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Welcome to Capital Gains. Yahoo Finance's unique look at how US government policy could impact your bottom line. I'm your host Madison Mills. Liberation Day coming a little earlier than expected for the carmakers after President Trump announced his 25% tariff on imported vehicles and foreign-made auto parts. President Trump is set to announce his reciprocal tariff plan on April 2, while the market remains steady.For now we're going to take a look at what all of this could mean for you and your bottom line. Plus Peterson Institute for International Economics senior fellow Mary Lovely stopping by to discuss all of this and more. Before we get into it, let me introduce my co-stars Rick Newman and Ben Worshkal. Hey guys.

Hey guys, happy Liberation Day.

Happy, happy early Liberation Day, Ben. Let's get to you. What's on the note card this week.

For sure. So yeah, as you, as you mentioned, I've got Liberation Day on my note card, a lot of tariff, a lot of tariff talk this week. Um, ahead of this April 2nd day Atlanta, I sort of thought we could start out with sort of three lessons we learned this week about what that day may look like. Some of it, as you mentioned with the auto tariffs is already, is already on its way. The first one is the sector specific tariffs. Trump has has announced two big initiatives this week that will take effect on April 2nd, April 3rd, um, so.It's the kind of first taste of that. The first is these auto parts, 25% on auto, on finished autos and also incredibly significantly for auto companies, uh, certain auto parts. So it's a big, it'll be a big change for the auto sector, uh, assuming he sticks to that and goes through. That'll be unveiled. The other one is this, these sort of new concept of secondary tariffs on Venezuela. That's also gonna be on Liberation Day. That sort of goes into effect and the idea.Here is that any country that trades in Venezuelan oil um will be slapped with the 25% tariff. Trump can start doing that on April 2nd. So those are the kind of sector side of it. And then there's the country by country one. Trump has talked about how maybe there'll be a little bit more conservative and we'll be pleasantly surprised, but these are gonna be big. These are gonna be a number for each and every country, or at least the major trading partners that will come into force.And we'll sort of start to see how he wants to reorient the trading system. The overall question here is kind of where markets are ready for this and whether the trading system is ready for this. The question I've been looking at this week is whether basically ports can handle this. The, the, the tariff system is already really complex. This is going to increase it exponentially, so it's gonna be a, a kind of big week both in sort of the market effects of these duties, but also sort of how the trade system absorbs all this.

Ben, thank you for letting my beloved vegetables off the hook this week. Um, if anybody doesn't get it, you're just gonna have to tune into last week's show. Uh, but I don't have your patented note cards, but I'm still feeling very patriotic about Liberation Day, so, uh, I got us some flags, uh, all right.What the flag is going down a half mess through the magic of TV. Look at that. I'm gonna pass one to Mattie in the other studio there, Ben. I have, I have one for you and Trump is gonna hold on onto your flag until I can get it to you. But, uh, so here's what, here's what we have to celebrate. um, we got the big preview with the auto tariffs, um, so my inbox is full of analysis for what this means. um, I'll just go through a few here. Oxford Economics, new automotive tariffs will drive down global growth.Uh, Moody's Analytics, a nail in the coffin of European automakers. Here's a Cornell expert saying the impact of auto tariffs, chaos, price increases, falling sales, and, uh, Karl Brauer at IC Cars says the tariffs will add $6000 to $16,000 to the average price of a car in the United States. So Ben, you uh.I think just a moment ago you said the question is, is our trading system ready for this? No, it's not. And um you know, Wall Street has been downplaying this all along and uh this is a bad negative surprise and so now everybody's trying to figure out, does he, does he really mean? I mean the usual questions, does he really mean it are these really gonna stay? Uh, Matty, you and I were talking before the show started. You seem to think.Investors are still underestimating the extent of thesetariffs.

Well, it's interesting when we have policy experts on our live programming and I asked them, is the market prepared for April 2nd, they consistently and vehemently say no, they are not. We are not priced in on the risks to come on April 2nd. And then when I talk to investors at the back of that same conversation, they come out and say, well, I think it's gonna be fine. I think we're gonna take him seriously, not literally, and therefore it's all gonna be good. He just wants to.Make a deal. I had one source this morning pointing to the fact that the president was asked about the China tariffs and said he may be willing to negotiate if he can get a TikTok deal. That was a signal to them that he is not serious on the totality of tariffs he has teased out because he is using them as a deal-making tactic, which is something that we have seen him interested in previously, as you guys have both reported on. I know, Ben, that one of the questions I'd asked you this week.Is the degree to which any idea that these tariffs are not going to be incredibly serious is a leaked to the press coming from the economics and markets focused side of the White House rather than the executive chair. Is that something that you're reporting has continued to back up thisweek?

