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The Unintended Consequences of Trump’s Tariff Strategy · Trumponomics

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: Your sense is right that this is the path we're
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  Speaker 2: heading where these tariffs will stay. And in fact, the
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  Speaker 2: milted treatment's criticism of government intervention, which is that once
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  Speaker 2: you start, it's hard to sunset anything.
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  Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
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  Speaker 3: and this is trump Anomics, the podcast that looks at
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  Speaker 3: the economic world of Donald Trump, how he's already shaped
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  Speaker 3: the global economy and what on earth is going to
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  Speaker 3: happen next. And this week we're zoning in again on trade.
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  Speaker 3: I mean, we've all been through another round of tariff
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  Speaker 3: deadlines in the last few days. There's a bunch of
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  Speaker 3: countries around the world feeling could have been worse, Others
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  Speaker 3: facing a severe case of tariff sticker shock, for example,
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  Speaker 3: who have the misfortune of running a thirty eight billion
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  Speaker 3: dollar trade surplus with the US. The Swiss president's actually
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  Speaker 3: in the air to Washington as we record this on Tuesday,
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  Speaker 3: the fifth of August, and she's hoping to negotiate down
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  Speaker 3: the shocking thirty nine percent tariff rate that is otherwise
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  Speaker 3: going to kick in on August seventh. So all these
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  Speaker 3: months of so called trade talks between the US and
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  Speaker 3: its trading partners have been messy and not always about trade.
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  Speaker 3: For the negotiators charged with striking a deal with the US,
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  Speaker 3: you have to think pride and points at principle were
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  Speaker 3: often the first to go. But what do all these
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  Speaker 3: deals and understandings actually add up to, and how is
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  Speaker 3: the global economy going to be affected? What difference has
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  Speaker 3: it made to the impact on ordinary US consumers that
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  Speaker 3: more than a trillion dollars worth of US imports have
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  Speaker 3: been exempted from tariffs, sometimes very openly, often for reasons
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  Speaker 3: that are not entirely transparent. Those are a lot of
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  Speaker 3: weighty questions, and I have one of my favorite double
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  Speaker 3: acts to answer them, sitting in Washington, DC today, Sean Donnan,
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  Speaker 3: senior correspondent on the US and Global economy for Bloomberg Sewan,
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  Speaker 3: fantastic to have you back.
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  Speaker 1: Oh it's great to be here.
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  Speaker 3: And again Anna Wong, chief US economist at Bloomberg Economics,
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  Speaker 3: who's worked at the FED and served in the Trump
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  Speaker 3: White House between twenty nineteen and twenty twenty, once comment
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  Speaker 3: at the Council of Economic Advisors. Hi, Anna, happy to
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  Speaker 3: be here.
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  Speaker 2: Of Stefan.
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  Speaker 1: Sean.
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  Speaker 3: Of course, China is a bit of an exception to this,
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  Speaker 3: and we'll get on to it. We have not seen
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  Speaker 3: a formal deal there, and the deadline may well be
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  Speaker 3: pushed head again. But stepping back from that big exception,
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  Speaker 3: if this was said to be a bit of a
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  Speaker 3: shakedown by the US, I mean, it seems to have
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  Speaker 3: been quite successful, right. I mean, by and large, the
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  Speaker 3: US hasn't really chickened out, as the claim was often made,
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  Speaker 3: but the rest to the world it's sort of carved in.
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  Speaker 3: That's the impression, Is that right?
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  Speaker 1: I think so far, I think that's right, Although I
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  Speaker 1: think what we have to keep in mind is that
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  Speaker 1: we really haven't seen any final text to any of
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  Speaker 1: these agreements. There's still a lot of big issues to
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  Speaker 1: be worked out. All of these things could fall apart
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  Speaker 1: at a moment's noticed or in a single social media
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  Speaker 1: post from President Trump. But essentially what we've seen is
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  Speaker 1: President Trump take another step and cementing in these new
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  Speaker 1: higher tariffs. I think one of the things that's fascinating
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  Speaker 1: is how he's changed the way we talk about these things.
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  Speaker 4: Coming into this week, people have talked about, Oh, the
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  Speaker 4: EU has managed to negotiate a fifteen percent tariff, and
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  Speaker 4: that's down from a thirty percent tarifwill actually the tariff
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  Speaker 4: is going up from ten percent to fifteen percent on
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  Speaker 4: imports from the European.
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  Speaker 1: Union, and of course it was much much lower than
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  Speaker 1: that as recently as January of this year. So look,
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  Speaker 1: President Trump is putting a tarffwall around the United States.
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  Speaker 1: It's a tariff wall that added some layers. It's also
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  Speaker 1: got a few doors through it and the exemptions that
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  Speaker 1: you mentioned. But the project is successful, at least if
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  Speaker 1: you're judging it on the political side. And I think
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  Speaker 1: this is where we move into a different phase, and
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  Speaker 1: that's the economics of this project, and that's where we're
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  Speaker 1: just now starting to get the first data that raises
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  Speaker 1: some questions over whether or not Trump is going to
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  Speaker 1: be able to bring in this golden age that he
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  Speaker 1: has promised to the American people and deliver the reindustrialization
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  Speaker 1: of America, a new era of American I guess exceptionalism,
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  Speaker 1: although of a different kind.
