WEBVTT - Here's Why Trade Tariffs Are Back In Vogue 0:00:02.320 --> 0:00:05.080 I'm Stephen Carroll, and this is Here's Why, where we 0:00:05.120 --> 0:00:07.240 take one news story and explain it in just a 0:00:07.280 --> 0:00:15.520 few minutes with our experts here at Bloomberg. Not so 0:00:15.600 --> 0:00:19.120 long ago, the conventional wisdom was that more free trade 0:00:19.520 --> 0:00:22.880 was better for everyone. Here's a Nobel laureate, Milton Friedman 0:00:23.160 --> 0:00:24.160 in the nineteen eighties. 0:00:27.320 --> 0:00:29.120 You know, let's suppose three of us are out in 0:00:29.160 --> 0:00:31.160 a boat in the ocean, and one of the fellows 0:00:31.160 --> 0:00:32.880 in there takes out a gun and shoots holes in 0:00:32.920 --> 0:00:35.000 the bottom of the boat. Is it the sensible thing 0:00:35.040 --> 0:00:36.720 for the others of us to do to take out 0:00:36.760 --> 0:00:38.720 our guns and shoot more holes in the bottom of 0:00:38.760 --> 0:00:40.959 the boat. That's kind of a silly notion, isn't it. 0:00:41.000 --> 0:00:45.240 But yet that is exactly the notion of protection and retaliation. 0:00:48.920 --> 0:00:51.960 But in recent years, politicians like Donald Trump have sought 0:00:52.000 --> 0:00:55.080 to turn that once widely held view on its head. 0:00:58.440 --> 0:01:00.520 We're doing things for this country that should have been 0:01:00.520 --> 0:01:04.560 done for many, many years. We've had this abuse by 0:01:04.640 --> 0:01:07.880 many other countries and groups of countries that were put 0:01:07.920 --> 0:01:10.880 together in order to take advantage of the United States, 0:01:10.959 --> 0:01:12.480 and we don't want that to happen. We're not going 0:01:12.560 --> 0:01:15.240 to let that happen. It's probably one of the reasons 0:01:15.240 --> 0:01:17.560 I was elected, maybe one of the main reasons. 0:01:21.760 --> 0:01:24.440 At the time, many thought those policies would be a 0:01:24.480 --> 0:01:28.560 one off. But now Joe Biden's doubling down, adding to 0:01:28.680 --> 0:01:32.240 duties on sectors that China wants to dominate. 0:01:35.560 --> 0:01:37.919 Only not competing our companies is cheating. 0:01:38.400 --> 0:01:41.200 And we've seen dammy chair in America. 0:01:43.600 --> 0:01:47.320 So here's why trade tariffs are back in vogue and 0:01:47.400 --> 0:01:52.360 Bloomberg's trades are. Brendan Murray is here to explain high Brendan. Now, 0:01:52.440 --> 0:01:55.800 tariffs aren't new in global trade, but how much were 0:01:55.800 --> 0:02:00.600 they used before this US China trade war started Undernald Trump. 0:02:01.240 --> 0:02:04.360 Tariffs globally have been going down since the end of 0:02:04.360 --> 0:02:07.040 World War Two, when countries decided that it's better to 0:02:07.240 --> 0:02:09.720 a trade with each other than to fight each other. 0:02:10.040 --> 0:02:13.240 That came to a crescendo in the nineteen nineties when 0:02:13.440 --> 0:02:16.480 things like the NAFTA agreement in North America came about 0:02:16.600 --> 0:02:19.560 and the WTO was created. The World Trade Organization a 0:02:19.600 --> 0:02:23.639 place where the rules could be codified and enforced. Now 0:02:23.880 --> 0:02:27.080 fast forward another five years in China joined the WTO, 0:02:27.400 --> 0:02:29.280 and a lot of people thought a lot of Western 0:02:29.280 --> 0:02:32.200 officials thought that China would play by these rules and 0:02:32.320 --> 0:02:35.880 become a more integrated economy into the rest of the world. 0:02:35.960 --> 0:02:39.040 Bill Clinton gave a well known speech back in March 0:02:39.080 --> 0:02:40.200 of two thousand. 0:02:42.000 --> 0:02:45.440 Many Americans have looked to China to see either of 0:02:45.480 --> 0:02:49.799 the world's next great capitalist tiger and an enormous mother 0:02:49.840 --> 0:02:54.520 load of economic opportunity for American companies and American workers, 0:02:55.600 --> 0:03:00.840 are the world's last great communist dragon and next great 0:03:00.919 --> 0:03:03.720 threat to freedom and security. 