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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. This week, tariffs front and center as a trade war kicking off in earnest between the US, Canada, Mexico, and China. Though Trump's tariffs went into effect this week, the president did announce some exemptions and delays on some of them. We'll get into what all this means for you and your bottom line. But first, let me welcome in my co-host. Hello, Rick and Ben. How's it going, guys?Hello, Ben and Maddie. Hello guys. All right, Ben, let's kick it off with you. What's on the note cards this week?

Oh, my note card is you already mentioned at the exemptions. We are in, we're a couple of days in, so we are in exemption season. Um, it's 3 giants. We're not quite into Oprah territory, but we're close. It's everyone gets an exemption. You get an exemption, you get an exemption. 33 big ones are in place right now as we tape this. There could be more of a time anyone hears this. The first is the big one with Mexico. Donald Trump announced that sort of all.USMCA compliant goods will not have a tariff for this month, at least up until up until April 2nd. That's a huge swath of goods and a big and a big walk back from the president on that. That's paired with a one month pause on auto tariffs. That's from both Mexico and Canada that Trump announced yesterday. That's another, that's another 30 day pause. And then the third one, which he announced previously was about Canadian oil, the 10% rate on Canadian oil as opposed to 25%.All this is to say, Trump announced these tariffs or he went forward with these tariffs on Tuesday. In the immediate days, the, the kind of economic costs of them became very evident, and there's a sort of the CEOs and business leaders were, you know, getting, getting to anyone they could at the White House and they're clearly getting through in the sense that there certainly has to be a er a a walk back so far. The question is what this goes, what this looks like in a month when when the big swap um tariffs are in place.

Ben, I saw what you did there with your with your note cards. So we've used, you've had tariffs on your note cards so many times that you had to come up, come up with something that is about tariffs, but, but, uh, but it doesn't say the word tariffs, so it's exemptions. OK, I have a I have a quiz question for the panel. You guys ready? Um, how do you qualify to get an exemption from a Trump tariff? Does anybody know? This is what

I've been asking you all week.Exemption.

There's one answer in my opinion, and that's having Trump's phone number. That's the big element of this really underway here. It's how the auto tariffs happened is that that that Jim Farley was able to get to get on the phone with the president and make his case directly and you're seeing that on a lot of these, I would say that a lot of this is personal. It's like whether you can make the directly to Trump that he can do it. So that's, there's multiple answers, but that's my

one. OK, so I, I think there's another requirement.Which is, um, you have to soften up Trump somehow, who knows who knows how, because I think Justin Trudeau, the Canadian Prime Minister, I think he has Trump's phone number, doesn't he? I mean, do we know? OK, let's assume he does he does or or he can, he can like find somebody who can help him get Trump's phone number. He's been talking to Trump and Trump did not give Canada the same level of exemptions that he that he gave to Mexico.Um, I think that's just because Trump doesn't like Trudeau. He thinks he's kind of punkish and apparently Claudia Schbaumbaum, the Mexican president, she's new. Trump doesn't know her so much. She's gotten off on the right foot with Trump and Trudeau has this, you know, awkward history with Trump. So this isn't this a great way to run the economy, guys? Um, like maybe uh maybe the maybe the Honda Civic is going to cost 25% more because it comes from Canada, uh.Maybe it's not. I mean, so I just looked, I just looked up uh some automobiles where they're made. The Honda Civic is made in Canada. The Nissan Sentra is made in Mexico. They compete with each other. So I think what this means is that, uh, the Honda Civic is now gonna be subject to a 25% tariff, but a competing product, the Nissan Sentra, is not going to be subject to it, which means Honda just by virtue of some decision it made probably 20 years ago to locate.in Canada is going to have to eat that cost, but that's only for a month. Um, you know, probably tomorrow, the next day we'll get some new exemptions. Um, it's a really efficient way to run an economy.