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  Speaker 3: I would say, we're definitely going to get into the
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  Speaker 3: impact on the US in a minute. I guess we'd
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  Speaker 3: have to say. I mean, if Donald Trump is one
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  Speaker 3: free trade definitely lost so it just remind us when
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  Speaker 3: you're thinking about when you say we've put the wall
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  Speaker 3: around the US, just updatus on where tariffs are now
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  Speaker 3: relative to for Donald Trump took office, because as you
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  Speaker 3: point out, there's been a sort of expectations of management
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  Speaker 3: along the way. We had those announcements in the Rose
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  Speaker 3: Garden on April second, which kind of puts some very
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  Speaker 3: high numbers, and now the numbers look a bit smaller,
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  Speaker 3: but they're still a lot higher than they were a
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  Speaker 3: year ago.
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  Speaker 1: Absolutely, or a lot higher than they were six seven
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  Speaker 1: months ago. We came into this year with the average
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  Speaker 1: applied ter freight in the United States sitting are out
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  Speaker 1: somewhere between two and three percent. It is now sitting
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  Speaker 1: somewhere around fifteen percent, and it's threatening to go higher. Still.
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  Speaker 1: We still are waiting for sectoral tariffs to be announced
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  Speaker 1: on pharmaceuticals, semiconductors, lumber and all the things that are
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  Speaker 1: made of lumber that include semiconductors, and so there's a
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  Speaker 1: lot more tariffs to come potentially. To put that in
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  Speaker 1: historical context, these are the highest tariff in almost one
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  Speaker 1: hundred years. Nothing like this has happened since nineteen thirty
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  Speaker 1: and the smooth Holli terror at the time.
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  Speaker 3: Our economists have working in the sort of trade modeling
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  Speaker 3: which strakes from everything and just says, other things being equal,
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  Speaker 3: that there's a global impact of this kind of tariff
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  Speaker 3: shock of maybe two trillion dollars by the end of
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  Speaker 3: twenty twenty seven. Output that would have happened, trade that
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  Speaker 3: would have happened, that's not going to happen. But Anna,
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  Speaker 3: I know in the short run you see some powerful
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  Speaker 3: offsetting factors or maybe one in particular that's helping to
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  Speaker 3: offset that shock at at least for the short term,
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  Speaker 3: and it has really made a difference to the way
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  Speaker 3: we perceive the impact.
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  Speaker 2: Yeah, So Stephanie, I would call that the dog that
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  Speaker 2: did not bark in this whole forecast that US tariff
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  Speaker 2: trade war would plunge the world into slower growth is
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  Speaker 2: the dollar. So in all these economic models, internally, what
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  Speaker 2: the model forecast also is that the dollar would appreciate
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  Speaker 2: in response to tish And that's because when there's higher
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  Speaker 2: to import volume is supposed to decrease. As import volume decreased,
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  Speaker 2: than the demand of US firms for foreign currency falls,
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  Speaker 2: and therefore the relative demand supply of dollar would be
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  Speaker 2: shifting in favor of appreciation the dollars since there's relatively
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  Speaker 2: less outflows. Instead, the dollar has depreciated by about ten
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  Speaker 2: percent year to date, and for one of the biggest
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  Speaker 2: targets of this trade wars China, right, and China's remen
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  Speaker 2: be actually stayed pretty constant vis are the US, which
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  Speaker 2: means that China's currency has actually depreciated against the rest
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  Speaker 2: of the world by double digit in the past six months.
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  Speaker 2: For example, it has depreciated against the Europe by ten percent,
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  Speaker 2: And so what we're seeing therefore, China's growth is better
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  Speaker 2: than expected because whether be it transhipments or trade diversion,
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  Speaker 2: it is able to export to other countries more. The
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  Speaker 2: dollar depreciation also loosened global financial conditions. So what we're
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  Speaker 2: seeing is in any ems, you're seeing a lot more
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  Speaker 2: capital inflows. This whole Cell America thing led to a
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  Speaker 2: lot of capital outflows in search of new homes and
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  Speaker 2: many lended in emerging markets. And on my trip to
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  Speaker 2: Hong Kong earlier, what I saw and what I heard
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  Speaker 2: is that the first half of this year had been
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  Speaker 2: really good for Hong Kong as an international financial center
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  Speaker 2: because of all these deals that are coming from China
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  Speaker 2: to the Hong Kong stock market. It's just like the
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  Speaker 2: dollar depreciation has really loosen global financial conditions. So all
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  Speaker 2: of that has basically currently delayed the adjustment that all
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  Speaker 2: these models would be expecting to happen as a result
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  Speaker 2: of trade war.
