After a week of market chaos, President Trump pulled back from the brink. But he didn’t pull that far back. He left a 10 percent tariff on most of the world and launched a trade war with China. It’s unclear what he will do after this 90-day pause or what countries need to do to satisfy him. But one thing that is very clear now is that our economy is subject to one man’s whims.How are businesses supposed to adapt to this new reality? What is this new reality?Peter R. Orszag is the chief executive and chairman of Lazard, one of the world’s largest asset management and global financial advisory firms. He also served as the director of the Office of Management and Budget under President Barack Obama, so was a policymaker during a financial crisis. And over the past few months, he’s been talking to lots of C.E.O.s and corporate board members as they try to process these changing policies. I wanted to ask him what he’s been hearing and how he sees the volatility of this moment.Mentioned:“A User’s Guide to Restructuring the Global Trading System” by Stephen Miran“Paul Krugman on the ‘Biggest Trade Shock in History’” by The Ezra Klein ShowTrade Wars Are Class Wars by Matthew C. Klein and Michael PettisBook Recommendations:Underground Empire by Henry Farrell and Abraham NewmanChokepoints by Edward FishmanSmart Money by Brunello Rosa and Casey LarsenThe Catalyst by Thomas R. CechKaput by Wolfgang MünchauThoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.You can find transcripts (posted midday) and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.This episode of “The Ezra Klein Show” was produced by Jack McCordick. Fact-checking by Michelle Harris, with Mary Marge Locker and Kate Sinclair. Mixing by Isaac Jones, with Aman Sahota and Efim Shapiro. Our executive producer is Claire Gordon. The show’s production team also includes Marie Cascione, Rollin Hu, Elias Isquith, Marina King, Jan Kobal and Kristin Lin. Original music by Pat McCusker. Audience strategy by Kristina Samulewski and Shannon Busta. The director of New York Times Opinion Audio is Annie-Rose Strasser. Special thanks to Matt Klein. Unlock full access to New York Times podcasts and explore everything from politics to pop culture. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify.
Chapter 1: What sparked the market chaos discussed in this episode?
From New York Times Opinion, this is The Ezra Klein Show. Here's how the last week or so went. President Donald Trump unveiled a half-baked package of gigantic tariffs. So half-baked, one of them was a tariff on a group of islands inhabited by penguins. Those tariffs threw the markets into chaos.
That chaos, it should be said, was not simply the result of higher expected prices or supply chain disruptions. What markets hate is uncertainty. Financial crises are usually the result of some unexpected, uncontrollable shock that overwhelms the policymakers who are trying to maintain stability. In this case, Trump himself was a shock.
He was announcing that he was himself trying to end this era of stability. He wanted a realignment of the global financial system. And he can't shift those tectonic plates without creating a few earthquakes. But man, what an earthquake. Trillions of dollars of wealth wiped out of the stock market by choice. The Trump people said, don't worry about it. That's Wall Street, not Main Street.
All we care about is the American worker. But then the upheaval hit the bond markets. The market for U.S. treasuries began to shake. A bad sign because U.S. treasuries are the relentlessly reliable asset at the base of the global financial system. Crack that and the whole house can come down. And that seems to be what pulled Trump back from the brink.
Was it the bond markets that persuaded you to reverse course? No, I was watching the bond market. The bond market is very tricky. I was watching it. But if you look at it now, it's beautiful. The bond market right now is beautiful. But I saw last night where people were getting a little queasy.
But he didn't pull that far back. He is still tariffing most of the world at 10%. He's tariffing China at 145%. And as for the tariffs he paused, well, that's a pause. It's a 90-day pause. What happens at the end of 90 days? What deal is Malaysia supposed to strike with us in the meantime? Who are they going to make that deal with? Nobody knows, not even, I suspect, Trump himself.
But I think what we can say right now are three things with certainty. First, we're entering an era of higher prices and unknown levels of supply chain upheaval. We're about to see a massive trade war with China. The global economy is complex. When you put this kind of pressure on that system, things that you were not expecting can break.
Second, we are in an era of extended extraordinary economic uncertainty. No one really knows what any of these tariffs are gonna be in a year. Will Trump get peeved by what countries do or don't offer him in the next 90 days and return with yet more fury? Trump sees tariffs as ongoing leverage in every policy dispute. Is he really gonna give that up?
I'm doing these two or three day turnarounds on these podcasts and the tariffs are often different by the time I release the episode. If I don't have enough policy certainty to plan a podcast, how are major companies supposed to plan long-term capital investments? Third, the king cannot hear no.
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Chapter 2: Why did Trump adjust his stance on tariffs?
Let me zoom in for a minute on the question of whether or not the dollar is driving the decline in manufacturing employment. It's probably true that the dollar's value has had some effect on that. But every estimate I find is that it's a fraction of the total. And this is more automation. It's more the move to services. It's more a bunch of different things.
And it's probably not going to come back. So you can look at other countries. Germany has a very different trade policy than we do. They've existed in more of the world that I think Stephen Moran and Donald Trump seem to want us to exist in. And you also see manufacturing as a share of employment dropping there.
There are a lot of arguments people make right now that China has probably hit peak manufacturing employment. I think Donald Trump is a nostalgic person. And I think that he wants an economy and he's baselined on economy of America in the 50s, the 60s, perhaps. And that he's trying in his own way to get us back there, but there's no there to go back to.
And so one question I have for you is if you did everything that Stephen Moran wants to do and the dollar was no longer the world's reserve currency, although they say they wanted to maintain its role as a reserve currency, they're contradictory on that. But if it was no longer the world's reserve currency, if it devalued
Then what is your view of what that would buy us given the world we now live in of automation, of cheap global shipping, of artificial intelligence coming online, you know, very, very rapidly? Like, is the thing they're trying to achieve achievable with this mechanism?
Well, I think there are two questions. First, is it achievable? And it depends on what question you're answering. But if you're saying, could we get back to 30% of employment being in manufacturing as it was in the 50s, from today's level, no. And in fact, I think Paul Krugman on this very show last week pointed out just the math is very difficult, even if you eliminate an entire deficit.
even if you eliminated that and it all went into domestic production, you take the manufacturing share of GDP from about 10 to let's call it 15%, you're not going to have 30% of employment off of 15% of the economy unless you're doing really unproductive things, point one. Point two is, is that shift actually something that we want?
So in this whole trade debate, by the way, we have completely ignored the fact that it's all about trade in goods. So this whole discussion has been about the trade deficit in goods. But the U.S. is a net supplier of services, net surplus in services to the rest of the world. And this raises the question of, are manufacturing jobs actually better than services jobs?
And why are we having a trade debate that leaves out If this podcast, advertising on this podcast or some other aspect of the podcast generates revenue abroad, that is an export of a service. Backbone of the American economy.
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