For sure, yeah, this has been a dynamic of of covering Trump all the way back to Trump 1.0. A lot of times when you hear from his aides, it's a little bit more of kind of what you, what they might want his sort ofof tariffs to be versus what they, what, what he actually is. In fairness, Trump did say yesterday, he talked about how the the reciprocal piece of this, not the sector specific, he's sort of gung ho on, on all of those, but that the the reciprocal country by country piece could be more conservative was his word, and that the countries could be pleasantly surprised. So there is a little signaling now from Trump that this that that piece of this could be, could be peeled back a little bit, but it's still very, there's still, there's still.Clearly the end goal here for Trump is a kind of reordering of the trade system that I, I, I would agree with you guys that um markets aren't quite sort of embracing as, as what he wants his legacy to be

here. You know what, I, I think part of the problem here is the only person who really thinks the trade system needs to be rebalanced is Trump. I mean, um, when he came into office, I mean, you know, there are a few sort of sort of Trump psycho fans who are like, well, if that's the way Trumpthinks I could think of a way that we could come up with a plan to do what he wants, but there's almost nobody, uh, in what you might call mainstream economics that says, you know, one of the top 5 or even top 10 biggest problems here is we, we need to reorient the entire global trading system or even bring back, uh, domestic manufacturing. I mean, I, I, I keep saying to myself, why are we doing this again? And I think a lot of people really have no idea.I mean, so Trump thinks that we need to have more manufacturing in the United States, uh, and that's why tariffs seem like the right idea. I mean manufacturing is now like 8% of GDP and 10% of total employment in the United States. That's not a bad thing that that has happened because uh we've just moved away from a manufacturing economy to a service economy just as we long ago moved away from an agricultural economy.To a manufacturing economy. So Trump is like, no, we need to go back to where it was in 1980, and markets are just like, of course he can't possibly mean this. It's looking more and more like he means it. He wants to go back to 1980.

And it's interesting too in the context of something that we have talked about a lot, the idea of not to trigger you, uh, policy vegetables coming before we get the dessert, and it seems like we're getting a lot of the policy vegetables right now on the back of these tariffs. One of the questions I wantopposed to both of you is the impact this is all going to have on that key reconciliation bill. We had an announcement from the Congressional Budget Office this week that the US unfortunately no longer able to pay their bills as of August. Previously was in September, so getting a little bit more pressure on the United States' balance sheet here. Ben, come back into the conversation here. How are you thinking about the risks associated with the US debt ceiling getting hit and thenLooping in all of this other policy to that conversation by making it one big bill, I guess how tough is the road ahead going to be for that?

For sure, yeah, 11 bit of context for folks is that when you hear Trump talk about or or Scott Besin even talk about paying for these tax cuts, this huge tax bill that's coming down the pipe with tariffs, the just the math doesn't add up there. Like another number for folks is that 2% of America's revenue currently comes from tariffs even after Trump won.I know. So what, what, what he would have to do in terms of expanding tariffs and leaving them in place for years and years is would have to, would be really dramatic to, to reach these numbers that we're talking about with taxes. Um, a piece of analysis

nonsensical, Ben. I mean, it's not, you couldn't, I mean, it's not possible to do that.

There's there's theories that it's not even possible that if you get 60% tariffs on the entire world, no,

it would have to be like it wouldhave to be like 1,000% and then nobody would buy anything anymore.

And then the and then what this matches up against is some of these numbers that you're seeing on the tax cut side. A piece of analysis that jumped out at me was this Committee for Responsible Federal Budget, which is a nonpartisan group, calculated what just just extending Trump's tax cuts, just extending the 2017 tax cuts for 30 years would cost, and the total tab.They cal to is $37 trillion over a 30 year span. The entire national debt right now is $36 trillion so that represents just one move that over the coming years would double the national debt, um, and although there's a ton of other drivers to it. So it's just an apples and oranges situation where the numbers here.In terms of what's coming in this reconciliation bill and Republicans are determined to do is so much higher than than these other kind of pay-fors that they've been able to shuffle for. I, I would bring Doge into this too. It's like Doge was supposed to save $1 trillion and they're nowhere on pace for that. Hey

guys, I've lost track. Is $37 trillion a lot? I mean, I, I, I can't track how many zeros is that again?Uh, I'm obviously being facetious. It is a lot, and, uh, I don't think any serious budget analysts think that, uh, anything that's gonna come out of Congress or Doge or anything else is gonna change anything. Um, Goldman Sachs, another downgrade of the outlook, uh, this week because of tariffs. I'm looking at, uh, something here from the Moody's rating agency. All three of the big rating agencies S&P, Fitch, and Moody's have dinged the US credit rating. They used to be AAA.The board it's uh it's not anymore. So Moody's just put out a big report. Here's here's our latest thinking on the US fiscal situation. First sentence, uh, the US fiscal strength is on course for a continued multi-year decline driven by widening federal budget deficits a rising debt burden and falling debt affordability. They're fully aware of all the Trump plans and they're saying that doesn't look good to us. uh, so not a lot of optimism, by the way, this sounds to me like it might.a precursor to another debt downgrade as things just start to look worse and worse on the fiscal side inside the belt.