0:03:05.840 --> 0:03:08.480 A lot of US officials, and particularly the past two 0:03:08.960 --> 0:03:13.800 US administrations, would say we've gotten the communist drag in 0:03:13.960 --> 0:03:17.720 version of that scenario, the one that controls its economy 0:03:17.880 --> 0:03:21.120 in ways that you heard President Biden say amounts to cheating. 0:03:21.360 --> 0:03:24.800 So you've seen the past two US administrations use tariffs 0:03:24.960 --> 0:03:28.640 as this blunt instrument to try to balance the scales, 0:03:28.680 --> 0:03:30.919 as it were, against American industry. 0:03:31.280 --> 0:03:34.600 So how can countries like the US, though, raise tariffs 0:03:34.600 --> 0:03:37.800 if such increases violate the rules of the World Trade Organization. 0:03:38.200 --> 0:03:41.640 Well, for the EU, they haven't really deployed widespread tariffs. 0:03:41.680 --> 0:03:44.440 Brussels is bound and would say that they are bound 0:03:44.480 --> 0:03:48.400 by WTO rules. The WTO is an institution that believes 0:03:48.800 --> 0:03:51.720 tariffs should stay low and not ever be raised. In 0:03:51.760 --> 0:03:55.880 the US, the authority to levy tariffs has for a 0:03:55.920 --> 0:03:59.440 long time been granted the authority of Congress. That has 0:03:59.520 --> 0:04:02.560 drifted more toward the executive branch to the White House 0:04:02.800 --> 0:04:05.720 in ways that the president and President Trump did so 0:04:06.000 --> 0:04:08.720 in a big way, and President Biden has followed through 0:04:08.880 --> 0:04:12.440 and kept those tariffs. To use legal methods to raise 0:04:12.480 --> 0:04:15.760 tariffs on countries that it believes are cheating or there's 0:04:15.760 --> 0:04:19.200 some threat to national security, another exemption where the president 0:04:19.240 --> 0:04:21.760 can impose tariffs on countries in the case of steel 0:04:21.760 --> 0:04:22.920 and aluminum especially. 0:04:23.160 --> 0:04:26.799 Are the US tarfs working? Are they reducing imports from China? 0:04:26.839 --> 0:04:29.240 Well, there has been some pain on the Chinese economy 0:04:29.320 --> 0:04:33.719 for sure. China as a share of US imports has 0:04:33.800 --> 0:04:37.480 fallen from the top source of US imports to number three, 0:04:37.839 --> 0:04:41.279 and the overall trading partner China ranks number three, behind 0:04:41.360 --> 0:04:44.960 Mexico and Canada, so China's share is definitely going down. 0:04:45.080 --> 0:04:47.919 But there's some debate about and some data that needs 0:04:47.960 --> 0:04:51.360 to be analyzed here about whether some of that trade 0:04:51.400 --> 0:04:55.320 is just going through Vietnam or through Mexico through Chinese 0:04:55.360 --> 0:04:58.480 affiliates and that that direct trade might be going down, 0:04:58.560 --> 0:05:01.800 but this diverted trade is actually where we're seeing it go. 0:05:02.080 --> 0:05:04.920 The other issue is that the US trade deficit. Donald 0:05:04.920 --> 0:05:07.800 Trump would say, look, this is the biggest example of 0:05:07.839 --> 0:05:10.240 the unfairness in the global trading system. Is the US 0:05:10.279 --> 0:05:13.240 trade deficit. Well, it hasn't gone down at all. In fact, 0:05:13.240 --> 0:05:16.479 it's gone up. In the past three years. The US 0:05:16.720 --> 0:05:20.039 goods trade balance on an annual basis has topped a 0:05:20.080 --> 0:05:22.839 trillion dollars for the past three years. That's up from 0:05:23.240 --> 0:05:26.000 about eight hundred billion before Trump took office. 0:05:26.279 --> 0:05:28.640 Brandon, I love a fun fact. What on earth is 0:05:28.680 --> 0:05:30.800 a chicken tax? And what's that got to do with anything? 