It's beenso hard to cover this this week, and I mean you guys are pros. You've covered this previously, but the tariff policy keeps shifting so fast. Every time I finish a video explaining how your car can get $12,000 more expensive. Oh, well, car tariffs are not actually happening. So that video.That's thrown in the trash, but guys, I was just wondering why do you think the tariffs are Trump's Roman Empire this time around? Why is this the thing that he can't stop thinking about and acting on?

I'll I'll let you take a first stab at.

I mean, my answer to that is that tariffs are Trump's answer to kind of every question, and they can't be the question to answer to everything. And what you've seen it um when, when you hear Trump talk about it is it's, it's a way to raise revenue. It's a way to get what he wants on negotiating stage. It's a way to sort of have America first and itCan't be all those things at once, you know, that's the other sort of frustration for me about covering this is sort of what exactly are these, what is the goal here of tariffs? Because at different times, even in the same speech from Trump or from Trump's aides, you hear different things, you know, there's, there's, there's some promises this week that that this, this is these, these tariffs are going to end up actually kind of creating reciprocal tariffs that lower duties overall. That can't happen if Trump's other goal is to pay for his tax cuts with tariffs, which is what he also said.So it's, it's the thing is, it's, I think the bottom line here is, and this is again, sort of not perhaps not the best way to to make on policy, but it's, it's a convenient answer to different Trump questions once Trump wants to have ananswer for. OK,

I, I have a theory. I'm going to share with everybody. Uh, let me know what you think about this, and anybody should hit me up on Twitter or Blue Sky at Richard Newman if you think this is complete insanity. But so, OK, I went back to Trump's first presidency 2018 and 2019.He imposed a bunch of tariffs then they were, I think, Ben, you can correct me on this, but I think um he's already imposed tariffs on more imports in 6 weeks than he did in all of 2018 and 2019. OK, so that's, that's the context but so of those tariffs were mostly on imports from China and steel and aluminum imports to the United States and then a few other things. So, uh, there were 125,000.Requests for exemptions from those tariffs. So and you know some companies um issued multiple requests for exemptions and the Trump administration approved about 41,000 exemptions or about 1/3 of.Request. So if you think about, if you think about Trump's Commerce Department is um some somebody connected with Trump is going to make a decision on, let's say we have this again on 100,000 specific requests for exemptions from Trump. That means Trump is basically saying.I like this company. I hate this company. Um, you're gonna get favored treatment, you're gonna get punished. Um, I think what Trump likes about tariffs is he gives him an extraordinary amount of control over um uh touch points in the economy down to I mean make or break questions for some, some uh individual firms including some medium and small ones. I think you know the.The big firms will weather this all OK. It's smaller firms and there are, there are inevitably will be some that just happen to be unusually vulnerable to cost increases from tariffs. So my theory is that Trump has figured out that he can exert an extraordinary degree of control over the economy by making these one-off decisions at a scale of 100,000 different times.

Yeah, and I think one timing thing for markets to watch here too is that that I think there's a lot of truth to that, Rick, and that is gonna, I think it's expected to come in a really strong force next month when with reciprocal tariffs, because that's what, that's what Howard Lutnick calls the big transaction when they do reciprocal tariffs, which even when you hear Trump's people advise talk about it, it's, it's different for different countries, different for each sector. So it's all this negotiation that Trump is going to be able to do and sort of.Set it, set it up sort of exactly the way in his mind he wants it to be these tariffs, which will be very different depending on which sector you're in, depending on whether, you know, you can get on the phone with Trump to do it for me,

let me put a question to both of you guys, and Mattie, I'll go to you with this. You're, you're talking to business people all the time on our shows. Um, is Trump gonna back down? Uh, I mean, we have now seen the S&P 500 stock index. It is down 4.5%, uh, since.Trump took office. That is not a global phenomenon. Other index, the stock index in China, in Europe, and even in Mexico is up while our stock index is down. I wrote a story this week. The American exceptionalism trade that is now dead. The US is actually underperforming, not underperforming. Mattie, what are people telling you about whether they think Trump's going to back down at some point or this is the way it's going to be for the next 4 years? Well,

