Neal Ferguson, The Hoover Institution senior fellow, joins 'Power Lunch' to discuss global geopolitics and the impact of tariffs.

Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

Global Tariffs

Neal Ferguson, a senior fellow at the Hoover Institution, recently discussed the state of global geopolitics and the impact of tariffs on the program 'Power Lunch.' Ferguson highlighted the recent increase in U.S. tariffs, stating that the average U.S. tariff rate has surged tenfold over the previous year. This significant uptick, according to Ferguson, has posed substantial challenges to the economic system, likening its impact to the economic disruptions at the early stages of the COVID-19 pandemic.

The conversation touched on the ongoing negotiations to establish trade deals within a designated 90-day timeframe, a period set by President Trump. Despite these efforts, Ferguson noted the uncertainty surrounding potential outcomes, especially concerning the comprehensive U.S.-China trade relationship. He emphasized that the relationship has "effectively been ended," characterizing it as more than a tariff issue—effectively an embargo.

Ferguson also described the potential prolonged effects of the individual tariffs, particularly concerning the U.S. and China's economic strategies. He explained that while China's reliance on exports could lead to more significant challenges for the country, its one-party system minimizes political opposition. Conversely, U.S. political dynamics require consideration of public opinion and economic performance, which may affect future political stability and decisions.



Neal Ferguson: U.S.-China trade relationship 'effectively ended'

Neil Ferguson, Sir Neil now, is senior fellow at the Hoover Institution, Stanford University, a founder of the University of Austin and recently knighted Sir Neil. In my mind, every night I am, but then I wake up. How is, not the medical side, obviously, I want to make that clear. But how is Trump 25 like the early days of COVID as it pertains to the economy? So let me just make clear, I want President Trump's second administration to succeed. I would have been distinctly unhappy if Kamala Harris had become president. So that's point one, point two, the tariffs that the president unveiled on April 2nd were one of the biggest shocks, one of the biggest man-made shocks to the economic system since this time five years ago, when the new virus that came from Wuhan caused the global economy to shut down. So it's not as big and it's not necessarily as lasting, but if you look at the impact it has had on trade, particularly also on passenger traffic, I mean, look at the passenger flights from Canada. We haven't seen a decline and Europe like that since five years ago. So I think it's worth recognizing, even although markets are in a somewhat more optimistic mood than they were the week after Liberation Day, that we're still in the midst of a dramatic shock. The average U.S. tariff rate is 10 times what it was last year. That is a huge increase in tariffs and implicitly also attacks on consumers. It's a big shock. If I were to pull most of these really smart women in behind us here, they would probably say, well, the tariffs are disruption, but it's the length of time that they're on that might matter more than the raw amount of the tariff itself. Would you agree with that? I think it's also the uncertainty about where they land. I mean, we are in the midst of a frantic negotiation to try to come up with trade deals within that 90-day limit that the president set when he paused everything on April 9th. And the truth is, nobody knows where this lands. The Japanese are negotiating. They wanted to get away from even the 10 percent-based tariff. They've just been told no, I gather. So there's uncertainty. There's also massive uncertainty, Brian, about China, because the U.S.-China trade relationship has effectively been ended. This is not just a tariff. It's an embargo. And so that embargo could last for who knows how long. Markets were telling themselves last week, somehow this all gets done. Scott Besson waves a magic wand and much of this goes away. I am struggling to find evidence that that outcome is the base case. My expectation is that the tariffs last. Well, the Chinese are probably feeling more relative pain because they're so reliant on exports. But they have a system which is essentially opinion-proof. It's a one-party state with a surveillance system that makes any kind of political opposition virtually impossible. So Xi Jinping does not need to worry about opinion polls or midterms. Donald Trump and the Republican Party has to already be worrying that this economy may not go into a recession, but it's clearly going to slow. Every economist you talk to knows the growth rate is going down to 1% and a significant proportion of economists are expecting a recession. Donald Trump may not be worried about that. He sounds very bullish in his interviews. But if I'm sitting in the House of Representatives, if I'm in the Senate as a Republican, then I have to worry about that.

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Global Tariffs