0:05:31.040 --> 0:05:33.720 So it doesn't have anything to do with chickens, at 0:05:33.800 --> 0:05:37.360 least not the feathery kind. So the chicken tax dates 0:05:37.360 --> 0:05:40.320 back sixty years. In the early sixties, Germany and France 0:05:40.520 --> 0:05:44.480 wanted to put tariffs on American chicken exports. Well, this 0:05:44.640 --> 0:05:47.839 turned into just a mini trade war, and the US 0:05:47.960 --> 0:05:51.200 put tariffs on a number of things, including pickup trucks, 0:05:51.360 --> 0:05:55.160 another all American sort of product. So as time's gone 0:05:55.200 --> 0:05:58.200 on all those other tariffs other than the one on 0:05:58.440 --> 0:06:01.839 pickup truck imports have gone away, but to this day, 0:06:02.160 --> 0:06:06.200 at twenty five percent tariff on pickup trucks has been 0:06:06.200 --> 0:06:09.200 imposed on foreign producers. So this is the reason why 0:06:09.240 --> 0:06:12.839 you don't see Volvo pickup trucks or Porsche pickup trucks 0:06:12.880 --> 0:06:16.520 driving around on American streets. These are protected to this day. 0:06:16.800 --> 0:06:20.000 And it's the point is once tariffs get imposed and 0:06:20.040 --> 0:06:23.160 then there are economic interests that depend on them, they're 0:06:23.279 --> 0:06:26.920 very hard politically to remove. So the chicken tax, as 0:06:26.960 --> 0:06:29.719 it's called to this day, is one of those examples 0:06:29.720 --> 0:06:32.440 that economists would cite that say, look, you know, tariffs 0:06:32.480 --> 0:06:35.200 can have an influence, but they tend to be kind 0:06:35.200 --> 0:06:36.200 of difficult to get rid of. 0:06:36.320 --> 0:06:38.400 Brandon, This is exactly why we need you to explain 0:06:38.440 --> 0:06:40.760 these sort of things to us. This is, you know, 0:06:40.800 --> 0:06:43.120 a debate that's been focused very much around the US 0:06:43.160 --> 0:06:46.960 and China. But how does Europe fit into this, because 0:06:47.080 --> 0:06:49.800 it's relevant to this part of the world as well. 0:06:49.920 --> 0:06:53.919 Right, So the US's response has been characterized as preemptive, 0:06:54.200 --> 0:06:57.360 trying to get in front of some industries, the green 0:06:57.480 --> 0:07:01.560 energy industries, electric vehicles, and so on, before China becomes 0:07:01.600 --> 0:07:04.560 the dominant player in these industries. If it's not already. 0:07:04.760 --> 0:07:07.880 So this is the preemptive approach from the American side. 0:07:07.920 --> 0:07:11.920 The European side has been called more reactionary. The European 0:07:12.320 --> 0:07:16.840 Union is investigating Chinese made electric vehicles right now. That 0:07:16.960 --> 0:07:19.840 decision is going to be announced and in the next 0:07:19.840 --> 0:07:22.360 several weeks or maybe a month or two, and we 0:07:22.400 --> 0:07:26.680 could see tariffs on electric vehicles made in China coming 0:07:26.720 --> 0:07:30.160 into the EU, so similar to what the US has done. 0:07:30.280 --> 0:07:32.920 So Europe is a bit behind the curve. But as 0:07:32.960 --> 0:07:36.920 one European official said recently, look, you know it's taken 0:07:36.960 --> 0:07:39.760 a couple of decades, but we realize that we're quote 0:07:39.840 --> 0:07:42.880 unquote getting played by China. 0:07:43.040 --> 0:07:45.720 Knowing that you have been played, of course, teaches you 0:07:45.840 --> 0:07:49.360 that you need to watch out to be much more observant. 