what we're hearingfrom investors who first said he wasn't.Serious on the 25%. They're now saying, OK, well, it's not going to last that long. And I guess to their point on that, we have seen Trump capitulating on certain sectors like autos, but I guess they kind of revealed their playbook with Treasury Secretary Scott Besant saying that what they were focused on was the tenure yield being as low as possible. You've got the real estate mogul in the White House wanting mortgage rates as low as possible, so they're focused on the 10 year and they've gotten what they've wanted, right? We've had2 months now of the 10. So here's the,

so you know what the best way to get the 10 year treasury rate down? Mattie and I are looking at each other because we're actually sitting right next to each other. I can, I can go into Maddie's screen here as well.Um, but here's how you, here's how you get treasury rates really down is you cause a recession. I mean, people are, I, I am now seeing people saying which is

happening in the stock market, by the way,

investment managers are saying we have clients now who are who are asking us, is Trump actually trying to cause a recession? Is he doing this on purpose? I think.Uh, before Trump came into office, we assumed not, not that he would never do that because one of the most important report card metrics for Trump is how is the stock market doing and how is the economy doing. I think people are going back and saying, did we get that

maybe didthat change? Why didthat change?

Well, did it, I mean, is Trump just playing a long game here or is he like kind of like, don't worry, I know what I'm going to do in 2 months and stocks are going to go back up or.

I was, I was, I agree with that, Rick, that there's a sort of long term gain, gain here that's a little, it's definitely underway when you hear when you talk to Trump folks about that in the end, this will kind of, this will work itself out as a wash, you know, once we get our big tax cuts at the end of the year, that'll help balance some of this out. So if you kind of take the tough medicine now, a lot of this will work out in the long run. whether that happens remains to be seen, but we've definitely got as somebody put last week, a lot of veggies early on.And the question is whether the dessert evercomes.

I wonder too how much people care about the sequence saying that we've been talking about a lot, this idea that the first time around you had the tax cuts, you had your dessert first, and then you had your vegetable of the tariffs, and this time around, it's the opposite, plus the tax cuts aren't really going to be cuts anymore. It's just a continuation of a break that all these companies already received. So I wonder how much we can expect that to be a lift to the stock market, not so much anymore.

We're speechless. We have no idea. No, I mean, honestly, nobody knows. Um, I, I we have something to talk about all year for sure. I'll frame it a little differently, um.Uh, what are, what is, what how are voters going to feel about Trump's performance on the economy, and I think he's, I think he's flubbing it. I mean, we're seeing a little deterioration in the polls. He's not falling off a cliff, but what is happening is that people are hearing a lot about tariffs and they that generally has a negative connotation and people are worried that we're going to get higher prices.So whether if we get higher prices, I think people are gonna say, well, I associate higher prices with Trump's tariffs, and Trump is going to be sitting there saying for as long as, you know, way after the expiration date, it's all Biden's fault. But I mean once Trump has been in office for a couple of years, a couple of months, voters aren't gonna say, oh this is all Biden's fault. They're they're gonna say no.I, I voted for you for president because you said you would fix this problem. Why aren't you fixing it? So,

andwe already had Commerce Secretary Howard Lutnick this week saying the latest economic data is still a holdover from the Biden administration, but that is no longer true. We're getting monthly economic data. We are months into this administration, so this data that we are getting is under President Trump. We do have to take a quick break, but we're going to be right back with more right here on capital gains.Welcome back to Capital Gains. We are now joined by American Action Forum president and former Congressional Budget Office director Doug Holtz-Eakin. Doug, great to speak with you. Thanks for joining us. Listen, we've been talking about the totality of policy uncertainty under this administration. People are worried about their jobs. They're worried about inflation. How should our listeners be thinking about the near term impact on their day to day lives of Trump's economic agenda?

Well, I mean, the first order of impact is is simply uncertainty, which tends to be bad for financial markets. Um, we've seen some some rocky days on the inequity markets, tends to be bad for business investment and hiring, and uh we've seen both of those have some modest evidence of, of slowing, and then the the impacts past that are the real impacts. The costs are higher because of tariffs have to pass that along in the form of higher prices. That hurts consumer spending, hurts uh the the business investments.Uh, and that starts, uh, giving you not just inflation, but headwinds to growth, and, and then you're in the territory that no one likes, rising prices, rising unemployment, bad combination.