That'sthat's a really good point, Rick, as all your points are. But I think to bring it back to something you brought up earlier, we have seen analysts lowering their price targets on the S&P 500 this year. But what's fascinated me is that we still don't have a call for a recession. We don't have anyone coming out and saying we're having a recession this year because there's this idea that the hard data, the data that the Fed looks at, hasn't.Totally rolled over yet unemployment's still looking OK. So once we start to get those recession calls in, it's gonna be reallyinteresting

rising. The odds are that they are saying, you know, the sort of aggregate consensus might be 40% odds of a recession now up 15% or 20% at the start of the Trump administration, only 22 months ago. So he's gotten that up by 20% points.

Hey, 4 more months, it'll be 100%. All right, thank you so much, guys. We're gonna go to a quick break, but we will be right back with more capital gains after this.Welcome back to Capital Gains. We are now joined by Peterson Institute senior fellow, Mary Lovely. Mary, great to have you on here. We are obviously talking a lot about tariffs on this week's episode. Just curious from your perspective, come April 2nd, Liberation Day, what does that actually look like? What do we know about what's gonna happen that day?

Well, we don't actually know as much as we'd like to know what what's gonna happen, and um I would suggest that Liberation Day is actually watch your wallet day because we're going to expecting to get uh announcements of more new tariffs. Uh, with the announcement yesterday on autos, it looks like aApril 2nd will be the day that we hear about so-called reciprocal tariffs again, a misnaming of the policy, um, and that should hit countries with blanket tariffs. We don't know exactly how they will be calculated, uh, but it looks like there'll be one tariff per country.

And Mary, given that, how likely do you think it is that all of these tariffs will kind of stack on top of one another to have a significant impact on our economy? Obviously today we're seeing a lot of the impact playing out when it comes to autos. To what extent do you foresee that spreading out to other sectors?

Well, you know, this is also a question about their implementation, and one reason, another reason why uncertainty on these tariffs has just been at the highest level I've ever seen in my career. Um, there are, there was some things that President Trump has said that suggest they're going to stack, but if they stack, of course, we'll just see in some cases prohibitively high tariffs. Right now looking just at China because of course President Trump.Uh, added 20% points to the tariffs that were already on China. So they're stacking these new tariffs with the Trump 1.0 trade war tariffs, and that leads some goods on China to have tariffs of 70% or even more. So it's possible they'll stack, uh, in which case we could be looking at very, very large shifts in supply chains that serve the US.

Hey man, I wonder if I could take you back to basics here. So in our first segment, we, we talked a little bit about why are, why is Trump doing this anyway? So Trump thinks the global trade system is broken, that the, the United States gets taken advantage of. Uh, if you could just go back to the trading system before Trump took office, um, and.You know, we have mainstream economists on Yahoo Finance all the time telling, telling us in our audience tariffs don't pay for themselves. They're they're gonna have a net negative effect and so on. So you don't need to convince us on that, but what would you have cited as the top 2 or 3 things that actually did need fixing in the global trading system?

Yeah, that's a greatquestion. I think the US has had some long standing grievances. Uh, most of them have to do, frankly, with particular sectors that we've been unable to negotiate lower tariffs in. So for example, with Europe, we've been unable to negotiate lower tariffs in agriculture. The Europeans have their issues with the US asWell, we have higher tariffs on labor intensive goods like apparel. So, uh, you know, we have been unable at the bargaining table to get some uh lower tariffs, uh, and that has been a point of contention. There's also a lot of contention around um non-tariff barriers, such things as, you know,Sanitary regulations, scientific regulations that, for example, uh, may hurt the market for uh GMO treated uh seeds and in crops. So we have some issues there, other issues of protection on, on dairy and meat in some countries. So, particularly in the ag sector, we've had a desire to lower non-tariff barriers.Particularly with respect to China, we've had a much bigger menu, and in particular, the US has been uh very concerned about Chinese subsidies uh to their industries, um, andLight was taken to the WTO when the US tried to use countervailing duties, anti-dumping duties against China. Uh, the US doesn't like the way the WTO was ruling on some of these cases, and in fact has really brought the appellate body.That is the body to which you complain if you don't like the agreement, it has brought it to a halt. So I would say those are, those are some of the main complaints that we've had priorto. So,

so is Trump is Trump likely to rectify some legitimate problems or is he just going completely overboard here, or both?

