1 00:00:02,320 --> 00:00:05,080 Speaker 1: I'm Stephen Carroll, and this is Here's Why, where we 2 00:00:05,120 --> 00:00:07,240 Speaker 1: take one news story and explain it in just a 3 00:00:07,280 --> 00:00:15,520 Speaker 1: few minutes with our experts here at Bloomberg. Not so 4 00:00:15,600 --> 00:00:19,120 Speaker 1: long ago, the conventional wisdom was that more free trade 5 00:00:19,520 --> 00:00:22,880 Speaker 1: was better for everyone. Here's a Nobel laureate, Milton Friedman 6 00:00:23,160 --> 00:00:24,160 Speaker 1: in the nineteen eighties. 7 00:00:27,320 --> 00:00:29,120 Speaker 2: You know, let's suppose three of us are out in 8 00:00:29,160 --> 00:00:31,160 Speaker 2: a boat in the ocean, and one of the fellows 9 00:00:31,160 --> 00:00:32,880 Speaker 2: in there takes out a gun and shoots holes in 10 00:00:32,920 --> 00:00:35,000 Speaker 2: the bottom of the boat. Is it the sensible thing 11 00:00:35,040 --> 00:00:36,720 Speaker 2: for the others of us to do to take out 12 00:00:36,760 --> 00:00:38,720 Speaker 2: our guns and shoot more holes in the bottom of 13 00:00:38,760 --> 00:00:40,959 Speaker 2: the boat. That's kind of a silly notion, isn't it. 14 00:00:41,000 --> 00:00:45,240 Speaker 2: But yet that is exactly the notion of protection and retaliation. 15 00:00:48,920 --> 00:00:51,960 Speaker 1: But in recent years, politicians like Donald Trump have sought 16 00:00:52,000 --> 00:00:55,080 Speaker 1: to turn that once widely held view on its head. 17 00:00:58,440 --> 00:01:00,520 Speaker 3: We're doing things for this country that should have been 18 00:01:00,520 --> 00:01:04,560 Speaker 3: done for many, many years. We've had this abuse by 19 00:01:04,640 --> 00:01:07,880 Speaker 3: many other countries and groups of countries that were put 20 00:01:07,920 --> 00:01:10,880 Speaker 3: together in order to take advantage of the United States, 21 00:01:10,959 --> 00:01:12,480 Speaker 3: and we don't want that to happen. We're not going 22 00:01:12,560 --> 00:01:15,240 Speaker 3: to let that happen. It's probably one of the reasons 23 00:01:15,240 --> 00:01:17,560 Speaker 3: I was elected, maybe one of the main reasons. 24 00:01:21,760 --> 00:01:24,440 Speaker 1: At the time, many thought those policies would be a 25 00:01:24,480 --> 00:01:28,560 Speaker 1: one off. But now Joe Biden's doubling down, adding to 26 00:01:28,680 --> 00:01:32,240 Speaker 1: duties on sectors that China wants to dominate. 27 00:01:35,560 --> 00:01:37,919 Speaker 4: Only not competing our companies is cheating. 28 00:01:38,400 --> 00:01:41,200 Speaker 2: And we've seen dammy chair in America. 29 00:01:43,600 --> 00:01:47,320 Speaker 1: So here's why trade tariffs are back in vogue and 30 00:01:47,400 --> 00:01:52,360 Speaker 1: Bloomberg's trades are. Brendan Murray is here to explain high Brendan. Now, 31 00:01:52,440 --> 00:01:55,800 Speaker 1: tariffs aren't new in global trade, but how much were 32 00:01:55,800 --> 00:02:00,600 Speaker 1: they used before this US China trade war started Undernald Trump. 33 00:02:01,240 --> 00:02:04,360 Speaker 5: Tariffs globally have been going down since the end of 34 00:02:04,360 --> 00:02:07,040 Speaker 5: World War Two, when countries decided that it's better to 35 00:02:07,240 --> 00:02:09,720 Speaker 5: a trade with each other than to fight each other. 