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  Speaker 3: That is interesting. So there was a feeling that the
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  Speaker 3: dollar was going to go up, that's what the model said.
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  Speaker 3: And when the dollar's high, it's sucking in investment to
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  Speaker 3: the US from the rest of the world, and that's
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  Speaker 3: kind of tightening for the rest of the world because
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  Speaker 3: the dollars actually fallen because people are moving money out
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  Speaker 3: of the US, or at least not putting it in
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  Speaker 3: as much. It's sending liquidity out into the world, and
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  Speaker 3: that's making financial conditions easier for everyone else. They don't
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  Speaker 3: have to have interest rates as high to track money
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  Speaker 3: if you're an emerging market economy, and it's definitely making
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  Speaker 3: things a bit easier for the central banks in that economy.
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  Speaker 3: But you also you had something crucial about China in
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  Speaker 3: that discussion, because you were pointing out that because of
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  Speaker 3: the way the Chinese currency is fixed to the dollar.
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  Speaker 3: You know, bizarrely, you've had the America become more competitive
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  Speaker 3: and China's just become more competitive along with it. And
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  Speaker 3: I know you spent that time in the Council of
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  Speaker 3: Economic Advisors and the Trump's first administration. Did Donald Trump
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  Speaker 3: have an understanding that as the dollar goes down, it's
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  Speaker 3: actually also helping the Chinese.
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  Speaker 2: Well, first of all, President Trump loves a week dollar.
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  Speaker 2: We were examining his tweets back then, and aside from
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  Speaker 2: constantly tweeting about power, the next thing that he really
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  Speaker 2: loves talking about is week dollar. And I think from
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  Speaker 2: the perspective of the Trump administration, a week dollar is
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  Speaker 2: part of the state craft, which is too onshore manufacturing.
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  Speaker 2: To ensure there's a manufacturing based in the US, you
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  Speaker 2: have to have a week dollar. I do think that
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  Speaker 2: the administration actually favors a week dollar.
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  Speaker 3: But they presumably don't favor a more competitive China. So
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  Speaker 3: what's going to be the policy there?
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  Speaker 2: Yes, that is an unintended consequence. So somebody like Brad
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  Speaker 2: Setzer from Council for Foreign Relations have really looked into
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  Speaker 2: the intervention practice of China, and he has noted that
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  Speaker 2: China has been interviewing through state banks, and so China
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  Speaker 2: is actually responding to this trade war in a lot
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  Speaker 2: of very smart ways, and its found a way to
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  Speaker 2: keep exporting. And that is something that I don't think
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  Speaker 2: the calculus of the administration was able to cover. If
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  Speaker 2: they were able to make other country not retaliate, as
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  Speaker 2: you mentioned earlier, are the other countries ky, but they
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  Speaker 2: were not able to stop China from keeping their currency
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  Speaker 2: from appreciating.
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  Speaker 3: Yes, if you want chapter reverse on that. My old
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  Speaker 3: friend Brad's analysis is always he understands the ins and
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  Speaker 3: out of China's balance of payments better than I think
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  Speaker 3: anybody on the planet, certainly better than anyone in this core.
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  Speaker 3: But I mean, Sean, you had a couple of big
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  Speaker 3: pieces in the last week or so that we're talking
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  Speaker 3: through different elements of this, and that's the sort of macro.
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  Speaker 3: I mean, there's a micro to this, which is individual
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  Speaker 3: companies scrambling to deal with the tariff rates that very
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  Speaker 3: much do affect them or stand to affect them. And
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  Speaker 3: you had picked on the tomato exporters in Mexico as
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  Speaker 3: one example, and how they're just trying to grapple with
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  Speaker 3: what's happening.
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  Speaker 1: There's the world of the models, and then there's the
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  Speaker 1: real world, which is a lot messier and that is
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  Speaker 1: full of unintended consequences. We're talking about the impact of
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  Speaker 1: the dollar, and the traditional view is that yes, a
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  Speaker 1: week or dollar dollar is good for American manufacturers. Well,
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  Speaker 1: fifty percent of all imports into the United States are
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  Speaker 1: inputs that go into products that are manufactured in the
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  Speaker 1: United States. When you have a weeker dollar, they become
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  Speaker 1: more expensive and US manufacturing actually becomes less competitive on
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  Speaker 1: that front. And that's the messiness and reality of global
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  Speaker 1: supply chains. And you see that around Mexican tomatoes, which
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  Speaker 1: also can be Arizona and tomatoes as well. So there's
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  Speaker 1: a company called Nature Sweet. It is the essentially the
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  Speaker 1: biggest greenhouse tomato grower in North America. It does a
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  Speaker 1: lot of it's growing in Mexico. It also has a
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  Speaker 1: big facility. It's about thirty football fields of green couses
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  Speaker 1: in Arizona in which it's grown. Think you're growing lots
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  Speaker 1: of tomatoes. These are what they call snacking tomatoes, the
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  Speaker 1: kind of cherry tomatoes and great tomatoes, the multicolored things
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  Speaker 1: that you put in your salad at home. What they
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  Speaker 1: are caught between is the tariffs and their future plans
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  Speaker 1: to grow their production in the United States, all of
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  Speaker 1: which are being affected by tariffs and the policy. So,
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  Speaker 1: first of all, President Trump has restored a seventeen percent
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  Speaker 1: tariff on tomatoes from Mexico, So that is literally a
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  Speaker 1: million dollars a week in additional costs to Nature Suite
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  Speaker 1: on its imports from Mexico. But at the same time,
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  Speaker 1: you have all of these other tariffs that are affecting
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  Speaker 1: all of these other inputs that they use at their
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  Speaker 1: facility in Arizona. They had a plan to start expanding
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  Speaker 1: that facility from thirty football fields to seventy two football
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  Speaker 1: fields of greenhouses, a big multimillion dollar investment there, but
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  Speaker 1: now they're looking at that investment and they're putting it
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  Speaker 1: on hold. Why because most greenhouse technology comes from the
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  Speaker 1: Netherlands or Israel, so you're importing things to build those
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  Speaker 1: new greenhouses. Also, all the inputs, and I did not
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  Speaker 1: know this, all the things that you need to grow
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  Speaker 1: tomatoes in greenhouses are in fact imported. So they don't
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  Speaker 1: grow these tomatoes and soil. They grow them in coconut husks.