Well, you know, is, is he going to rectify some problems? It is possible that by threatening our trading partners, he would have gotten concessions. For example, the EU, uh, almost immediately suggested that they would lower the tariff they have on passenger vehicles, so cars, uh, it's now 10%. They said they would lower it to the 2.5% that matches the US. Of course, now.That deal is simply off the table. So is he likely to remedy, uh, our concerns with our largest trading partners by threatening them and then using tariffs against them and also threatening them for more tariffs if they retaliate? I think one has to step back and say that the market power behind Trump, that is the reason.They're listening to us, uh, is limited. It's not going to get governments to do things that they, they don't have a domestic constituency to do. And in fact, the more he strongs arms them, the more they're gonna have to, uh, stand up to him. Otherwise they're gonna look like just, you know, fools, rag dolls. So I think that this is very unlikely to uh solve any of these long standing concerns.

Hey Mary been here, 11 more question for you on sort of what next week's gonna look like. One thing I've been really interested in this week is how basically just the logistics of putting all these tariffs in before and you, and you, you know this, you know this world in very in detail, sort of the stacking you talked about earlier, this is gonna be on.Top of existing tariffs and it's the tariff, the tariff book is already thousands of items long and this, this could make it much more. How much of a worry for you in terms of next week are the just the actual mechanics of this. I had people this week tell me that it could be a nightmare at ports on certain fronts. Is this a worry for you?

Yeah, I mean, we saw them being completely unable to go forward with their rules on de minimis, which was, you know, saying the packages that previously came in under certain customs rules, if they were under $800 now had to follow the full uh customs rules.Uh, and it was just simply impossible for customs and the post office and others to keep up with this. So this is, you know, the fact that they're unable to actually carry out these tariffs which they insist on imposing immediately, uh, is nothing new.So Ken, I mean, many, many processes today are automated, although far fewer than one might think. Uh, still a lot of paper involved in customs, um, and customs brokerage. So, I mean, just raising rates on individual products alone is not that much of a problem. It's that it's going to be determined by what country.You're coming from, so we don't just have like a 2.5% on something. We have lots of different rates if President Trump goes forward with the April 2nd, and also the fact that these are stacking on top of some country specific tariffs like we have on on China. Another thing that's coming down the pike is that the US trade rep, Jamison Greer.has said that they will look for uh American content and things like auto parts to exempt. Uh, that's definitely something we're not doing. It's going to cause an enormous headache for companies and then for customs. So the more they try to track value added through global supply chains, the more difficult the task thisbecomes.

Mary, complicated question for the small amount of time we have left. Sorry, we're gonna put you on the spot on this. Does the US economy need to be re-industrialized?

Yeah, it's a great question, which now seems to be taken as sort of gospel that this is what the American public wants. I think the American public wants a healthy and resilient, uh, secure economy. And for many people that does mean bringing back some industries. For example, there was widespread bipartisan support for bringing some semiconductor, uh, fabrication back to the US. That is an industry where fabrication.very geographically concentrated and in what might be viewed as an insecure part of the world. Uh, when we go to other industries like autos. The first thing is what was wrong with the US auto sector. Uh, the US auto sector was producing excellent vehicles both through, uh, what we think of as the big three, but also through the transplants and through imported vehicles which served.Small markets, people who wanted sort of niche vehicles, um, as well as a set of vehicles which didn't have the market to justify making them here. Uh, you know, great prices, good competition, excellent safety features, and now we are breaking something that doesn't need to be fixed. We're raising very high tariff walls around an industry that has been healthy, um, to bring back assembly jobs. Now our assembly jobs.Good jobs, yes, but there's lots of other good jobs in the US. So the problem I have with the use of tariffs to re-industrialize America is that it's taking industrial policy and setting it on its head. A tariff is a consumption tax and a production subsidy. If you want to subsidize something, guys, go ahead. But why are you doing it on the backs of working class and middle class Americans with these tariffs, which will fall much heavily on those households.

We're all out of time for today, but thank you so much for joining us, Mary. I really appreciate your time. That's gonna be it for this episode of Capital Gains. Thank you again to Mary, Rick and Ben for being here and you all for listening. Be sure to like and subscribe to Capital Gains wherever you get your podcast. Till next time, we'll see you on Yahoo Finance.