36 00:02:10,040 --> 00:02:13,240 Speaker 5: That came to a crescendo in the nineteen nineties when 37 00:02:13,440 --> 00:02:16,480 Speaker 5: things like the NAFTA agreement in North America came about 38 00:02:16,600 --> 00:02:19,560 Speaker 5: and the WTO was created. The World Trade Organization a 39 00:02:19,600 --> 00:02:23,639 Speaker 5: place where the rules could be codified and enforced. Now 40 00:02:23,880 --> 00:02:27,080 Speaker 5: fast forward another five years in China joined the WTO, 41 00:02:27,400 --> 00:02:29,280 Speaker 5: and a lot of people thought a lot of Western 42 00:02:29,280 --> 00:02:32,200 Speaker 5: officials thought that China would play by these rules and 43 00:02:32,320 --> 00:02:35,880 Speaker 5: become a more integrated economy into the rest of the world. 44 00:02:35,960 --> 00:02:39,040 Speaker 5: Bill Clinton gave a well known speech back in March 45 00:02:39,080 --> 00:02:40,200 Speaker 5: of two thousand. 46 00:02:42,000 --> 00:02:45,440 Speaker 4: Many Americans have looked to China to see either of 47 00:02:45,480 --> 00:02:49,799 Speaker 4: the world's next great capitalist tiger and an enormous mother 48 00:02:49,840 --> 00:02:54,520 Speaker 4: load of economic opportunity for American companies and American workers, 49 00:02:55,600 --> 00:03:00,840 Speaker 4: are the world's last great communist dragon and next great 50 00:03:00,919 --> 00:03:03,720 Speaker 4: threat to freedom and security. 51 00:03:05,840 --> 00:03:08,480 Speaker 5: A lot of US officials, and particularly the past two 52 00:03:08,960 --> 00:03:13,800 Speaker 5: US administrations, would say we've gotten the communist drag in 53 00:03:13,960 --> 00:03:17,720 Speaker 5: version of that scenario, the one that controls its economy 54 00:03:17,880 --> 00:03:21,120 Speaker 5: in ways that you heard President Biden say amounts to cheating. 55 00:03:21,360 --> 00:03:24,800 Speaker 5: So you've seen the past two US administrations use tariffs 56 00:03:24,960 --> 00:03:28,640 Speaker 5: as this blunt instrument to try to balance the scales, 57 00:03:28,680 --> 00:03:30,919 Speaker 5: as it were, against American industry. 58 00:03:31,280 --> 00:03:34,600 Speaker 1: So how can countries like the US, though, raise tariffs 59 00:03:34,600 --> 00:03:37,800 Speaker 1: if such increases violate the rules of the World Trade Organization. 60 00:03:38,200 --> 00:03:41,640 Speaker 5: Well, for the EU, they haven't really deployed widespread tariffs. 61 00:03:41,680 --> 00:03:44,440 Speaker 5: Brussels is bound and would say that they are bound 62 00:03:44,480 --> 00:03:48,400 Speaker 5: by WTO rules. The WTO is an institution that believes 63 00:03:48,800 --> 00:03:51,720 Speaker 5: tariffs should stay low and not ever be raised. In 64 00:03:51,760 --> 00:03:55,880 Speaker 5: the US, the authority to levy tariffs has for a 65 00:03:55,920 --> 00:03:59,440 Speaker 5: long time been granted the authority of Congress. That has 66 00:03:59,520 --> 00:04:02,560 Speaker 5: drifted more toward the executive branch to the White House 67 00:04:02,800 --> 00:04:05,720 Speaker 5: in ways that the president and President Trump did so 68 00:04:06,000 --> 00:04:08,720 Speaker 5: in a big way, and President Biden has followed through 69 00:04:08,880 --> 00:04:12,440 Speaker 5: and kept those tariffs. To use legal methods to raise 70 00:04:12,480 --> 00:04:15,760 Speaker 5: tariffs on countries that it believes are cheating or there's 71 00:04:15,760 --> 00:04:19,200 Speaker 5: some threat to national security, another exemption where the president 72 00:04:19,240 --> 00:04:21,760 Speaker 5: can impose tariffs on countries in the case of steel 73 00:04:21,760 --> 00:04:22,920 Speaker 5: and aluminum especially. 74 00:04:23,160 --> 00:04:26,799 Speaker 1: Are the US tarfs working? Are they reducing imports from China? 