Hey Doug, uh, appreciate you wearing the tie there and classing up the show. That's a good look for us. Um, you're a budget expert. Can you just give us some perspective on what to pay attention to between what's happening in Congress with regard to the tax bill and spending cuts and what is happening with Doge, which is at this moment, kind of a completely separate effort. What, where is the action gonna actually take place?

Well, there are two kinds of action. One action is on the tax front that is exclusively in Congress, and we have to see the extent to which the current tax code can be extended and the extent to which the president's many campaign promises will be honored by that process. They can't possibly honor them on, so we'll see what happens. Uh, then there's the spending side. Uh, the doe spending is really just personnel, one wildcard.And I think the the magnitudes here matter. Uh, we spend about $350 billion a year on federal personnel. If they were to cut the workforce in half, and there's some places where they're trying to do things like that, uh, we'd save $175 billion which is real money in the real world, no question. But we had a deficit last year of $1.8 trillion. There is no solving our deficit and debt problems with the doge effort. So it is going to reduce the the federal headcount that seems to be their objective.Uh, and not really make a dent in the problem. What's

one wild card? Yeah, go ahead.

Wildcard is they are not paying some bills, right? There are things that they're saying we're canceling that contract. We're not gonna send out that foreign aid, they lost that battle on the courts. Uh, and, and that is an attempt to pick a legal fight over the 1974 congressional budget, which created my old shop, and, uh, Impoundment Control Act, which made it illegal for the president to not spend money that the Congress had appropriated.They are not spending money that the Congress has appropriated. And at some point, the Government Accountability Office is gonna throw the flag and sue the president and say you have to, to spend that money, and this will go to the Supreme Court because they believe the president has that authority, and uh uh they, as a result, the law is unconstitutional.

Doug, 11 near term thing on the, on the impoundment question is the shutdown that's in a couple of weeks. Do you think the government's actually gonna shut down over this impoundment issue, which is the Democrats, that's, that's what they're talking about, the reason they would, they would block it.

Yeah, I mean for for City, they'll shut it down because they don't fund it for the remainder of the year, but the proximate cause are the activities of those and not spending money and and firing these workers, and Democrats want to somehow uh rectify that in the spending bill, and they don't have a way to do that. I I'd put the the probability that something like 35%. If you'd gone back a month, I'd put it at 0. So, uh, this is a real possibility andUm, I don't think it's in either side's best interest. No one wins the shutdown, uh, showdowns, but, uh, I can't rule it out.

I wonder how you're thinking about this report from the Congressional Budget Office, just finding that uh the CBO finding that we would need to cut Medicaid in order to hit the budget goals that the Trump administration has put forward here. How are you thinking about the reaction function of the public to a decision like that that could lead to cuts to Medicaid coverage?

So, uh, a couple of things that it's a great question. Um, uh, number one, this is the problem in using reconciliation. To, to do reconciliation, let's get fast track authority in the Senate and pass things on a party line vote. You first have to pass budget resolutions, and they contain only numbers. We're gonna cut so much here, we're gonna spend so much there. They don't say how. And so,Democrats have correctly filled the number that says energy and commerce will cut spending by 8 $180 billion with people's worst fears. They're going to slash Medicaid, and they've they've told about the Republicans' targets on Medicaid. There's no Medicaid that word anywhere in the budget resolution, but that's the politics of doing this. It's bad news to pass budget resolutions because you get tagged with everything that the public dislikes.Once they start drafting the bill, the Republicans have the chance to make the case for the actual policy that's in the bill. And uh that's uh is is the good news part. If they have good policy, like there are some places where you can use Medicaid dollars on art classes and they'll say, do we really want to spend Medicaid on art? No, we don't, and, and they'll have that fight. Um, so, so there's some local politics this. The bigger issue isRepublicans, you know, have a razor thin majority as it is. They have a lot of uh seats in uh places that would be highly endangered, uh, from, from, especially the centrists, from sharp spending cuts, for, for not taking care of the salt cap, for things like that. And so the president is gonna have to recognize this and realize that his power is threatened if they lose the midterms, and uh then they may moderate the the way that bill looks.