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  Speaker 1: Where do those coconut husks come from. They come from
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  Speaker 1: Sri Lanka, Guess what, they've got a tariff on them.
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  Speaker 1: Where do they get their fertilizer from, Well, it comes
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  Speaker 1: from Chile. Nowadays, guess what, it's got a tariff on it.
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  Speaker 1: Where do the seeds come from. The seeds come from
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  Speaker 1: Europe and Israel. Guess what, they've got tariffs on them.
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  Speaker 1: And so all of a sudden, the economics both importing
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  Speaker 1: the finished product in these tomatoes has changed, but also
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  Speaker 1: the economics of investing in the United States and increasing
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  Speaker 1: production in the United States have changed materially. And as
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  Speaker 1: the CEO of Nature Street told me, that's just the
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  Speaker 1: world that we live in. And by the way, his
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  Speaker 1: main competitors at this time of year are in Canada.
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  Speaker 1: You know what, they don't have any tariffs on their inputs,
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  Speaker 1: and they're going to be more competitive even if you
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  Speaker 1: have a tear on Canadian tomatoes coming into the United States,
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  Speaker 1: at least until the Canadian winter sets in and they
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  Speaker 1: have more trouble growing tomatoes. And I think we're seeing
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  Speaker 1: that replicated in all sorts of different ways. It's Japanese
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  Speaker 1: auto parts makers, it's Chinese manufacturers, it's French wine producers.
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  Speaker 1: There are all of these effects around the world. A
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  Speaker 1: lot of them just unintended consequences, and that's we're really
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  Speaker 1: starting to see happen in the real economy, and that's
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  Speaker 1: going to start filtering through into the data.
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  Speaker 3: That's fascinating. I mean, I guess we should thank Donald
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  Speaker 3: Trump at the very least for having kind of lifted
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  Speaker 3: the hood or forced us to kind of look under
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  Speaker 3: the hood of the global economy. I know you spent
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  Speaker 3: your life under the hood of the global economy, sure,
• 15:44
  Speaker 3: but just to get a sense of how complicated and
• 15:48
  Speaker 3: intertwined all of these supply chains are. And in case
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  Speaker 3: anyone's wondering, I am half American, so I can say
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  Speaker 3: tomato and tomato. But Anna, we know that there's been
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  Speaker 3: this sort of micro complexities for individual companies, but at
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  Speaker 3: the same level, there's been this sort of broader sort
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  Speaker 3: of tailwind that people have had from a week a dollar,
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  Speaker 3: which has made people feel slightly better than they might
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  Speaker 3: otherwise have done. But let's just quickly turn the lens
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  Speaker 3: on the US. I mean, we discussed recently, I think
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  Speaker 3: with Orang cass about why tariffs might not have the
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  Speaker 3: sort of significant effect on inflation that some people had
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  Speaker 3: talked about, but they're clearly is an effect on the
• 16:26
  Speaker 3: US economy, and it seems like we may have seen
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  Speaker 3: some of that in the controversial revisions to the job
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  Speaker 3: data last week. So just talk us through where you
• 16:35
  Speaker 3: think we are in terms of the impact on the US.
