WEBVTT - Who’s Really Paying for Tariffs? Hint: It’s Not Foreign Companies

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. For most of the

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<v Speaker 1>past year, we've been talking about tariffs a lot in

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<v Speaker 1>the future. Tense tariffs have been coming and then maybe not.

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<v Speaker 1>They've been on and off, up and down, calculated and recalculated.

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<v Speaker 2>President Trump rolling out a set of tariffs schedule to

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<v Speaker 2>start April second.

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<v Speaker 3>Facing a global market meltdown, President Donald Trump has a

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<v Speaker 3>promptly backed down on his tariffs on most nations. President

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<v Speaker 3>Trump is hinting there may be another round of reversals

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<v Speaker 3>on his tariffs.

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<v Speaker 1>But now they're here. According to Bloomberg Economics estimates, the

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<v Speaker 1>average US tariff rate is sent at over fifteen percent,

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<v Speaker 1>compared to just over two percent last year, and that's

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<v Speaker 1>brought up new, more immediate questions like how are tariffs

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<v Speaker 1>actually getting collected, how much money are they bringing in,

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<v Speaker 1>and crucially, who is paying for them. To answer these questions,

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<v Speaker 1>I called Stacy Vanocksmith, a financial journalist and the co

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<v Speaker 1>host of Bloomberg Business Weeks, Everybody's Business podcast.

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<v Speaker 2>If I can tell you how much time recently I

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<v Speaker 2>have spent trying to track down what tariffs are associated

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<v Speaker 2>with what countries at a particular time, it would be

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<v Speaker 2>a very long story.

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<v Speaker 1>Stacy's been speaking with importers, exporters, business owners, and economists

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<v Speaker 1>to try to understand what these higher tariff levels really

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<v Speaker 1>mean for global trade and how companies are deciding whether

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<v Speaker 1>to eat those costs or to pass them on.

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<v Speaker 2>I talked to a customs broker here in New York

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<v Speaker 2>who said at customs brokers just kind of a middleman

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<v Speaker 2>between an importer and an exporter. And he said he

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<v Speaker 2>would just cover the cost often of the tariffs because

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<v Speaker 2>they were so low, they would just throw it in

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<v Speaker 2>for their client.

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<v Speaker 1>That's not so easy anymore. I'm Sarah Holder, and this

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<v Speaker 1>is the big take from Bloomberg News today on the show,

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<v Speaker 1>how much money Trump's tariffs have generated for the US

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<v Speaker 1>government so far, and what we know about who's picking

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<v Speaker 1>up the tap. At its most basic level, a tariff

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<v Speaker 1>is really just a tax on imports or exports. It's

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<v Speaker 1>almost always paid on imports, though, and it's calculated as

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<v Speaker 1>a percentage of the imported goods value. The rate depends

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<v Speaker 1>on the product and its country of origin. Right now,

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<v Speaker 1>for example, a containership from the UK would face a

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<v Speaker 1>ten percent tariff. Germany or South Korea would be hit

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<v Speaker 1>with a fifteen percent tariff Bloomberg. Stacy Vanicksmith says, the

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<v Speaker 1>tariff is collected when the goods hit US soil.

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<v Speaker 4>So at the airport or the ship port.

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<v Speaker 2>It is a form that looks like a tax form,

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<v Speaker 2>and the custom broker fills it out, the importer of

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<v Speaker 2>record fills it out, they pay the tariff, and it

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<v Speaker 2>is paid where the goods come in to the US.

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<v Speaker 1>I asked Stacy to break it down at the level

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<v Speaker 1>of a single shipping container.

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<v Speaker 2>So let's say the ship comes in and it's full

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<v Speaker 2>of a million dollars worth of lobster tails, and the

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<v Speaker 2>tariff is twenty percent. So essentially, when the ship gets there,

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<v Speaker 2>you have a customs broker who's sort of tracking it.

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<v Speaker 2>They're not necessarily physically there to meet it, but they're

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<v Speaker 2>tracking the shipping container, so the shipping container gets there.

