O’Leary: Well, yes, if you’re excluding all of the big trade negotiations of the ’90s, but okay.
Hassett: Which are steps in the right direction! But the bottom line is that we entered the 21st century with really asymmetric trade deals where we were much kinder to imports from other countries than they were to our companies trying to sell in their countries.
I believe that we’re going to move towards a world where there are no tariffs, no nontariff barriers, where there’s real free trade that doesn’t require 10,000-page negotiations, and that that’s going to be the 21st-century equilibrium.
O’Leary: Help me understand that, then. If the future that you’re envisioning is free-trade—no tariffs, no barriers—how does imposing multiple rounds of tariffs get us there?
Hassett: It’s a negotiation, right? If we basically have a trade deal where we unilaterally disarm, then the other guys have tariffs, nontariff barriers, and so on. If we say, “Hey, let’s have a negotiation,” their attitude toward it will probably be “Well, actually we don’t have anything we need from you.” So I think that President Trump has gained leverage by putting tariffs on things and bringing people to the table. And I think that his extremely tough approach has earned us a USMCA trade deal that’s terrific. There’s lots of modern things in it, like digital-trade rules and conditions about how we control ocean litter.
O’Leary: Obviously we’ve seen a lot of nervousness in the bond market. Do you think we’re headed for a recession in the next year?
Hassett: No, I think not in the next year. But one thing I think everybody should be concerned about is that if you look at the 12 months after a presidential election, historically going back into the 1800s, the relative odds of recession are about twice as high.
O’Leary: Your former colleague at the American Enterprise Institute Michael Strain just wrote an article saying the most significant risk of recession comes from the president of the United States. What do you say to that?
Hassett: I didn’t read Mike’s article. So he thinks the most significant risk is from the president? I guess he’s thinking that the tariff problem is the biggest risk?
Hassett: I think the most significant risk that we face right now is election uncertainty and the impact that that can have on capital spending, big-ticket purchases, and so on.
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O’Leary: We obviously have to talk about the Fed. If the economy is doing so well, then why have the president and others made the case for the Fed to cut interest rates?
Hassett: I think the move last December [to increase interest rates] was a little bit too fast, and the markets kind of agreed with that, and the Fed now agrees as well.
O’Leary: You don’t need me to say it, but in previous administrations it would be frankly incomprehensible for a president to attack a sitting Fed chair in the way President Trump is doing. Are you comfortable with this?