Doug, I wanna ask you about sort of how this plays out in terms of the economy. 11 thing we're hearing a lot from, from different Trump folks this week is about measuring GDP differently, whether you exclude government data, which, which there is a measure of that there, and there's also ideas out there that you kind of include good government spending and.But it exclude bad government spending. I'm wondering what your thoughts are on that overall and what the sort of level of worry you have on that. Do, do you think there's consequences of looking at, of sort of choose your own adventure in terms of the economic health? And do you think there's any fear of the of the Trump administration actually monkeying with the numbers?

Well, I certainly hope they don't uh change the the basic uh national product accounts numbers, which have, for the record, been improved dramatically over the years, and, and where there are now additional presentations, satellite accounts for travel and tourism and things like that. So if there areThings they're interested in, you can have additional presentations that shed light on them. But I see no reason to take anything out or somehow not collect data we are currently collecting. That, that's a a valuable thing that the BEA does and and should not be tinkered with. Um, if you want to make the case to, to measure things differently, sure, that makes sense. Everyone knows GDP is not theUniform best measure of of of welfare in the economy that, you know, sometimes when you have GDP up because you're rebuilding from a storm, you actually lost and went behind. And so I, I understand all that, but it seems like a strange place to start to say, hey, we're going to have the greatest economy in the history of the globe, but we're gonna have to measure it differently because you can't see it. That's not a great sale, sales job.

Doug, you know, we have to ask you about the national debt. Uh, we know it's gonna go up under Donald Trump. There have been some wobbles in the treasury market the last couple of years or the last 18 months, suggesting maybe the national debt is finally getting too big. That does not seem to be what's the.Census right now. I've heard it both ways. I've heard uh the debt crisis is beginning or alternatively I've also heard no the Treasury can issue several trillion dollars more. There's plenty of room for that. What's your view? When is, when, when is the national debt gonna be too big?

Um, you know, I don't know is the honest answer. Uh, people ask me all the time, when, when does the sovereign debt crisis hit the United States, and I don't think it's imminent. I don't think it's within 5 years, 10 years. Um, but the, the right answer is, I don't want to know the answer to that question. Why run the experiment?You know, we would be much better off if we right now went after the, the root causes of our rising, uh, debt, we would crowd out less investment in the private sector. We would send more kids to get skills. We'd have a better workforce and a

but we're not, we're not doing any, we are running the experiment, aren't we?

Right.I would like to stop that if you, if you say it's underway. I mean, honestly, it, it, we, it, it's not having a crisis, or think people will say, look, we're in Japan, they have tons of debt, and they don't have a crisis, we're fine. Not having a crisis means you don't fail. That's called getting a D. I don't want to get.I want to get something better than a D, and back when we had disciplined fiscal policy, 90s, early uh before the, the 21st century started, we got better economic performance. The standard of living doubled roughly every 26 years, now doubles every 56 years, and we had uh uh just a much better overall uh fiscal outlook. Go back to that.Have a plan for the federal debt that doesn't include just going up. It has only gone up in the 21st century. That's a serious indictment of the political leadership.

Matty texted us a question while we're on the show. Should, should we end the podcast with something we're hopeful about? I mean, we're getting a D here. I, I mean, maybe next week maybe next week we'll be, we'll be more hopeful. Well,

Iwas gonna ask Doug, I was gonna say what might shift Trump's policies? Would it be the stock market tanking? Would it be the economic data? Doug, can you give us just a final answer in one sentence on that?

Uh, uh, in the end, the economy is what matters because it's what matters to voters. His man on the economy, he needs to deliver on the economy. If he doesn't, he'll stop.

All right, Doug, thanks so much for joining us. We appreciate it. We are all out of time, but thank you all for listening. Remember to like and subscribe to your Yahoo Finance podcast for more.