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  Speaker 2: Last Friday, we had July payroll data and it came
• 16:42
  Speaker 2: with a shockingly massive downward revisions to June and May's
• 16:47
  Speaker 2: jobs data. So now the three months moving average of
• 16:51
  Speaker 2: job growth from May to July is only thirty five
• 16:55
  Speaker 2: k as opposed to just before last Friday, everybody thought
• 17:00
  Speaker 2: three month job growth was really at one hundred and
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  Speaker 2: fifty thousand. So that's like an order of actitude of
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  Speaker 2: five lower. So the last Friday's jobs report really flipped
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  Speaker 2: the narrative of is the US labor mark holding up
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  Speaker 2: Donald trup to flip as well. Yes, And when you
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  Speaker 2: look at the details of these downward revisions, they came
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  Speaker 2: from sectors which one would have thought would indeed be
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  Speaker 2: affected by this policy shock. So two months ago we
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  Speaker 2: had written a piece about how Liberation Day and all
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  Speaker 2: these other policies is going to generate a blood bath
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  Speaker 2: in the nonfarm payroll for May and June. We thought
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  Speaker 2: that three sectors affected would be leisure in hospitality, which
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  Speaker 2: is affected by the reduced TOURUS coming to the US,
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  Speaker 2: part of the Cell America narrative, construction sector from the
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  Speaker 2: high ten year yields since the Liberation Day, and of
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  Speaker 2: course logistics sector as trade flows comes down. For the
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  Speaker 2: last couple of months it seemed like those three sectors
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  Speaker 2: were holding up. The last Friday's revisions show that in
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  Speaker 2: fact they did not. These three sectors were not holding up.
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  Speaker 2: And then additionally, I think the way to think about
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  Speaker 2: these revisions is that they bring questions. But whether it
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  Speaker 2: is those revisions could be revised up again in the
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  Speaker 2: next month possible also, But right now these are the
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  Speaker 2: earliest science that in fact the trade war is causing
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  Speaker 2: a crack in the labor market, and I would characterize
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  Speaker 2: them as early and tentatives because there are other issues
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  Speaker 2: related to how BLS is, whether they're accurately measuring the payrolls,
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  Speaker 2: and it's entirely possible that next month will see and
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  Speaker 2: upward revisions to those data.
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  Speaker 3: Recondiss of who has come in to run the Bureau
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  Speaker 3: of Labor Statistics Molly Smith, who's been on this show,
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  Speaker 3: but others have written quite a lot about the funding
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  Speaker 3: issues at the BLS, and also the issue that many
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  Speaker 3: other statistical agencies have had with surveys and getting people
• 19:05
  Speaker 3: to respond promptly or at all in a world certainly
• 19:09
  Speaker 3: post COVID. We're covering a lot of ground here, but
• 19:11
  Speaker 3: I did want to get to potentially one of the
• 19:14
  Speaker 3: reasons another reason why it's hard to read the impact
• 19:20
  Speaker 3: on the US economy of tariffs, and that's the large
• 19:23
  Speaker 3: chunk of imports that's been exempted one way or another. Sure,
• 19:28
  Speaker 3: you've done a fascinating analysis that we brought out last
• 19:31
  Speaker 3: week that adds up the numbers and finds over a
• 19:35
  Speaker 3: trillion dollars worth of imports one way or another has
• 19:38
  Speaker 3: been exempted by Donald Trump from any kind of tariffs
• 19:41
  Speaker 3: so far.
• 19:42
  Speaker 1: Though.
• 19:42
  Speaker 3: We may have even news on one of the sectors
• 19:45
  Speaker 3: in the next few days. But just talk us through
• 19:47
  Speaker 3: just the sort of headlines of your investigation.
• 19:49
  Speaker 1: Yeah. Look, I mean, one of the real differences in
• 19:52
  Speaker 1: at least the language around the tariffs this time versus
• 19:56
  Speaker 1: during Trump's first term is that there has not been
• 20:00
  Speaker 1: way for companies in the United States to kind of
• 20:03
  Speaker 1: plead their case for tariff relief. What's called an exclusions process.
• 20:07
  Speaker 1: Right in the first term, when it came to the
• 20:09
  Speaker 1: tariffs that were applied on steel and aluminum and goods
• 20:12
  Speaker 1: from China, companies could go to the government and say, look,
• 20:15
  Speaker 1: I can't get this anywhere else. This isn't made in
• 20:17
  Speaker 1: the United States. All you're doing is hurting my business.
• 20:21
  Speaker 1: I can't find these things outside of China and win
• 20:25
  Speaker 1: an exclusion at least temporarily from the tariffs. And it
• 20:28
  Speaker 1: was a very transparent process. We could see the applications
• 20:32
  Speaker 1: and the decisions on the website. You can still, if
• 20:34
  Speaker 1: you're interested to this day, go to the USTR website
• 20:37
  Speaker 1: and dig up these exclusions. There were more than fifty
• 20:40
  Speaker 1: thousand applications, by the way, for tariff relief just from
• 20:45
  Speaker 1: the China tariffs in the first term. This time around,
• 20:48
  Speaker 1: President Trump has said no, we're not going to have
• 20:50
  Speaker 1: any exclusions. Well, in fact, on Liberation Day April second,
• 20:55
  Speaker 1: when you put out an executive order ordering up these
• 20:58
  Speaker 1: new tariffs on on goods from all over all over
• 21:01
  Speaker 1: the world, there was a thirty seven page annex to
• 21:04
  Speaker 1: the executive order that had more than a thousand tariff
• 21:07
  Speaker 1: codes that were in fact exempted from those tariffs. The
• 21:10
  Speaker 1: administration will tell you, well, those will eventually be subject
• 21:14
  Speaker 1: to other tariffs, to sectoral tariffs, but at least temporarily
• 21:19
  Speaker 1: you have this exclusion. That's quite a lucrative exclusion for
• 21:22
  Speaker 1: a lot of companies. They then followed up on April eleventh,
• 21:25
  Speaker 1: they added in a lot of consumer technology products. That's
• 21:29
  Speaker 1: when smartphones, for example, became exempted from the tariffs. So
• 21:33
  Speaker 1: Apple's iPhone production in China faces a lower tariff than
• 21:38
  Speaker 1: lots of other products that are that are coming from China.