75 00:04:26,839 --> 00:04:29,240 Speaker 5: Well, there has been some pain on the Chinese economy 76 00:04:29,320 --> 00:04:33,719 Speaker 5: for sure. China as a share of US imports has 77 00:04:33,800 --> 00:04:37,480 Speaker 5: fallen from the top source of US imports to number three, 78 00:04:37,839 --> 00:04:41,279 Speaker 5: and the overall trading partner China ranks number three, behind 79 00:04:41,360 --> 00:04:44,960 Speaker 5: Mexico and Canada, so China's share is definitely going down. 80 00:04:45,080 --> 00:04:47,919 Speaker 5: But there's some debate about and some data that needs 81 00:04:47,960 --> 00:04:51,360 Speaker 5: to be analyzed here about whether some of that trade 82 00:04:51,400 --> 00:04:55,320 Speaker 5: is just going through Vietnam or through Mexico through Chinese 83 00:04:55,360 --> 00:04:58,480 Speaker 5: affiliates and that that direct trade might be going down, 84 00:04:58,560 --> 00:05:01,800 Speaker 5: but this diverted trade is actually where we're seeing it go. 85 00:05:02,080 --> 00:05:04,920 Speaker 5: The other issue is that the US trade deficit. Donald 86 00:05:04,920 --> 00:05:07,800 Speaker 5: Trump would say, look, this is the biggest example of 87 00:05:07,839 --> 00:05:10,240 Speaker 5: the unfairness in the global trading system. Is the US 88 00:05:10,279 --> 00:05:13,240 Speaker 5: trade deficit. Well, it hasn't gone down at all. In fact, 89 00:05:13,240 --> 00:05:16,479 Speaker 5: it's gone up. In the past three years. The US 90 00:05:16,720 --> 00:05:20,039 Speaker 5: goods trade balance on an annual basis has topped a 91 00:05:20,080 --> 00:05:22,839 Speaker 5: trillion dollars for the past three years. That's up from 92 00:05:23,240 --> 00:05:26,000 Speaker 5: about eight hundred billion before Trump took office. 93 00:05:26,279 --> 00:05:28,640 Speaker 1: Brandon, I love a fun fact. What on earth is 94 00:05:28,680 --> 00:05:30,800 Speaker 1: a chicken tax? And what's that got to do with anything? 95 00:05:31,040 --> 00:05:33,720 Speaker 5: So it doesn't have anything to do with chickens, at 96 00:05:33,800 --> 00:05:37,360 Speaker 5: least not the feathery kind. So the chicken tax dates 97 00:05:37,360 --> 00:05:40,320 Speaker 5: back sixty years. In the early sixties, Germany and France 98 00:05:40,520 --> 00:05:44,480 Speaker 5: wanted to put tariffs on American chicken exports. Well, this 99 00:05:44,640 --> 00:05:47,839 Speaker 5: turned into just a mini trade war, and the US 100 00:05:47,960 --> 00:05:51,200 Speaker 5: put tariffs on a number of things, including pickup trucks, 101 00:05:51,360 --> 00:05:55,160 Speaker 5: another all American sort of product. So as time's gone 102 00:05:55,200 --> 00:05:58,200 Speaker 5: on all those other tariffs other than the one on 103 00:05:58,440 --> 00:06:01,839 Speaker 5: pickup truck imports have gone away, but to this day, 104 00:06:02,160 --> 00:06:06,200 Speaker 5: at twenty five percent tariff on pickup trucks has been 105 00:06:06,200 --> 00:06:09,200 Speaker 5: imposed on foreign producers. So this is the reason why 106 00:06:09,240 --> 00:06:12,839 Speaker 5: you don't see Volvo pickup trucks or Porsche pickup trucks 107 00:06:12,880 --> 00:06:16,520 Speaker 5: driving around on American streets. These are protected to this day. 108 00:06:16,800 --> 00:06:20,000 Speaker 5: And it's the point is once tariffs get imposed and 109 00:06:20,040 --> 00:06:23,160 Speaker 5: then there are economic interests that depend on them, they're 110 00:06:23,279 --> 00:06:26,920 Speaker 5: very hard politically to remove. So the chicken tax, as 111 00:06:26,960 --> 00:06:29,719 Speaker 5: it's called to this day, is one of those examples 112 00:06:29,720 --> 00:06:32,440 Speaker 5: that economists would cite that say, look, you know, tariffs 113 00:06:32,480 --> 00:06:35,200 Speaker 5: can have an influence, but they tend to be kind 114 00:06:35,200 --> 00:06:36,200 Speaker 5: of difficult to get rid of. 115 00:06:36,320 --> 00:06:38,400 Speaker 1: Brandon, This is exactly why we