For an official in the Trump administration, Kevin Hassett had a long tenure: A well-known GOP economist and former scholar at the American Enterprise Institute, he spent roughly two years as the chairman of the Council of Economic Advisers, or CEA, which counsels the West Wing. Hassett is a free-trade devotee, but one who managed to stay on President Donald Trump’s good side, even as he escalated his trade war with China and tore up trade agreements. When Hassett announced his departure in June, Trump tweeted that he was a “true friend.”
In many ways, it was an auspicious time to leave. Since Hassett’s departure, things have been bumpy. The president’s beef with Federal Reserve Chair Jay Powell has ratcheted up. The yield curve inverted in mid-August, sparking fears of a recession. And so far, Trump’s trade war shows no sign of letting up. All of those factors have sent stock markets—and Americans’ 401(k)s—on more than a few stomach-dropping rides.
Despite his generally free-trade views, Hassett—who is now a CNN commentator—is all in on Trump’s trade war, telling me that regardless of the economic turbulence, “there’s a really massive upside” to the president’s moves. I spoke with Hassett on September 1, when the latest round of tariffs, on $112 billion of Chinese imports, went into effect. This interview has been edited for length and clarity.
Lizzie O’Leary: We are in a new round of the trade war as of today. JPMorgan Chase just estimated that the tariffs will cost the average American household up to $1,000 a year. Is that acceptable collateral damage, in your opinion?
Kevin Hassett: I think that when you look at the literature on China’s behavior towards the U.S. over the last few decades, there’s ample evidence that it has behaved in a way that’s quite at odds with certain normal trading procedures. The IP Commission estimates that between $200 billion and $500 billion a year of intellectual property is stolen from the U.S. To put that in perspective, the Isabella Stewart Gardner Museum, the art museum, was part of the biggest heist in U.S. history, where [burglars] stole, tragically, $500 million worth of art. And the IP Commission’s estimates of how much China’s stealing from the U.S. mean there’s about a heist that big, every day, 365 days a year.
The issue is just that when you see these big numbers, it’s easy to just tune them out. And the fact is that the relationship with China is just utterly unacceptable because of their misbehavior. And the president is standing up to them. Absolutely there are going to be short-term costs associated with that. But I think that the long-run benefit could be enormous.
O’Leary: Do you think the president understands the risks of his trade war?
Hassett: Yeah, I think that the president has fully discussed the Chinese situation and other aspects of his trade policy probably more than any other policy. When I started there a couple of years ago, we had weekly meetings that pretty much continue, I’m sure, to this day. And the president is a person that really likes to have diverse opinions in the room, so he’s seen just about every argument.
O’Leary: I think the question here is about the way policy is being conducted. I mean, Powell himself said, “Trade-policy uncertainty seems to be playing a role in the global slowdown, and in weak manufacturing and capital spending in the United States.” Is he wrong?
Hassett: I think that trade-policy uncertainty is a serious negative for the outlook right now. But I think uncertainty increases as [risk increases]. So if you and I are tossing a coin and betting $1 on it, and then we decide to increase the stakes to $10, then that’s sort of an increase in uncertainty, because the risk for you is $10 instead of $1. So I think that when people look at the trade negotiations with China, they tend to focus on the negative. But I think there’s a really massive upside. And I’m not alone in that.
O’Leary: No matter what happens on the way to that point?
Hassett: Well, I think on the way, you’re right to highlight the uncertainty. But I think that when people go back and write the story of trade in the 21st century, they’re going to talk about a sea change that President Trump began. It happened because the 20th century was a story of rivalry between the Soviet Union and the United States. We wanted to get people under our umbrella, they wanted to get people under their umbrella. And we would give people access to our markets, bringing them into the Western umbrella, without asking them to change their tariffs at all. And so we ended up with all these relationships where we gave unfettered access to the U.S. market and they kept their tariffs and nontariff barriers. And we didn’t really care, because we basically had a competition for effectiveness with the Soviet Union.
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.
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?
Hassett: I think that Jay’s a tough guy. And presidents talk about the Fed all the time.
O’Leary: They do not tweet about the Fed like this.
Hassett: Well, tweet. Twitter is definitely something new.
O’Leary: Kevin, come on.
Hassett: No, I’d just say that it’s pretty common for the Fed to be the target of political criticism. It’s something that’s been going on forever and ever. And Jay Powell is a terrific Fed chair that can take a little criticism. But I think that President Trump is a guy whose brand is that his supporters want to know what he thinks. And Jay understands that, and Jay’s not going to cut interest rates because President Trump tweeted something.
O’Leary: I want to talk to you about how you did your job. We’ve heard that the president prefers a one-page summary on national security rather than the traditional daily briefing. Is it the same way with the economy?
Hassett: No. The president likes wide-ranging conversations.
O’Leary: What does that mean?
Hassett: He likes charts. He likes to sit in the Oval Office with a bunch of people around the Resolute Desk and go through everything that’s going on.
O’Leary: Why’d you leave?
Hassett: First, the CEA chair usually stays about two years, and almost every chair has been about on that cycle. And I think that the tradition of having someone do the job for about two years is a strong one for the organization, because it sort of helps prevent the CEA from going native. Our job is to present the evidence, not to present the evidence that supports whatever political decision is being made right now. But the other thing is that my younger son is a senior in high school and I just spent two years not seeing him—I didn’t want to wake up and be an empty nester.
O’Leary: You are a Christian and you’re a parent. I know both are very important to you. How were you able to look at policies that placed vulnerable children in detention and say, ‘Yeah, Trump’s economic policies and passing the tax cuts made it worth it’?
Hassett: First, I told you about the strong responsibility that economists feel about keeping a strong CEA. You know, at CEA we work on economic policy. I didn’t work on the border wall and things like that. I’m proud of the work that we did. And I think that we helped a lot of good things happen, and not just, like, the big-ticket items like the tax cuts but even helping things function every day.
O’Leary: I just want to be clear. You’re okay with that moral calculus?
Hassett: I’m not in charge of immigration policy, but you know, I’m proud of the work we did. I was just going to give you the example with the Houston hurricane. Remember the terrible floodwaters? We got government floodwater data, merged it with Zillow data that had lot-by-lot housing prices. We helped everybody who was involved in hurricane response better understand where the water was going, where the houses were, and so on. And when we were putting out estimates of the damage, which was really important, they were based on house-by-house estimates. So that’s what the CEA does. And yeah, I think it’s important that there be a CEA, regardless of who’s president, and that they bring this sort of nerdy economist view to policy decisions.
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