Paulson: Trump Tariff Plan Better than "What Harris Policies Would Be"

U.S. needs 'strategic tariffs' to raise revenue to reduce deficit & support industries

John Paulson: U.S. needs 'strategic tariffs' to raise revenue to reduce deficit & support industries

Transcript

With us now to talk markets, economy and how this year's election will impact both is John Paulson, founder of Paulson & Company. It's great to have you welcome. Thank you, Sara. Good to be here. You clearly do not speak out very often and haven't heard from you a lot since the financial crisis, but you think this is an important time to do so because of the stakes in this election, specifically for the economy. That's exactly right. I think there's a big difference between candidates and what will happen with the economy depending on the outcome of the election. You're in the Trump camp. You have hosted fundraisers, been a donor, been with him. You know, the knock against Trump, from what I hear in the business community, and from investors, does center around tariffs specifically and they're not growth friendly. Yeah. I would say that you're stepping back generally, I think the difference between the candidates is one is for more growth, higher real wages, less government, less taxes, and lower inflation. The other candidate is more -- a bigger government, more taxes. And I think the outcome, depending on who's elected, will have a great impact on the economy. But they said that about President Biden as well. And I know it depends on who you talk to how you feel over the last four years, but you could make the case the economy is strong, we're starting to see real wage growth now and the market is doing just fine. It's true. The markets are doing well, but remember there was a lot of fiscal spending and a lot of monetary stimulus. So the result has been high inflation. So, inflation under Biden was as high as 9% in June 23 and has averaged under 5%. Under Trump only 1.9% on average per year. So, because real wages haven't risen as fast as inflation, real wages have gone down under Biden. They were up substantially under Trump. How do Trump's policies address inflation, which is still a major problem for Americans? Well, both through spending and managing the deficit. So, Trump has plans to both raise revenues without reducing taxes. And you mentioned tariffs is one way to do that and to reduce spending. By reducing the deficit, that will lead to lower inflation. I know you care about the deficit. You asked about it at his speech at the New York Economic Club but lately some of the policies -- he's talking about getting taxes for kids. The latest last night was overtime workers, lower corporate taxes for companies made in America. I mean, even if he raises them through tariffs it's not enough to offset - The corporate tax rate from 14% to 15% was an incentive for a small fraction of corporate taxpayers to give an incentive for American manufacturing. You still see it as he's better for the deficit because the money he's going to raise from tariffs. I think it would be better for the deficit, better for inflation and better for interest rates. The tariff thing on inflation I don't get, because it will ultimately result in us, U.S. consumers, paying higher prices for imported goods. I think that's the general orthodox, that free trade benefits everyone, but we don't live in a free trade environment. We live in what I call a one-sided free trade environment where the U.S. is one side, we're probably the least protectionist of any major country in the world. You know our average tariff on imported goods is only 2%. Yet when we sell abroad, we face much higher tariffs and a lot of non-tariff barriers. That inequality in trade has resulted in a merchandise trade deficit in '22 of $1.2 trillion. The results on communities, on families has been devastating. Anyone that travels to the Midwest or the East Coast, you look at the abandoned factories, boarded up homes, you see the impact of this trade policy. So I think Trump is right. He wants to protect American manufacturing. He wants to level the playing field when we're not treated fairly with trading partners, and he can do that with tariffs. And the benefit of doing that is not only do you protect American manufacturing leading to more jobs and more growth, but you also raise revenues. And I'd rather those revenues that are raised to reduce the deficit come from foreigners rather than from domestic tax breaks. You know American companies will pay those revenues, too. A Nike, for instance, is going to have to -- we don't make a lot of sneakers and apparel in this country. They're going to pay as an importer from their factories overseas and they're going to charge us more for sneakers. They're not going to make the sneakers here. So, I think the tariff has to be strategic. We need to protect domestic manufacturing and industries that are strategic to our industrial base and to our defense industry. That could be rare earths, could be critical minerals, could be other types of manufacturing. The other is to support manufacturing that's been disadvantaged by trade policy. That could be the auto sector. So, we have excess capacity in the auto sector. By raising tariffs on imported autos, that would cause our domestic utilization to go up and also companies that want to sell here to build factories in the U.S. So, you know -- strategic. Strategic tariffs that will support the industries we want to support. At the same time, raise revenues to reduce the deficit. He talks about blanket, across-the-board 10% tariffs on all imports. Do you think this is a negotiating ploy or do you think that's really the plan? I think it's a good way to look at it, is average tariff today is 2%. If we raise it, let's say, to -- by 10% on average and you look at the amount of imports, which is $3 trillion, more or less, 2% of $3 trillion will provide $300 billion of increased revenue. So, whether it's looked as more as an average tariff on imports. You don't worry about the inflationary impact on - You know what happened before he raised tariffs on China, which I think was necessary, and the period of inflation under Trump was more than half what it was under Biden. So, I'm not concerned about the inflationary impacts of the tariffs. There will be some, but that will be offset by higher growth and higher growth leads to more tax revenues. You mentioned China and he's threatening to go even higher on China, 60% on tariffs, 100% for countries that ditched the U.S. dollar. I wonder what you think is the right way to confront China and deal with China right now economically because we are so intertwined at this point, and you know this as someone in the markets. Well, China is proven to be a very difficult trading partner. So, we have to look at our relationship with China, realizing that they are somewhat of an adversary and look at policies that look at America first. And the industries that are strategic, that are being disadvantaged by unfair trade policies, we have to support them and tariffs is one tool we can use to support domestic manufacturers.

What did you make of the debate? A lot of even his supporters and Republicans I spoke to say missed opportunity on some of these arguments. Yeah, I think the debate was more style over substance. We didn't hear a lot about Kamala Harris and what her policies would be. I think Trump was forceful. He spoke about the economy and about wages, about inflation, about border policy. So, I think it was sort of an even draw. The other thing I hear from businesses and CEOs, mostly off the record, is there's temperament and personality issues and considerations and they're worried about having a leader at such an important time in the world, geopolitically, about, you know, an erratic nature and stability. And that's important for business, too. We can look at -- we had a presidency with President Trump for four years. We have extremely strong growth in the economy. We had growth in real wages. We had low inflation. And we had stability on our foreign policy. There were no wars. I would look very favorably on Trump and I would not be concerned of the issues you raise.

There was some substance from her campaign. One was on housing, so I was curious to ask you about that. The $25,000 incentive for first-time home buyers, do you think that will work? I think it's important to stimulate home buying. That's the greatest source of wealth. But the biggest incentive rather than doling out cash to particular buyers is bring down interest rates. The reason why rates are so high is because inflation was so high. If we can bring down inflation and bring down interest rates, that will increase affordability. And President Trump also outlined a very important plan both to release federal lands for housing. That could dramatically lower the cost of housing for everyone and also reduce regulations, which adds pretty significantly to the cost of housing. I think by reducing regulations, providing a federal land for housing development and lowering interest rates, that would be a very strong boon to homeownership for Americans and reduce the cost of housing. Well, no matter what happens in the election, that's set to happen next week with the Federal Reserve. Do you think they should be going big or starting small when it comes to rate cuts? Personally, I think the Fed is a little behind the curve. You know, rates are, you know, 5.25% plus. Inflation is down to the 2.5% rate. We have almost 3% real interest. So, I think they've seen enough data that they can start bringing rates down. I would suggest more.