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<v Speaker 2>When it gets there, the customs agent fills out a

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<v Speaker 2>form that looks a lot like a tax form. It

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<v Speaker 2>sort of looked like a W nine if you've ever

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<v Speaker 2>seen one of those. I was really hoping it would

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<v Speaker 2>be splashier or sexier than it was, but it just

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<v Speaker 2>looks like a line on a tax form. Unfortunately, but

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<v Speaker 2>that is where the tariff is calculated. It gets calculated

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<v Speaker 2>right there based on the declared value of the goods

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<v Speaker 2>getting shipped there. And the way that it works is

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<v Speaker 2>the company basically says, yes, we will pay that amount

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<v Speaker 2>and then has a certain amount of time I believe

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<v Speaker 2>it's two weeks to pay that tariff to get that

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<v Speaker 2>money to the government. So they have bonds that sometimes

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<v Speaker 2>get issued, sort of like a bail bond. And it

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<v Speaker 2>didn't used to be a big deal at all, but now,

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<v Speaker 2>of course, the expenses can be really big and they're

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<v Speaker 2>changing all the time. So for companies this can be

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<v Speaker 2>a bigger expense and can really eat into or in

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<v Speaker 2>some cases, wipe out their profit margins.

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<v Speaker 5>Right.

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<v Speaker 1>The issue being that these companies don't have all that

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<v Speaker 1>money potentially on hand to pay the US government, and

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<v Speaker 1>so they have to take out these bonds.

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<v Speaker 2>Yeah, a lot of businesses operate on a really narrow margin.

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<v Speaker 2>The company I was dealing with specializes in seafood, and

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<v Speaker 2>a lot of restaurants or supermarkets operate on these really

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<v Speaker 2>razor thin margins and everything is really perfectly mapped out,

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<v Speaker 2>and so this really throws a wrench.

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<v Speaker 4>Into their operations.

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<v Speaker 2>And their expenses, and you know, it's not necessarily that

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<v Speaker 2>they can't always afford it. It's just it's a total

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<v Speaker 2>disruption of the way that they did business and cost structure,

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<v Speaker 2>and it's really throwing everybody for a loop.

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<v Speaker 1>The Trump administration says the tariffs raised nearly thirty billion

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<v Speaker 1>dollars in July, and last week Steven Myron, the chair

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<v Speaker 1>of President Trump's Council of Economic Advisors, came on Bloomberg

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<v Speaker 1>TV to project that the tariffs will bring in much

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<v Speaker 1>much more money for the government over the next decade.

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<v Speaker 3>You know, the CBO did a study when the One

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<v Speaker 3>Big Beautiful Bill was under consideration in Congress, finding that

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<v Speaker 3>the total effect of the tariffs would be three trillion

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<v Speaker 3>dollars over the course of a decade. You know, I

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<v Speaker 3>think that tariff rates have moved a little bit higher

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<v Speaker 3>since then, and so my team is actually currently crunching

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<v Speaker 3>through the numbers right now as we speak with the

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<v Speaker 3>new tariff rates. But I wouldn't be surprised if the

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<v Speaker 3>final number is closer to four trillion dollars over a

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<v Speaker 3>decade instead of three.

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<v Speaker 1>The Trump administration has suggested the tariff revenue could help

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<v Speaker 1>offset the costs of tax cuts in the recently passed

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<v Speaker 1>Tax and Spending bill, the idea being cut domestic taxes

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<v Speaker 1>raise import taxes.

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<v Speaker 2>The problem is, definitely you can raise money with tariffs,

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<v Speaker 2>but the amount of money that we'll be coming in

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<v Speaker 2>from tariffs is just nowhere near the amount of money

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<v Speaker 2>that would have come in from the taxes on business

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<v Speaker 2>and the income taxes. It's just not even It's just

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<v Speaker 2>not even close. It won't come close to replacing it.