need you to explain 116 00:06:38,440 --> 00:06:40,760 Speaker 1: these sort of things to us. This is, you know, 117 00:06:40,800 --> 00:06:43,120 Speaker 1: a debate that's been focused very much around the US 118 00:06:43,160 --> 00:06:46,960 Speaker 1: and China. But how does Europe fit into this, because 119 00:06:47,080 --> 00:06:49,800 Speaker 1: it's relevant to this part of the world as well. 120 00:06:49,920 --> 00:06:53,919 Speaker 5: Right, So the US's response has been characterized as preemptive, 121 00:06:54,200 --> 00:06:57,360 Speaker 5: trying to get in front of some industries, the green 122 00:06:57,480 --> 00:07:01,560 Speaker 5: energy industries, electric vehicles, and so on, before China becomes 123 00:07:01,600 --> 00:07:04,560 Speaker 5: the dominant player in these industries. If it's not already. 124 00:07:04,760 --> 00:07:07,880 Speaker 5: So this is the preemptive approach from the American side. 125 00:07:07,920 --> 00:07:11,920 Speaker 5: The European side has been called more reactionary. The European 126 00:07:12,320 --> 00:07:16,840 Speaker 5: Union is investigating Chinese made electric vehicles right now. That 127 00:07:16,960 --> 00:07:19,840 Speaker 5: decision is going to be announced and in the next 128 00:07:19,840 --> 00:07:22,360 Speaker 5: several weeks or maybe a month or two, and we 129 00:07:22,400 --> 00:07:26,680 Speaker 5: could see tariffs on electric vehicles made in China coming 130 00:07:26,720 --> 00:07:30,160 Speaker 5: into the EU, so similar to what the US has done. 131 00:07:30,280 --> 00:07:32,920 Speaker 5: So Europe is a bit behind the curve. But as 132 00:07:32,960 --> 00:07:36,920 Speaker 5: one European official said recently, look, you know it's taken 133 00:07:36,960 --> 00:07:39,760 Speaker 5: a couple of decades, but we realize that we're quote 134 00:07:39,840 --> 00:07:42,880 Speaker 5: unquote getting played by China. 135 00:07:43,040 --> 00:07:45,720 Speaker 1: Knowing that you have been played, of course, teaches you 136 00:07:45,840 --> 00:07:49,360 Speaker 1: that you need to watch out to be much more observant. 137 00:07:52,920 --> 00:07:55,560 Speaker 1: We've talked about the present, we've talked about the past. 138 00:07:55,640 --> 00:07:59,000 Speaker 1: What's the future, then what's the next frontier in the 139 00:07:59,040 --> 00:08:00,400 Speaker 1: global tariff base? 140 00:08:00,640 --> 00:08:03,080 Speaker 5: So the tariffs that we've talked about apply to goods 141 00:08:03,080 --> 00:08:05,760 Speaker 5: and services. The kinds of services that we've been used 142 00:08:05,800 --> 00:08:08,600 Speaker 5: to over the years. Those are real estate services or 143 00:08:08,600 --> 00:08:12,200 Speaker 5: consulting services, the kinds of transactions that go across borders 144 00:08:12,240 --> 00:08:15,400 Speaker 5: face to face. The new frontier in the trade world 145 00:08:15,880 --> 00:08:19,200 Speaker 5: is e commerce and what's called digital trade. That's anything 146 00:08:19,280 --> 00:08:22,760 Speaker 5: that's transacted digitally. Say a concert ticket that you buy 147 00:08:22,840 --> 00:08:24,880 Speaker 5: in the US and it gets emailed to you. Well, 148 00:08:24,920 --> 00:08:27,160 Speaker 5: it doesn't cross through any port, it doesn't go through 149 00:08:27,160 --> 00:08:29,680 Speaker 5: any airport, and there's no custom duty on that. So 150 00:08:29,840 --> 00:08:33,079 Speaker 5: digital transactions, there are no rules for the global Internet 151 00:08:33,120 --> 00:08:36,439 Speaker 5: when it comes to taxing these sort of commerce. So 152 00:08:36,800 --> 00:08:40,160 Speaker 5: there's a big debate at the WTO about what to 153 00:08:40,200 --> 00:08:44,200 Speaker 5: do about