0:07:52.920 --> 0:07:55.560 We've talked about the present, we've talked about the past. 0:07:55.640 --> 0:07:59.000 What's the future, then what's the next frontier in the 0:07:59.040 --> 0:08:00.400 global tariff base? 0:08:00.640 --> 0:08:03.080 So the tariffs that we've talked about apply to goods 0:08:03.080 --> 0:08:05.760 and services. The kinds of services that we've been used 0:08:05.800 --> 0:08:08.600 to over the years. Those are real estate services or 0:08:08.600 --> 0:08:12.200 consulting services, the kinds of transactions that go across borders 0:08:12.240 --> 0:08:15.400 face to face. The new frontier in the trade world 0:08:15.880 --> 0:08:19.200 is e commerce and what's called digital trade. That's anything 0:08:19.280 --> 0:08:22.760 that's transacted digitally. Say a concert ticket that you buy 0:08:22.840 --> 0:08:24.880 in the US and it gets emailed to you. Well, 0:08:24.920 --> 0:08:27.160 it doesn't cross through any port, it doesn't go through 0:08:27.160 --> 0:08:29.680 any airport, and there's no custom duty on that. So 0:08:29.840 --> 0:08:33.079 digital transactions, there are no rules for the global Internet 0:08:33.120 --> 0:08:36.439 when it comes to taxing these sort of commerce. So 0:08:36.800 --> 0:08:40.160 there's a big debate at the WTO about what to 0:08:40.200 --> 0:08:44.200 do about this. Some countries like Indonesia or South Africa 0:08:44.640 --> 0:08:47.920 want to put tariffs on e commerce transactions as a 0:08:47.960 --> 0:08:50.600 way to collect revenue and as a way to protect 0:08:50.640 --> 0:08:54.640 their domestic technology companies. The US has a dominant role 0:08:54.880 --> 0:08:57.960 in data flows and e commerce, with the big tech 0:08:58.000 --> 0:09:02.000 companies based in the US. Europeans are also concerned. So 0:09:02.280 --> 0:09:04.640 there's no telling which direction this is going to go in, 0:09:04.679 --> 0:09:08.160 but people are increasingly concerned that we're headed toward a 0:09:08.200 --> 0:09:12.040 more balkanized kind of global Internet, which means you know, 0:09:12.160 --> 0:09:14.440 one day you might be downloading a book on your 0:09:14.520 --> 0:09:17.679 vacation in Bali and you know it'll come with ten 0:09:17.720 --> 0:09:18.640 percent tariff on it. 0:09:18.880 --> 0:09:21.600 And just briefly, Brandon, we've talked about the WTO quite 0:09:21.600 --> 0:09:25.520 a bit in this as well. How useful is the 0:09:25.640 --> 0:09:29.280 WTO in the today in the tomorrow world of policing 0:09:29.360 --> 0:09:30.360 these trade tariffs. 0:09:30.559 --> 0:09:33.720 Well, the WTO is going through a sort of existential 0:09:33.880 --> 0:09:36.720 problem right now. No one is really playing by the 0:09:36.840 --> 0:09:41.320 WTO rules. Its appeals function is not working, so the 0:09:41.440 --> 0:09:45.079 rules of global trade and the enforcer of those rules 0:09:45.120 --> 0:09:48.080 isn't really operating. So it's a big question where the 0:09:48.200 --> 0:09:50.960 WTO goes from here. Former President Trump has talked about 0:09:51.040 --> 0:09:55.239 quitting the WTO. 0:09:55.000 --> 0:09:57.640 The World Trade Organization. As you know, I've had a 0:09:57.679 --> 0:10:00.640 dispute running with them for quite a while because our 0:10:00.679 --> 0:10:04.400 country hasn't been treated fairly. China's viewer as a developing nation, 0:10:04.600 --> 0:10:07.160 India's viewed as a developing nation. We're not viewed as 0:10:07.200 --> 0:10:09.720 a developing nation. As far as I'm concerned. We're developing 0:10:09.800 --> 0:10:12.079 nation too. 0:10:12.920 --> 0:10:16.360 The WTO has a really big challenge to become relevant 0:10:16.400 --> 0:10:20.600 again in an environment where countries are just increasingly going protectionist. 0:10:20.880 --> 0:10:23.280 Brenton Murray Bloomberg's Trade Zara, thank you so much for 0:10:23.320 --> 0:10:27.000 bringing us that explanation of the debate over tariff's past, 0:10:27.080 --> 0:10:30.199 present and future, and for more explanations like this from 0:10:30.240 --> 0:10:33.319 our team of twenty seven hundred journalists and analysts around 0:10:33.360 --> 0:10:36.000 the world. Search for quick take on the Bloomberg website 0:10:36.080 --> 0:10:40.440 or the Bloomberg Business app. I'm Stephen Carroll, and this 0:10:40.720 --> 0:10:43.520 is here's why. I'll be back next week with more. 0:10:43.920 --> 0:10:44.720 Thanks for listening.