• 21:42
  Speaker 1: That may change in the future depending on how you
• 21:45
  Speaker 1: apply semiconductor the tariffs that President Trump is promising, but
• 21:50
  Speaker 1: it's a major exclusion on a major consumer product, and
• 21:52
  Speaker 1: it's the type of thing that actually the President stayed
• 21:55
  Speaker 1: away from tariffing in the first administration because they wanted
• 21:58
  Speaker 1: to reduce the impact on consumers. When you add all
• 22:02
  Speaker 1: of this up, this whole universe of excluded products, you
• 22:04
  Speaker 1: get to like something close to one point two trillion dollars,
• 22:07
  Speaker 1: about seven one hundred and fifty billion dollars of that
• 22:10
  Speaker 1: is these Liberation Day tariff exclusions. And then there's also
• 22:13
  Speaker 1: all these products in North America that are subject to
• 22:16
  Speaker 1: the US Mexico Canada Agreement which used to be known
• 22:20
  Speaker 1: as NAFTA, and President Trump, after initially imposing tariffs on
• 22:25
  Speaker 1: Canada and Mexico, said well, actually, what we're going to
• 22:28
  Speaker 1: do is we're not going to apply that to products
• 22:30
  Speaker 1: that fits the bill on this US and Mexico Canada agreement.
• 22:34
  Speaker 1: And that's like four hundred billion dollars in trade there
• 22:37
  Speaker 1: that's excluded. Add it all up, and it's a third
• 22:40
  Speaker 1: of all imports into the United States that are now
• 22:43
  Speaker 1: excluded from tariffs. And that obviously has a meaningful impact
• 22:47
  Speaker 1: on consumer prices and the effect on consumer prices on
• 22:51
  Speaker 1: the overall economic effect. And we're going to get more
• 22:53
  Speaker 1: of this to come.
• 22:55
  Speaker 3: But Sean, I think a lot of people would say, Okay,
• 22:58
  Speaker 3: there's a whole segment of the market which have been exempted,
• 23:01
  Speaker 3: and that may be unfair, you know, if you're making
• 23:04
  Speaker 3: in China and you're facing a big tariff if you're
• 23:06
  Speaker 3: making a certain kind of good, but not if you're
• 23:08
  Speaker 3: making an iPhone. But at least it applies to all
• 23:11
  Speaker 3: companies in a given sector. Do you have a sense
• 23:14
  Speaker 3: when you're looking at some of the sort of smaller exemptions,
• 23:17
  Speaker 3: are there cases where it seems to be company by
• 23:19
  Speaker 3: company or where they're sort of implicitly companied by company
• 23:22
  Speaker 3: because of the way the exemption has been designed. Do
• 23:25
  Speaker 3: most of these still take the form of a whole
• 23:27
  Speaker 3: market segment rather than just a single business person getting
• 23:32
  Speaker 3: a break.
• 23:33
  Speaker 1: Yes and no, right, I mean it depends what you make.
• 23:36
  Speaker 1: As a consumer technology product, for example, it depends what
• 23:41
  Speaker 1: you make. And this is where tariff codes get incredibly specific,
• 23:46
  Speaker 1: and by choosing one tariff code over another, you can
• 23:50
  Speaker 1: really have an impact on different companies. The great example
• 23:53
  Speaker 1: in technology is game consoles. Game consoles have not been
• 23:58
  Speaker 1: excluded from tariffs, so your Microsoft or Nintendo, your product
• 24:03
  Speaker 1: becomes significantly more more expensive to import. And that's kind
• 24:06
  Speaker 1: of key product.
• 24:08
  Speaker 3: And most people when you hear consumer electronics, you would
• 24:10
  Speaker 3: probably think that those were included in that life exactly exactly.
