A closer look at Trump's proposed trade policy and the potential economic risks it poses. Plus, an analysis of Tennessee's projected population growth and its implications for the state's demographics and economy. Stay informed about the latest developments in trade and population trends with 'Simply Economics'.
Sources:
https://www.aei.org/economics/trumps-road-to-a-trade-war/
https://www.wbbjtv.com/2024/08/28/economics-professor-gives-closer-look-at-expected-population-growth-in-tennessee/
https://www.ajc.com/news/atlanta-news/georgia-economy-will-pick-up-boosted-by-expected-rate-cuts-from-fed-gsu-says/TUVP6CIFGVCKNBLOGDRUDTTERQ/
https://africa.businessinsider.com/news/the-ai-boom-is-turning-traditional-economics-on-its-head-as-tech-giants-boost/s8ckerc
Outline:
(00:00:00) Introduction
(00:00:40) Trump’s Road to a Trade War
(00:03:22) Economics professor gives closer look at expected population growth in Tennessee
(00:06:09) Georgia economy will pick up, boosted by expected rate cuts from Fed, GSU says
(00:08:35) The AI boom is turning traditional economics on its head as tech giants boost spending despite high interest rates
Simply Economics
Trump’s Trade Policy and Economic Risks, Tennessee’s Projected Population Growth
A closer look at Trump's proposed trade policy and the potential economic risks it poses. Plus, an analysis of Tennessee's projected population growth and its implications for the state's demographics and economy. Stay informed about the latest developments in trade and population trends with 'Simply Economics'.Sources:https://www.aei.org/economics/trumps-road-to-a-trade-war/https://www.wbbjtv.com/2024/08/28/economics-professor-gives-closer-look-at-expected-population-growth-in-tennessee/https://www.ajc.com/news/atlanta-news/georgia-economy-will-pick-up-boosted-by-expected-rate-cuts-from-fed-gsu-says/TUVP6CIFGVCKNBLOGDRUDTTERQ/https://africa.businessinsider.com/news/the-ai-boom-is-turning-traditional-economics-on-its-head-as-tech-giants-boost/s8ckercOutline:(00:00:00) Introduction(00:00:40) Trump’s Road to a Trade War(00:03:22) Economics professor gives closer look at expected population growth in Tennessee(00:06:09) Georgia economy will pick up, boosted by expected rate cuts from Fed, GSU says(00:08:35) The AI boom is turning traditional economics on its head as tech giants boost spending despite high interest rates
- Duration:
- 12m
- Broadcast on:
- 28 Aug 2024
- Audio Format:
- mp3
Good morning and welcome to Simply Economics. It's Thursday, August 29th. On today's show, we take a closer look at Trump's road to a trade war and examine the expected population growth in Tennessee. Plus find out how the Georgia economy will be boosted by expected rate cuts from the Fed, according to GSU. Please coverage and more, up next. I'm David, and you're listening to Simply Economics. We start off with Donald Trump's proposed import tariff policy, which is raising concerns among economists who fear a repeat of the disastrous Smoot-Holly Tariff Act of 1930 that deepened the Great Depression. Trump is proposing a 60% tariff on imports from China and 10-20% tariffs on imports from other trade partners. Here to discuss the potential economic impacts is our Simply Economics correspondent. What parallels do you see between Trump's trade proposals and the Smoot-Holly Act? The similarities are indeed striking and concerning. The Smoot-Holly Act imposed high tariffs on most imports, raising the average tariff level from 38.5% to 60%. Rather than protecting American jobs as intended, it caused a collapse in international trade and destroyed many export industries as trade partners retaliated with their own tariff hikes. It also increased domestic production costs and reduced consumer purchasing power. Trump's proposed tariffs, especially the 60% tariff on Chinese imports, risk provoking a similar tit-for-tat trade war at a time of rising economic nationalism worldwide. So this could potentially take us back to the beggar-thy-neighbor trade policies of the 1930s. What other economic risks do Trump's proposed tariffs pose, especially in the current economic climate? With the US economy already slowing and still grappling with inflation, Trump's tariff hikes could be a double whammy, increasing the risk of a recession while adding to inflationary pressures. The Peterson Institute for International Economics estimates the average American household would pay $2,600 more per year in higher taxes under Trump's plan. That would likely slow consumer spending, a key driver of economic growth. Meanwhile, Goldman Sachs projects the tariffs could add at least one percentage point to the inflation rate. Trump argues these tariffs are needed to address the US trade deficit, but you're skeptical they would actually improve the trade balance. Why is that? The US trade deficit fundamentally stems from the gap between our national savings and investment levels. As long as we spend more than we produce, we'll run trade deficits regardless of tariff levels. To seriously tackle the trade deficit, we need to boost savings, starting with shrinking the budget deficit. But ironically, both Trump and his Democratic rival Kamala Harris are proposing budget policies, unfunded tax cuts, and spending hikes respectively, that would likely widen the deficit. Thanks for that insightful analysis on US trade policy, David. Shifting gears to state-level economics, Tennessee's population is projected to reach nearly 8 million people by 2040 according to new estimates. The state is expected to see an increase of roughly 900,000 residents, a 12.6% rise from current levels. For more insight into what this population growth means for Tennessee, we turn to our economics correspondent. What are some of the key demographic trends driving this projected increase? A major factor is the aging of the population. By 2040, the number of Tennessee residents aged 65 and older is expected to jump by 25%, compared to 2022 census estimates. Even more striking, the 75 to 84 age group is projected to spike 36% over that period. As the large baby boomer generation enters their later years, it will have a profound impact on the state's demographics. The projections also show Tennessee becoming increasingly diverse in the coming decades. What can you tell us about that? By 2040, Hispanics and African Americans are expected to make up roughly 60% of the state's total population. Tennessee has seen its diversity increase substantially in recent decades, particularly among the Hispanic population and those identifying as multiracial. Based on these projections, that trend will only continue to accelerate in the years ahead. Where in the state is most of this population growth expected to occur? Are there any notable geographic