this. Some countries like Indonesia or South Africa 154 00:08:44,640 --> 00:08:47,920 Speaker 5: want to put tariffs on e commerce transactions as a 155 00:08:47,960 --> 00:08:50,600 Speaker 5: way to collect revenue and as a way to protect 156 00:08:50,640 --> 00:08:54,640 Speaker 5: their domestic technology companies. The US has a dominant role 157 00:08:54,880 --> 00:08:57,960 Speaker 5: in data flows and e commerce, with the big tech 158 00:08:58,000 --> 00:09:02,000 Speaker 5: companies based in the US. Europeans are also concerned. So 159 00:09:02,280 --> 00:09:04,640 Speaker 5: there's no telling which direction this is going to go in, 160 00:09:04,679 --> 00:09:08,160 Speaker 5: but people are increasingly concerned that we're headed toward a 161 00:09:08,200 --> 00:09:12,040 Speaker 5: more balkanized kind of global Internet, which means you know, 162 00:09:12,160 --> 00:09:14,440 Speaker 5: one day you might be downloading a book on your 163 00:09:14,520 --> 00:09:17,679 Speaker 5: vacation in Bali and you know it'll come with ten 164 00:09:17,720 --> 00:09:18,640 Speaker 5: percent tariff on it. 165 00:09:18,880 --> 00:09:21,600 Speaker 1: And just briefly, Brandon, we've talked about the WTO quite 166 00:09:21,600 --> 00:09:25,520 Speaker 1: a bit in this as well. How useful is the 167 00:09:25,640 --> 00:09:29,280 Speaker 1: WTO in the today in the tomorrow world of policing 168 00:09:29,360 --> 00:09:30,360 Speaker 1: these trade tariffs. 169 00:09:30,559 --> 00:09:33,720 Speaker 5: Well, the WTO is going through a sort of existential 170 00:09:33,880 --> 00:09:36,720 Speaker 5: problem right now. No one is really playing by the 171 00:09:36,840 --> 00:09:41,320 Speaker 5: WTO rules. Its appeals function is not working, so the 172 00:09:41,440 --> 00:09:45,079 Speaker 5: rules of global trade and the enforcer of those rules 173 00:09:45,120 --> 00:09:48,080 Speaker 5: isn't really operating. So it's a big question where the 174 00:09:48,200 --> 00:09:50,960 Speaker 5: WTO goes from here. Former President Trump has talked about 175 00:09:51,040 --> 00:09:55,239 Speaker 5: quitting the WTO. 176 00:09:55,000 --> 00:09:57,640 Speaker 3: The World Trade Organization. As you know, I've had a 177 00:09:57,679 --> 00:10:00,640 Speaker 3: dispute running with them for quite a while because our 178 00:10:00,679 --> 00:10:04,400 Speaker 3: country hasn't been treated fairly. China's viewer as a developing nation, 179 00:10:04,600 --> 00:10:07,160 Speaker 3: India's viewed as a developing nation. We're not viewed as 180 00:10:07,200 --> 00:10:09,720 Speaker 3: a developing nation. As far as I'm concerned. We're developing 181 00:10:09,800 --> 00:10:12,079 Speaker 3: nation too. 182 00:10:12,920 --> 00:10:16,360 Speaker 5: The WTO has a really big challenge to become relevant 183 00:10:16,400 --> 00:10:20,600 Speaker 5: again in an environment where countries are just increasingly going protectionist. 184 00:10:20,880 --> 00:10:23,280 Speaker 1: Brenton Murray Bloomberg's Trade Zara, thank you so much for 185 00:10:23,320 --> 00:10:27,000 Speaker 1: bringing us that explanation of the debate over tariff's past, 186 00:10:27,080 --> 00:10:30,199 Speaker 1: present and future, and for more explanations like this from 187 00:10:30,240 --> 00:10:33,319 Speaker 1: our team of twenty seven hundred journalists and analysts around 188 00:10:33,360 --> 00:10:36,000 Speaker 1: the world. Search for quick take on the Bloomberg website 189 00:10:36,080 --> 00:10:40,440 Speaker 1: or the Bloomberg Business app. I'm Stephen Carroll, and this 190 00:10:40,720 --> 00:10:43,520 Speaker 1: is here's why. I'll be back next week with more. 191 00:10:43,920 --> 00:10:44,720 Speaker 1: Thanks for listening.