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<v Speaker 1>The question is who's footing the bill that's next? Now

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<v Speaker 1>that many of President Trump's so called reciprocal tariffs are

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<v Speaker 1>in place, the journalist Stacey Vanocksmith says, the key question

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<v Speaker 1>is who's paying them. The White House has long maintained

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<v Speaker 1>that foreign companies will foot the bill, but are they.

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<v Speaker 2>I talked to economist Justin Wolfers from the University of Michigan,

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<v Speaker 2>and he said there are three and a half places

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<v Speaker 2>where the cost of tariffs can end up. One is

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<v Speaker 2>foreign companies pay for them. Number two is US companies

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<v Speaker 2>pay for them. Number three is we pay for them.

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<v Speaker 2>And the half is that stuff just disappears.

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<v Speaker 1>We'll come back to the half. In Justin Wolfers, three

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<v Speaker 1>and a half options in a minute. For now, let's

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<v Speaker 1>stick with the idea that foreign companies, domestic companies or

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<v Speaker 1>consumers will pay for Trump's tariffs. And if we start

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<v Speaker 1>with foreign companies Trump's choice, well, in theory, it might

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<v Speaker 1>make sense that they could be forced to cover the

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<v Speaker 1>cost of tariffs.

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<v Speaker 2>I mean, you would think, since the US is the

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<v Speaker 2>top buyer for so many countries and so many companies

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<v Speaker 2>around the world, that if you said, listen, you got

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<v Speaker 2>to cut your price by whatever it is, fifteen percent,

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<v Speaker 2>twenty percent, we won't buy your stuff anymore, that would

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<v Speaker 2>be an offer that they could not refuse.

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<v Speaker 4>The thing is they are refusing it.

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<v Speaker 5>There's something called the import price.

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<v Speaker 1>Index that's economist justin Wolfers.

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<v Speaker 5>And it measures the average price of goods coming into

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<v Speaker 5>the country before tariffs are charged. Bad news. It's beading

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<v Speaker 5>exactly flat. What that tells us is that Trump was wrong. Literally,

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<v Speaker 5>none of it's being paid for by foreign countries.

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<v Speaker 4>Which indicates that there are no deals being cut.

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<v Speaker 1>Why not, Why isn't that happening?

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<v Speaker 4>That's a good question.

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<v Speaker 2>I think there could be a lot of things going on.

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<v Speaker 2>One could be maybe just feeling like we need to

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<v Speaker 2>change our policy here, like relying on the US so

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<v Speaker 2>much for where we sell our stuff is just not

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<v Speaker 2>a good policy going forward. Also, there have been so

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<v Speaker 2>many changes in the tariffs. I know this from talking

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<v Speaker 2>to a lot of US companies too. They don't feel

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<v Speaker 2>like they know enough to cut a deal even because

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<v Speaker 2>you know, if you're a foreign company and you cut

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<v Speaker 2>a deal making up for a twenty percent tariff, and

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<v Speaker 2>all of a sudden there is an exemption or the

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<v Speaker 2>tariff gets cut to five percent, it's just really hard

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<v Speaker 2>for anybody to operate and to make deals, And so

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<v Speaker 2>I think foreign companies are hesitant to leave money on

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<v Speaker 2>the table when they just don't know how things are

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<v Speaker 2>going to pan out.

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<v Speaker 1>Which means either US companies or US consumers must be

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<v Speaker 1>paying for these tariffs right The.

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<v Speaker 2>Strange thing is, it doesn't seem like either of those

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<v Speaker 2>things is happening right now. Inflations been pretty tame, Like

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<v Speaker 2>I feel like we've all been expecting I personally have

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<v Speaker 2>been expecting to see inflation prices going up, and that

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<v Speaker 2>hasn't happened so far.

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<v Speaker 1>At least, tariffs haven't significantly bumped up the prices consumers

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<v Speaker 1>are paying for their tube socks, potato, chips or blonde chairs.

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<v Speaker 2>At the same time, companies have been reporting really solid

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<v Speaker 2>earnings for the most part, and so I was very

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<v Speaker 2>curious it seemed like that money was just kind of vanishing.