patterns? Interestingly, while the Nashville metro area accounted for about 60% of the state's net migration between 2010 and 2020, more rural counties are now seeing an influx of new residents too. In just the first three years of this decade, rural areas have already added 39,000 people, which is unprecedented growth for many of those communities. So while the state's urban centers will undoubtedly keep expanding, the demographic landscape of rural Tennessee is poised to shift as well. Even with all this population growth though, the sheer size of the aging baby boomer generation means an increasing number of deaths could start to slow the overall rate of growth. Correct? That's right. As more baby boomers reach their 80s and 90s, the rising number of deaths will begin to be a counterweight to the natural increase from births and net migration. Tennessee will still be gaining a substantial number of new residents, but the pace will likely taper off as the 2040s approach due to the significant demographic shift among the elderly population. Thanks for breaking down those complex, intersecting trends shaping Tennessee's demographic future. Shifting our focus to another state, the Georgia economy is expected to gain momentum in the coming years, according to a new analysis from the Economic Forecasting Center at Georgia State University. The key factor driving this optimistic outlook is the anticipation of a series of interest rate cuts by the Federal Reserve. Here to provide more insight is our correspondent. So what's the projected job growth for Georgia in the next few years? The analysis indicates that with the help of the Fed's expected rate cuts, Georgia will add 71,800 jobs in 2025 and over 90,000 jobs in 2026. However, the Director of the Economic Forecasting Center, Rajeev Dawn, cautions that without assertive rate cuts, there is a significant risk of an economic downturn. He emphasizes the need for the Fed to be aggressive in their actions to ensure a soft landing for the economy. How does the current job growth in Georgia compare to previous years, and what sectors are seeing the most growth? Over the past 12 months, Georgia has added about 78,000 jobs, which is a much slower pace compared to the two previous years. Dewan points out that it's not just about the number of jobs, but also the quality of those jobs. A disproportionate share of the new positions are in the hospitality and health care sectors. Less than 10% of the job growth in the past nine months has been in high-paying sectors such as corporate, manufacturing, finance, wholesale and information technology. How do high-interest rates impact the economy, and what are the concerns for small businesses in particular? High-interest rates, which are the result of the Fed's campaign to curb inflation in 2022 and 2023, increase borrowing costs for both consumers and companies. This discourages spending, expansion and hiring, and has historically often led to recessions. For small businesses, interest rates have become a much more significant concern. According to Holly Wade from the National Federation of Independent Business, interest rates have jumped from being the 40th most pressing issue four years ago, to now being the 13th on the list of concerns for small companies. It's clear that the trajectory of Georgia's economy in the coming years will heavily depend on the actions taken by the Federal Reserve. The analysis from Georgia State University's Economic Forecasting Center provides a glimpse into the potential outcomes, but only time will tell how it all unfolds. Speaking of the Federal Reserve's actions, despite their aggressive interest rate hikes, megacap tech giants are continuing to spend record amounts on capital expenditures, particularly in the field of artificial intelligence. Typically, higher rates tend to slow capex spending, but the opportunities presented by AI seem to be too enticing for these companies to pass up. Here to discuss this further is our economics correspondent. So why are these tech giants still spending big on AI, despite the high interest rates? Well, David, it really comes down to the immense potential that these companies see in AI technologies. Even though borrowing costs have increased due to the Fed's rate hikes, the likes of Amazon, Alphabet, Meta, and Microsoft believe that the long-term benefits of investing heavily in AI will far outweigh the short-term costs. They see AI as a transformative technology that could revolutionize industries and create entirely new markets, so they're willing to spend big now to gain an early advantage and reap the rewards later on. That's a good point, and this heavy spending by the tech giants is actually having an impact on the effectiveness of the Fed's monetary policy, right? Absolutely. Normally, when the Fed raises rates, it puts downward pressure on business investment as the cost of capital increases, but in this case, the appetite for AI investment is so strong that it's somewhat negating the intended effects of the rate hikes. As Apollo's chief economist Torsten S.L. Can noted, this is weakening the monetary policy transmission mechanism, meaning that the Fed's actions are having less of an impact on business decisions than they typically would. And it doesn't seem like this AI spending spree is going to slow down anytime soon. Does it? No. It certainly doesn't. In fact, Morgan Stanley's research indicates that the major tech companies are on track to generate massive amounts of operating cash flow in the coming years, giving them even more resources to pour into AI development. With profit trends looking favorable and the average AI capex to EBITDA ratio sitting around 40%, these companies have both the means and the motivation to keep investing hang heavily in this space. It will be interesting to see how this all plays out, especially with the possibility of rate cuts on the horizon. Could that add even more fuel to the AI capex boom? It's certainly possible. If borrowing costs come down, it could make these investments even more attractive and encourage the tech giants to double down on their AI spending. Of course, there are always risks involved with any major investment, but given the potential upside of AI, it seems likely that these companies will continue to prioritize it in their capex budgets. The race to dominate the AI landscape is well underway, and no one wants to be left behind. It's a fascinating development to watch, and one that could have major implications for both the tech industry and the broader economy. Thank you for your insights today, and with that, we wrap up our stories for today. Thanks for listening to Simply Economics, we'll see you back here tomorrow. [MUSIC] [BLANK_AUDIO]