• 24:13
  Speaker 1: And then you get into kind of smaller accessories and
• 24:16
  Speaker 1: it gets more complicated. Yes, there are smartphones or excluded,
• 24:19
  Speaker 1: laptops are excluded and so, but then it gets incredibly
• 24:23
  Speaker 1: finicky into you know, inputs like nylon, certain polymers, things
• 24:28
  Speaker 1: like rubber. There's you know, one type of graphite that
• 24:32
  Speaker 1: is excluded and one type that isn't excluded. I mean,
• 24:35
  Speaker 1: imports of cocaine that are done legally are right now
• 24:39
  Speaker 1: under the state of terraffs excluded from new terraffs. While obviously,
• 24:43
  Speaker 1: and this is the case of American Textile imports of
• 24:47
  Speaker 1: the pillow shells. The American Textile makes bed pillows and
• 24:51
  Speaker 1: other betting products, but the shells that they import from
• 24:55
  Speaker 1: China and India and Pakistan are subject to severe tarf
• 24:58
  Speaker 1: So you know, no turffs on co can. Asbestos, by
• 25:01
  Speaker 1: the way, is also excluded, and you have terts. And
• 25:03
  Speaker 1: what you've created is a very murky system. Now, and
• 25:07
  Speaker 1: this is what economs will tell you. The terriffs do
• 25:10
  Speaker 1: is that they create distortions in the market, but they
• 25:12
  Speaker 1: also create this kind of favor system, and they create
• 25:16
  Speaker 1: perceived unfairness as consumers of steel get whacked while producers
• 25:24
  Speaker 1: of steel get protected, right and and so you know,
• 25:28
  Speaker 1: American Textile is an interesting company and that they've taken there.
• 25:31
  Speaker 1: They've managed to get all the way into the White House,
• 25:33
  Speaker 1: and they've had meetings at the White House and all
• 25:35
  Speaker 1: along the way they say they've been told they're a
• 25:38
  Speaker 1: victim of unintended consequences. This isn't what was what intended?
• 25:42
  Speaker 1: You know what was intended. It's so interesting.
• 25:45
  Speaker 3: Every topic is a is a is a rabbit hole. Anna,
• 25:48
  Speaker 3: But I am going to slightly put you on the
• 25:49
  Speaker 3: spot because there's a CNBC interview that Donald Trump has
• 25:52
  Speaker 3: been doing, and I know my colleagues have been avidly
• 25:55
  Speaker 3: watching for news, and one of the things that has
• 25:58
  Speaker 3: come out of it is Donald Trump saying that US
• 26:01
  Speaker 3: tariffs on semiconductor and pharmaceutical imports will be announced within
• 26:05
  Speaker 3: the next week or so quote, and he says, we'll
• 26:08
  Speaker 3: be putting this is I thought was interesting, Anna, will
• 26:10
  Speaker 3: be putting an initially small tariff on pharmaceuticals, but in
• 26:14
  Speaker 3: one year, one and a half years, max, it's going
• 26:17
  Speaker 3: to go to one hundred and fifty percent, and then
• 26:18
  Speaker 3: it's going to go to two hundred and fifty percent
• 26:20
  Speaker 3: because we want pharmaceuticals made in our country. He said
• 26:24
  Speaker 3: that as say, Tuesday morning, in an interview. I mean,
• 26:27
  Speaker 3: what's striking to me, Anna, is that one of the
• 26:29
  Speaker 3: criticisms of his policy up till now has been this
• 26:34
  Speaker 3: that if you wanted to actually move production, it seemed
• 26:38
  Speaker 3: like you should have a delayed timetable for tariffs, because
• 26:41
  Speaker 3: how are you going to build all these factories in
• 26:43
  Speaker 3: a month or three months in order to avoid those tariffs?
• 26:48
  Speaker 3: Very early days obviously, but is there a sign that
• 26:50
  Speaker 3: he's kind of taken on that argument with this approach
• 26:53
  Speaker 3: to pharmaceuticals if this is what we end up seeing.
• 26:56
  Speaker 2: Yeah, with pharmaceutical if that's what we end up seeing,
• 26:59
  Speaker 2: it's seems like he does. And we have looked into
• 27:02
  Speaker 2: the quantity of stockpiling for pharmaceuticals, and we estimate that
• 27:07
  Speaker 2: US firms have stockpiled enough for at least a year
• 27:12
  Speaker 2: as of now for pharmaceuticals. So even without that, the
• 27:16
  Speaker 2: pharmaceutical industry has a year, and now with that they
• 27:19
  Speaker 2: have bought themselves ten years.
• 27:21
  Speaker 1: Yeah. Yeah.
• 27:23
  Speaker 3: There's also some suggestion he's talking about semiconductors and chips,
• 27:26
  Speaker 3: but which is a separate category. I think that's right,
• 27:30
  Speaker 3: he says, But as Shorten reminds me, the categories can
• 27:33
  Speaker 3: get much much smaller than that.
• 27:35
  Speaker 1: There's also a key question, which is how these things
• 27:37
  Speaker 1: are applied. Right, So one of the big exclusions that
• 27:40
  Speaker 1: we've seen creep in to the deal with the European Union,
• 27:43
  Speaker 1: for example, is an exclusion on tariffs for generic drugs. Now, again,
• 27:48
  Speaker 1: when we see these pharmaceutical sectoral tariffs, will they apply
• 27:51
  Speaker 1: to generic drugs as well? People in the generic drug
• 27:54
  Speaker 1: industry say, the economics of producing those which are incredibly
• 27:57
  Speaker 1: low margin products in the United States, it's you'd rather
• 28:01
  Speaker 1: just swallow the tariffs. They're not just there. So we're
• 28:04
  Speaker 1: going to be looking for those exclusions on the semiconductor side.
