. consumers of more than $800,000 per job, even after accounting for the revenue raised from the tariffs.
Planet Money
Tariffs: What are they good for?
But there is this whole other side to the way Trump is using tariffs. Like earlier this year, Trump wanted to deport Colombian citizens who were in the U.S. to send them back to Colombia. The normal course is apparently to send people on commercial flights. But in January, the Trump administration sent two military planes.
Planet Money
Tariffs: What are they good for?
So tariffs, we have long heard from economists about how and why they are bad. Today, we investigate what they can actually do, what they can be good for.
Planet Money
Tariffs: What are they good for?
That was Sunday morning, and by that evening, Colombia and Trump had reached an understanding. Colombia would allow deportation flights without restriction. No tariffs. Though the White House said that the threat of tariffs would be, quote, held in reserve in case Colombia reneges.
Planet Money
Tariffs: What are they good for?
And the reason the U.S. can act like this, the thinking goes, is because we're rich. There are so many of us and we spend so much money. We don't rely on trade as much as our trade partners do.
Planet Money
Tariffs: What are they good for?
I mean, to put a sort of another like blunt frame on it, it's like using a richness as a country, as leverage, a bullying tactic.
Planet Money
Tariffs: What are they good for?
And because we have this power, thinking goes, if we're going to trade with someone, we should get something we want for it. The Trump administration did this with Mexico, too, threatening tariffs and then delaying them because Mexico did something he wanted, agreed to send troops to the border.
Planet Money
Tariffs: What are they good for?
Now the U.S. is operating with a slightly different idea. Instead of free trade as an incentive to be our friend and join our democracy club, the U.S. is threatening to close trade to incentivize, strongly incentivize people to do what it wants. Like, nice economy you got there.
Planet Money
Tariffs: What are they good for?
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Planet Money
Tariffs: What are they good for?
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Planet Money
Tariffs: What are they good for?
And I'm Mary Childs. This is NPR. Thanks for listening.
Planet Money
Tariffs: What are they good for?
And through the decades of that argument, there's been an economist who argued that the dominant voices in economics were wrong. That free trade actually sometimes held countries back and protectionism could help make them richer.
Planet Money
Tariffs: What are they good for?
Ha-Joon Chang wrote a book called Kicking Away the Ladder in 2002 about how rich countries used protectionist policies like tariffs back when they were developing and then told everyone else they couldn't do that. They had to do free trade.
Planet Money
Tariffs: What are they good for?
When Ha-Joon was a little kid growing up in South Korea, Hyundai was not yet an automobile company.
Planet Money
Tariffs: What are they good for?
So first, Hyundai had to figure out how to make a car. Hadjoun says it started by placing an order with Ford for something called a knockdown kit, which is just a big wooden box full of all the parts you could ever need to build one car. The box arrives, you open it up, and it's just full of car parts, large and small. A door, a bolt, two headlights.
Planet Money
Tariffs: What are they good for?
Yeah, the government was like, actually, we want our car industry to be real companies, global players. Assembling a Ford car is not our end goal here. Can you level up a little bit?
Planet Money
Tariffs: What are they good for?
The looming tariffs had sent chills down the spines of many economists around the world.
Planet Money
Tariffs: What are they good for?
A total import ban, like a tariff to infinity, the tariff of all tariffs. Because the South Korean government's really serious. They want this to happen.
Planet Money
Tariffs: What are they good for?
And this is a canonical example of what's called infant industry protection.
Planet Money
Tariffs: What are they good for?
Right. Like a country uses tariffs to support a sweet little baby industry to protect it from the harsh world so it can safely grow bigger and stronger.
Planet Money
Tariffs: What are they good for?
And that's what South Korea did. It eventually took off the tariffs and the import ban and the subsidies.
Planet Money
Tariffs: What are they good for?
And for centuries, they've been used to make a country's population buy its own stuff instead of another country's stuff.
Planet Money
Tariffs: What are they good for?
And the U.S. has a history of doing this, of trying to nurture little baby industries that policymakers have believed are the industries of the future, like solar energy and electric vehicles.
Planet Money
Tariffs: What are they good for?
Right, because for this to work, the government has to pick the right industry to nurture and then nurture it correctly.
Planet Money
Tariffs: What are they good for?
Like, what if your citizens need medicines or microchips or drone batteries, and the only people who make those things live thousands of miles away in a place with different, maybe opposing, national security goals? Even the most free trade of economists seem to agree that, yeah, maybe paying a little bit of a premium to support a slightly uneconomic domestic industry in these cases is a good idea.
Planet Money
Tariffs: What are they good for?
Today is a big day. For weeks, we have been hearing about April 2nd. The Trump administration had promised that today would be the day that they put new tariffs on goods coming in from, I don't know, maybe every country in the world.
Planet Money
Tariffs: What are they good for?
Over the last 10 years, more economists have come around to Ha-Joon's way of seeing tariffs and protectionist policies.
Planet Money
Tariffs: What are they good for?
So Ha-Joon Chang's lonely argument? It's less lonely. A lot of economists agree now. Infant industry, national security, sure, tariffs can maybe help. But the Trump administration has more ideas. We get into that after the break. OK, so tariffs could be useful for infant industry protection, for national security interests and to combat unfair trade practices.