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<v Speaker 2>One of the economists I talked to was Chad Boundies

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<v Speaker 2>with the Peterson Institute, and he actually told me he

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<v Speaker 2>thought that tariffs were in a kind of a liminal

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<v Speaker 2>space right now, because he was like, listen, Trump campaigned

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<v Speaker 2>on tariffs. Companies knew this was coming, and they had

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<v Speaker 2>months to stockpile things. And in fact, if you look

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<v Speaker 2>at the data, you can see there's a spike in

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<v Speaker 2>imports from US companies right before the presidential election and

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<v Speaker 2>in the you.

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<v Speaker 4>Know, the weeks following it.

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<v Speaker 2>Companies were preparing for this, and so they were really

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<v Speaker 2>taking in a lot of goods at a lower price,

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<v Speaker 2>and so they haven't had to pass those costs on.

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<v Speaker 2>And then the other thing is companies hesitate a lot

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<v Speaker 2>before they passed prices on to consumers. The Pricing Lab

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<v Speaker 2>at Harvard did a big study back in twenty seventeen

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<v Speaker 2>in the first round of tariffs, and most companies took

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<v Speaker 2>an average of six months before they started passing tariff

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<v Speaker 2>costs along to consumers, and then even a year and

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<v Speaker 2>a half later, they were still not entirely passing them

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<v Speaker 2>on because they're worried about losing customers. They're worried about

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<v Speaker 2>giving competitors an edge. They're worried also about the tariffs

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<v Speaker 2>changing so much and how to respond. So I think

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<v Speaker 2>companies are kind of waiting and seeing, and some companies

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<v Speaker 2>are eating the cost. You know, we saw GMS earnings

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<v Speaker 2>come out. Their earnings were down by a billion dollars

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<v Speaker 2>and they said tariffs were a big part of that.

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<v Speaker 2>They didn't feel like they could pass the cost on

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<v Speaker 2>right now.

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<v Speaker 1>But there are signs that price increases may already be

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<v Speaker 1>on the way.

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<v Speaker 2>The Pricing Lab at Harvard found that we are actually

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<v Speaker 2>starting to see the little sprouts of prices rising because

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<v Speaker 2>of tariffs, especially on things from China. Those are household goods,

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<v Speaker 2>which are things like linens and carpet and things like that.

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<v Speaker 2>A lot of those are made in China. Furniture also

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<v Speaker 2>a lot of furnitures made in China, so things like that.

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<v Speaker 2>In electronics, a lot of electronics made in China, So

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<v Speaker 2>the prices there have gone up. They've gone up by

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<v Speaker 2>an average of three percent. So the price spike isn't

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<v Speaker 2>big yet, but it is starting to happen.

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<v Speaker 1>And there are other more subtle ways companies can pass

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<v Speaker 1>costs onto consumers.

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<v Speaker 2>Smaller packaging, more air, and our potato chip bags, cheaper

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<v Speaker 2>thread on our shirt buttons. It gets passed on in

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<v Speaker 2>some way that basically means that our dollar does not

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<v Speaker 2>have as much value, does not buy as much.

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<v Speaker 1>From inflation to shrinkflation to skinflation. There are lots of

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<v Speaker 1>ways US consumers might start seeing the cost of the

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<v Speaker 1>new tariffs passed on to them. But there's one more

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<v Speaker 1>way US consumers will feel the impact, the third and

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<v Speaker 1>a half option that economist Justin Wolfers was talking about.

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<v Speaker 5>I said this three and a half ways this could

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<v Speaker 5>play out. The half is you just stop trying. Just

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<v Speaker 5>don't send the bout. You don't send the bout of

0:12:07.480 --> 0:12:10.800
<v Speaker 5>it because prices, if they were to be charged, would

0:12:10.800 --> 0:12:12.600
<v Speaker 5>be so high you wouldn't be able to sell the goods,

0:12:13.240 --> 0:12:15.480
<v Speaker 5>and so that's a cost as in you end up

0:12:15.480 --> 0:12:17.360
<v Speaker 5>doing with that, you have a less of selection.

