The ongoing trade debate centers around the idea of achieving a better deal for the US through President Trump's tariffs, which many economists view skeptically. One key concern is whether increasing prices would truly benefit consumers or simply lead to reduced demand.
Betsey Stevenson, professor of public policy and economics at the University of Michigan's Gerald R. Ford School, joins Market Domination to discuss this perspective.
"I've literally never seen anybody walk into a store before and say, 'this store is a terrible deal. They're charging us way too little. If they raise their prices 20%, I'll come back because it'll be a better deal,'" Stevenson tells Market Domination hosts Josh Lipton and Julie Hyman. "That's not how what we normally think of as a good deal."
Stevenson further emphasizes the potential economic drawbacks of a protectionist approach: "Not trading with your neighbors is not a recipe for higher economic growth. It's a recipe for lower economic growth."
Um, Betsy, I talked to Mohamed El-Erian earlier in the week and he sort of painted what the market seems to be perceiving as the more optimistic scenario here, which is that the administration does achieve its goals without driving the US economy into recession, and one of those goals seems to be getting what they view as a fairer trade, uh, trade, uh, global system, right, the a better deal for the US.
Um, is, I mean, is that a worthy goal, I guess, I would ask, first of all, since you, you know, clearly don't like the tariffs as many economists and business leaders don't, but is that a good goal to try to get to?
You know, I'm always a little bit confused by using this word, "a good deal", and then the way to get a better deal is pay higher prices. I've literally never seen anybody walk into a store before and say, "This store is a terrible deal. They're charging us way too little. If they raise their prices 20%, I'll come back, because it'll be a better deal." That's not how what we normally think of as a good deal. A good deal usually means lower prices. Um, so that's not what he's talking about. He's not talking about getting a good deal. What he wants to see is prices that are high enough that US consumers don't want to turn to stuff made in other countries, where they might be able to do it cheaper. He wants to put a little bit more fat, a little bit more cushioning in there to try to encourage US companies to say, "Hey, you might as well build it here, because you've got this you're going to have a 25% or 50% cushion." Well, the question will really be, "How much are consumers willing to pay, 25%, 50%, 100% more, um, or how much do they just cut back what they're buying? Because if they cut back what they're buying, there's still not a huge incentive to build it here in the US, because you're not going to be able to sell as much. So, I think that, you know, you have to be careful, um, trying to create a fully closed economy, not trading with your neighbors, um, is not a recipe for higher economic growth, it's a recipe for lower economic growth. I do understand that there are definitely people who have been hurt by trade that would like to see us take a little bit more of a protectionist stance. I think we should be having a discussion about those specific industries, how we're going to benefit, and how much US consumers are willing to pay to give benefits to those particular industries.
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She also stresses the importance of a balanced trade policy that considers both US consumers and affected industries.
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This post was written by Josh Lynch