Planet Money
Tariffs: What are they good for?
And the economics world has really woken up to this over the last decade or so. There's this series of blockbuster studies on something known as the China shock. The shock happened when China joined the World Trade Organization in 2001.
Planet Money
Tariffs: What are they good for?
That's Mark Summerlin. He's an economist, consultant, and longtime friend of Trump's treasury secretary.
Planet Money
Tariffs: What are they good for?
But surely, tariffs have been useful ever, or they wouldn't exist, right? Right? Hello and welcome to Planet Money. I'm Mary Childs.
Planet Money
Tariffs: What are they good for?
Now we have massive trade deficits with China and other countries where we're importing way more than we export. Trump world sees this as a huge economic problem and tariffs as a solution, one that will help correct the trade imbalances and bring back manufacturing jobs.
Planet Money
Tariffs: What are they good for?
So the administration's idea seems to be to choose a different tradeoff, to accept higher prices with the hope of eventually bringing back some of those good jobs.
Planet Money
Tariffs: What are they good for?
Judy has been making the case for correcting the U.S. trade imbalance for years. In his first term, Trump nominated her for the Federal Reserve Board of Governors. She did not get confirmed. A bunch of economists and Fed employees wrote letters saying her views were extreme and too partisan on monetary policy.
Planet Money
Tariffs: What are they good for?
To Judy, redirecting that spending is the best part of tariffs.
Planet Money
Tariffs: What are they good for?
We talk to an economist who has been making the lonely argument for protectionism for the past 30 years.
Planet Money
Tariffs: What are they good for?
And this is one more benefit the administration points to, to solving our problems using tariffs. They say it will help rebalance the government's budget. Right now, more money goes out of the government than comes in. If tariffs raise beautiful revenue, that's money in our pocket.
Planet Money
Tariffs: What are they good for?
Now, all that, that has been basically their argument for why they want to use tariffs. And the way Trump is applying these tariffs is pretty different from the prescription that many economists are now on board with.
Planet Money
Tariffs: What are they good for?
Last week, Trump announced 25 percent tariffs on all imported cars and certain car parts. Cars made in the U.S., even by foreign companies, no tariff. And the stated goal is to get Americans to buy cars made in the U.S. because they would be comparatively cheaper. And the U.S. gets those good manufacturing jobs.
Planet Money
Can we just change how we measure GDP?
Steve says some very high ranking members of Congress who represented coal mining areas thought Steve's green adjusted GDP would make their regions look worse than regular GDP. And through the grapevine, he found out that Congress was proposing to slash their budget if they kept publishing their green GDP.
Planet Money
Can we just change how we measure GDP?
But, like, can they do that? Can they change how we measure the economy just like that? Hello and welcome to Planet Money. I'm Mary Childs.
Planet Money
Can we just change how we measure GDP?
Now, Steve left his job as director of the BEA a decade ago. But we were curious about what he thought about what's been happening recently with senior administration officials, with the commerce secretary wanting to totally strip government spending out of GDP.
Planet Money
Can we just change how we measure GDP?
He points to a press release from the BEA about 2024 GDP. Table two shows how much each part of the formula contributed to GDP. So how much consumption and investment and net exports and government spending each contributed.
Planet Money
Can we just change how we measure GDP?
Yeah. If you want to be more serious about it, he says there are several different measures of GDP that BEA already publishes. Different slices of GDP that tell different stories. Like there's one that's GDP just not including net exports. There are a bunch of these.
Planet Money
Can we just change how we measure GDP?
Steve says if he looks at that press release next month and they've announced that GDP now does not include government spending, well, that is a different story.
Planet Money
Can we just change how we measure GDP?
We're going to talk to the person who was the keeper of the stat for nearly 20 years. Turns out people from politicians to economists to special interest groups have been trying to bend GDP for decades to make whatever grand project they're working on look better. Today on the show, what's different this time and what is the same as it ever was? Okay, GDP. What is it?
Planet Money
Can we just change how we measure GDP?
Before we go, we wanted to let you know about a new perk for Planet Money Plus supporters. We have made it easy for you to listen to some of our classic series from the Planet Money archive. Like when we wanted to understand the global financial crisis and bought a toxic asset we named Toxie. You can now find all eight Toxie episodes in one playlist with more playlists to come this year.
Planet Money
Can we just change how we measure GDP?
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Planet Money
Can we just change how we measure GDP?
And I'm Mary Childs. This is NPR. Thanks for listening.
Planet Money
Can we just change how we measure GDP?
To help us understand, we brought in someone who spent 20 years in charge at the Bureau of Economic Analysis, that federal agency that calculates GDP, Steve Landefeld.
Planet Money
Can we just change how we measure GDP?
Okay, so parents, take note. If you want your kids to follow in your footsteps, keep your job a mystery.
Planet Money
Can we just change how we measure GDP?
The concept was developed in the 1930s, and there's a formula to calculate it that's basically remained the same for decades.
Planet Money
Can we just change how we measure GDP?