0:12:17.640 --> 0:12:19.240
<v Speaker 2>One of the things that can happen is people just

0:12:19.240 --> 0:12:22.040
<v Speaker 2>stop importing stuff. It's just not worth it, you know.

0:12:22.520 --> 0:12:25.160
<v Speaker 2>So this is everything from like I don't know.

0:12:26.679 --> 0:12:29.360
<v Speaker 1>To what ghost flation? Is that a new one?

0:12:29.440 --> 0:12:32.400
<v Speaker 2>Just ooh, I like this appear completely I think TM

0:12:32.600 --> 0:12:37.520
<v Speaker 2>immediately ghost flation. Actually, ghostflation is fantastic. I love ghost Yes,

0:12:37.559 --> 0:12:39.679
<v Speaker 2>it is ghost flation. It's and that is when you

0:12:39.720 --> 0:12:41.080
<v Speaker 2>go to the store and you're like, hey, wait a minute,

0:12:41.120 --> 0:12:44.120
<v Speaker 2>where's the French cheese that I like or the avocados

0:12:44.160 --> 0:12:48.080
<v Speaker 2>from Mexico or the sweaters from Switzerland, where like, where's

0:12:48.080 --> 0:12:49.960
<v Speaker 2>all the stuff and it's just not there.

0:12:50.960 --> 0:12:54.040
<v Speaker 1>If tariffs make it too expensive for companies to import

0:12:54.040 --> 0:12:57.520
<v Speaker 1>a certain product, they might just stop. That means a

0:12:57.559 --> 0:13:03.200
<v Speaker 1>smaller selection at the store and fewer choices for consumers. So, Sacey,

0:13:03.200 --> 0:13:05.280
<v Speaker 1>we're in this kind of in between place right now

0:13:05.360 --> 0:13:08.240
<v Speaker 1>where companies are absorbing what they can for as long

0:13:08.280 --> 0:13:12.800
<v Speaker 1>as they can. How long can or will they keep

0:13:12.880 --> 0:13:13.280
<v Speaker 1>doing that?

0:13:13.679 --> 0:13:16.360
<v Speaker 2>The liminal space question. I mean, the answer is we

0:13:16.400 --> 0:13:18.760
<v Speaker 2>don't know. It's very funny. I felt like when I

0:13:18.800 --> 0:13:21.120
<v Speaker 2>was reporting the story, inflation was a little bit like

0:13:21.320 --> 0:13:23.480
<v Speaker 2>a monster in a horror movie, where like you didn't

0:13:23.480 --> 0:13:26.280
<v Speaker 2>know when it was going to show up or how

0:13:26.320 --> 0:13:28.320
<v Speaker 2>it was going to show up, but you know the

0:13:28.360 --> 0:13:30.840
<v Speaker 2>ghost was going to come out in some way and

0:13:30.880 --> 0:13:32.880
<v Speaker 2>it was going to be bad, so I sort of

0:13:32.920 --> 0:13:36.160
<v Speaker 2>felt like I was tracking this monster around the economy.

0:13:36.240 --> 0:13:40.199
<v Speaker 2>It looks like from everything we know from past situations,

0:13:40.240 --> 0:13:44.920
<v Speaker 2>particularly from the twenty seventeen tariffs, it's about six months

0:13:45.040 --> 0:13:47.760
<v Speaker 2>before we really start to see the impact. The tariffs

0:13:47.800 --> 0:13:51.959
<v Speaker 2>get processed pretty slowly through the economy, but then it's

0:13:52.040 --> 0:13:54.720
<v Speaker 2>kind of steady. So I think we're quite cushioned right now.