• 28:07
  Speaker 1: All of these sectoral tariffs, they've applied to what they
• 28:09
  Speaker 1: call derivative products as well. Right, so things that include semiconductors,
• 28:14
  Speaker 1: including that Apple smartphone, which has not been subject to
• 28:18
  Speaker 1: the Liberation Day tariffs, but maybe subject to the semiconductor
• 28:23
  Speaker 1: The question becomes, how do you compute it. Is it
• 28:26
  Speaker 1: a tariff of twenty five percent on the entire value
• 28:30
  Speaker 1: of the smartphone or is it a twenty five percent
• 28:33
  Speaker 1: tariff on the value of the chips inside the smartphone.
• 28:37
  Speaker 1: That's a very different proposition, and you can guess which
• 28:41
  Speaker 1: one Apple was pushing for.
• 28:43
  Speaker 3: I've had conversations here in the UK with people who
• 28:45
  Speaker 3: was struggling when the aluminium tariffs came in with the
• 28:49
  Speaker 3: sort of a similar issue of how a soft drink
• 28:52
  Speaker 3: can is it on the value of the can overall
• 28:55
  Speaker 3: when it's sold, or is it on the value just
• 28:57
  Speaker 3: of the aluminium or aluminum inside the can. And these
• 29:01
  Speaker 3: are things that all those companies are having to grapple with,
• 29:04
  Speaker 3: and I was really struck. I mean this is by
• 29:06
  Speaker 3: way of a sort of last word. There was a
• 29:09
  Speaker 3: relatively senior diplomat came in to just talk off the
• 29:12
  Speaker 3: record in Bloomberg the last couple of days from a
• 29:15
  Speaker 3: pretty major country, and he just said, once it's actually
• 29:20
  Speaker 3: been imposed, the US has never taken away a tariff
• 29:24
  Speaker 3: in the last fifty years. Once you actually put them
• 29:28
  Speaker 3: in and you start making money or people start making
• 29:30
  Speaker 3: decisions on it, the US has never removed them. Now,
• 29:35
  Speaker 3: I suspect that may not be technically true, but it
• 29:38
  Speaker 3: sort of feels broad directionally true. And once we have
• 29:42
  Speaker 3: seen all these tariffs we built that wall that we
• 29:44
  Speaker 3: started off for the program talking about of a fifteen
• 29:48
  Speaker 3: percent or so average tariff freight compared to the extremely
• 29:52
  Speaker 3: low one that a year ago. Do you think these
• 29:56
  Speaker 3: will get removed by future administrations, these tariffs or are
• 29:59
  Speaker 3: we just moving into a world where every US administration
• 30:02
  Speaker 3: relies on tariffs.
• 30:04
  Speaker 2: Yes, definitely, I think that your sense is right that
• 30:07
  Speaker 2: this is the path we're heading where these tariffs will stay.
• 30:10
  Speaker 2: And I think that it's not just tariffs, generally taxes,
• 30:15
  Speaker 2: and in fact, the Milton Treatments criticism of government intervention,
• 30:19
  Speaker 2: which is that once you start, it's hard to sunset anything.
• 30:23
  Speaker 2: And I think that we are going to eventually see
• 30:26
  Speaker 2: these tariff legislated. I think America has decided to use
• 30:30
  Speaker 2: tariffs as a means to dig ourselves out of our
• 30:33
  Speaker 2: fiscal hold. These tariff revenues right now are averaging about
• 30:37
  Speaker 2: thirty billion per month, so that's looking like over three
• 30:42
  Speaker 2: hundred billion per year, and that is exactly what you
• 30:45
  Speaker 2: need to pay for the one that beautiful bill.
• 30:48
  Speaker 1: Wow.
• 30:49
  Speaker 3: Well, that seems a poignant place to end. Donald Trump
• 30:52
  Speaker 3: not taking lessons from Milton Freeman and a wonk. Sean Donnan,
• 30:56
  Speaker 3: thank you so much.
• 30:57
  Speaker 1: Great to be here, Thank you.
• 31:03
  Speaker 3: Thank you for listening to Trumponomics from Bloomberg. It was
• 31:06
  Speaker 3: hosted by me Stephanie Flanders. I was joined by Anna
• 31:09
  Speaker 3: Wong and Short Donner. Trumpnomics is produced by Moses and
• 31:12
  Speaker 3: Dam and Samma Sadi, with help from Amy Keene and
• 31:15
  Speaker 3: special thanks to Rachel Lewis. Kriskey. Sound design is by
• 31:19
  Speaker 3: Blake Maples and Sage Bowman is head of Bloomberg podcast.