And you add to that everything businesses invest in. Every factory, every new machine, every important office foosball table. Right.
Planet Money
Can we just change how we measure GDP?
And then, finally, combine all that with what's called net exports. Everything we export minus everything we import. The economist in crowd, people like Steve, would say the whole formula this way.
Planet Money
Can we just change how we measure GDP?
Which is not bad. And GDP is important. Not only does it tell us how healthy the economy is if we're headed towards a recession or not, but also GDP influences how the government allocates money. It influences whether businesses build a new factory or hire more workers. A lot of decisions are made based on how our GDP is doing.
Planet Money
Can we just change how we measure GDP?
Now, Steve, Steve wanted GDP to be as accurate as possible. He was obsessed with that mission. For 20 years, he was essentially the defender of GDP's integrity.
Planet Money
Can we just change how we measure GDP?
Correcting GDP for inflation is really important. Because if you have 2% growth but also 2% inflation, you don't really have growth. And Steve wanted to use a new measure of inflation that better reflected how prices were factored in. So GDP would be more accurate.
Planet Money
Can we just change how we measure GDP?
And its publication is kind of always a big deal. It is closely watched because people can see how hot the economy is running or how cold, like if we're tipping into a recession. But this release, this is going to be even closerly watched.
Planet Money
Can we just change how we measure GDP?
In other words, the note said, we are going to make your predecessor look better and you look worse. For the sake of sound statistics.
Planet Money
Can we just change how we measure GDP?
After our interview, Steve checked and apparently it said, this is nuts.
Planet Money
Can we just change how we measure GDP?
But Steve was the keeper of the stat. He thought this change was really important, like important enough that he was thinking he might quit over it. So he and his team went to his boss's boss, the then commerce secretary, and told him, listen, there are a bunch of reasons why we've got to do this.
Planet Money
Can we just change how we measure GDP?
And Steve was always protecting GDP. He says people from various industries would try to meet with him to get him to change how their industries were calculated.
Planet Money
Can we just change how we measure GDP?
The technical reason was that there had actually long been a problem with GDP. And that is it's hard to capture changes in quality when something gets better, but it doesn't always show up in the price.
Planet Money
Can we just change how we measure GDP?
Next month, a crucially important measure of the economy comes out. It's the measure, really. Gross domestic product. It's the total tally of all the goods and services bought and sold in the economy.
Planet Money
Can we just change how we measure GDP?
Greenspan was fine with the hedonic adjustments BEA was doing for goods. But he had a problem with how they were doing hedonic adjustments for services. He was worried they weren't accurately capturing all the improvements in the quality of the service sector. People were doing way more in a day. In industries like healthcare, in education, and basically everything to do with the internet.
Planet Money
Can we just change how we measure GDP?
And because GDP wasn't correctly capturing that, BEA was undercounting productivity growth. And they should look into that.
Planet Money
Can we just change how we measure GDP?
Greenspan, as chair of the Federal Reserve, had been lowering interest rates through a lot of the 1990s, which meant that there was a lot of money sloshing around in the economy. And Greenspan seemed to think if he could convince Steve to do this hedonic adjustment for services, then inflation would seem smaller and real GDP would look stronger. And that would justify keeping interest rates low.
Planet Money
Can we just change how we measure GDP?
In other words, Letnick is saying he's going to strip government spending out of GDP. And the stated reason for this proposed change? He doesn't think that a lot of government spending is great for the economy. He doesn't want it incentivized and he doesn't want it included in GDP.
Planet Money
Can we just change how we measure GDP?
And yeah, they knew that Greenspan kind of had an agenda, so they made sure to do their own research. And he wasn't wrong. So they made the changes. Now, looking back, Greenspan's easy money era is often cited as one, just one, of the reasons for the risky lending that led to the 2008 global financial crisis.
Planet Money
Can we just change how we measure GDP?
For Steve, it's not even a question. Empirically, it was the right thing to do. He says the BEA was trying to keep GDP up to date. And Greenspan, despite his other motives, did help with that.
Planet Money
Can we just change how we measure GDP?
So far, we've talked about how economists calculate GDP and how sometimes they make changes to that methodology. Incremental changes to capture an evolving economy.
Planet Money
Can we just change how we measure GDP?
But people have always known that the formula doesn't capture everything that's important. For instance, it doesn't capture any illegal activities. And in some countries, that is a big part of their economy. It also doesn't capture inequality or well-being or happiness.
Planet Money
Can we just change how we measure GDP?
One group that Steve remembers pressuring him argued that all the unpaid household labor, the cooking and the cleaning and the child rearing that often women were doing, was not getting counted in GDP. But they argued it should be. It was a huge portion of the economy and women were not getting their due.
Planet Money
Can we just change how we measure GDP?
Also, there was actually nothing for GDP to capture. GDP generally captures transactions that have happened, stuff that generates receipts. Just because it could or should be priced doesn't mean it makes it into GDP.
Planet Money
Can we just change how we measure GDP?
Another group that lobbied BEA was environmentalists. They argued that if environmental degradation were included in GDP, governments would not sit idly by as, you know, coal plants polluted. But since burning coal raised GDP, they didn't have much of an incentive to stop it.