0:13:55.160 --> 0:13:57.400
<v Speaker 2>And you know, who knows also what deals are going

0:13:57.480 --> 0:13:59.920
<v Speaker 2>to get cut, So I think companies also might have

0:14:00.080 --> 0:14:01.959
<v Speaker 2>to take for that reason, to pass things on. It

0:14:02.000 --> 0:14:05.280
<v Speaker 2>may take a little longer this time, because people want

0:14:05.280 --> 0:14:07.360
<v Speaker 2>to wait for things to settle down before they make

0:14:07.400 --> 0:14:11.439
<v Speaker 2>any big company changing moves. You know, if you're running

0:14:11.440 --> 0:14:14.960
<v Speaker 2>a huge company and the tariffs are up and down

0:14:15.040 --> 0:14:18.199
<v Speaker 2>by twenty percent inside of a week, which sounds insane,

0:14:18.200 --> 0:14:19.920
<v Speaker 2>But if you're running a company, the smartest thing to

0:14:19.920 --> 0:14:21.880
<v Speaker 2>do is wait, even if it costs you, because if

0:14:21.920 --> 0:14:24.240
<v Speaker 2>you act too quickly, it could cost you even more.

0:14:26.600 --> 0:14:30.200
<v Speaker 1>After so much tariff whiplash, it makes sense that companies

0:14:30.320 --> 0:14:33.720
<v Speaker 1>might be wary of changing their prices too soon, but

0:14:33.760 --> 0:14:37.080
<v Speaker 1>Stacy says it's unlikely the effects of these new tariffs

0:14:37.080 --> 0:14:40.920
<v Speaker 1>will completely disappear, even if the next administration has a

0:14:40.920 --> 0:14:44.920
<v Speaker 1>different trade agenda, because once the tariff genie gets out

0:14:44.920 --> 0:14:47.280
<v Speaker 1>of the bottle, it's hard to put it back in.

0:14:47.600 --> 0:14:49.360
<v Speaker 2>The problem is, as I talked to a bunch of

0:14:49.400 --> 0:14:52.240
<v Speaker 2>trade economists, you know, whole industries start to get built

0:14:52.320 --> 0:14:56.000
<v Speaker 2>up around the tariffs, and a bureaucracy builds up around

0:14:56.000 --> 0:14:58.680
<v Speaker 2>the tariffs, and so the momentum becomes to keep the

0:14:58.720 --> 0:15:02.080
<v Speaker 2>tariffs in place. It's not as simple as just ending them.

0:15:02.400 --> 0:15:04.320
<v Speaker 2>It's not as easy as like, Okay, great, so we

0:15:04.320 --> 0:15:07.320
<v Speaker 2>can get all those toasters coming back into the US

0:15:07.520 --> 0:15:11.440
<v Speaker 2>that you had now diverted to selling to France. And no,

0:15:11.600 --> 0:15:14.080
<v Speaker 2>it's not quite so easy because supply chains have shifted,

0:15:14.200 --> 0:15:17.440
<v Speaker 2>buying patterns of shifted, prices have shifted. US retailers don't

0:15:17.440 --> 0:15:19.200
<v Speaker 2>want to charge less at that point either.

0:15:19.320 --> 0:15:22.120
<v Speaker 4>So these things come with inertia.

0:15:22.200 --> 0:15:25.760
<v Speaker 1>It's not just about perhaps being dependent on some sort

0:15:25.800 --> 0:15:29.400
<v Speaker 1>of tariff revenue. It's that there's this entire paraff ecosystem

0:15:29.520 --> 0:15:30.960
<v Speaker 1>that's really hard to unwind.

0:15:31.360 --> 0:15:35.200
<v Speaker 2>Yes, yes, and that is one of the big concerns

0:15:35.200 --> 0:15:37.160
<v Speaker 2>that got expressed to me by a bunch of economists

0:15:37.240 --> 0:15:38.800
<v Speaker 2>was like well, once this is in place, it's going

0:15:38.840 --> 0:15:39.840
<v Speaker 2>to be hard to dismantle.

0:15:44.040 --> 0:15:46.960
<v Speaker 1>This is the Big Take from Bloomberg News. I'm Sarah Holder.

0:15:47.240 --> 0:15:49.840
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0:15:57.560 --> 0:15:59.840
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0:16:03.520 --> 0:16:05.760
<v Speaker 1>Thanks for listening. We'll be back tomorrow