1 00:00:01,840 --> 00:00:07,480 Speaker 1: Welcome to Brainstuff, a production of iHeartRadio, Hey brain Stuff 2 00:00:07,520 --> 00:00:13,960 Speaker 1: Lauren Vogelbaum. Here, the economics of international trade are notoriously sticky. 3 00:00:14,720 --> 00:00:17,680 Speaker 1: The World Trade Organization was formed for the express purpose 4 00:00:17,760 --> 00:00:20,200 Speaker 1: of getting countries to play nice when it comes to 5 00:00:20,280 --> 00:00:25,120 Speaker 1: the often dangerous and always intricate matters of global trade. 6 00:00:25,320 --> 00:00:28,440 Speaker 1: But what happens when politicians don't want to play nice? 7 00:00:28,840 --> 00:00:34,360 Speaker 1: Who actually wins and loses in a trade war? To 8 00:00:34,479 --> 00:00:39,000 Speaker 1: investigate this question, we have to talk about tariffs. A 9 00:00:39,040 --> 00:00:42,560 Speaker 1: tariff is basically a border tax levied on products coming 10 00:00:42,640 --> 00:00:45,640 Speaker 1: into a country based on things like the country of origin, 11 00:00:45,960 --> 00:00:51,279 Speaker 1: say China, or the type of product, say steel. When 12 00:00:51,440 --> 00:00:54,200 Speaker 1: the United States implements a tariff, it is the US 13 00:00:54,360 --> 00:00:58,720 Speaker 1: importer who pays the tax, not the foreign exporter. So, 14 00:00:59,000 --> 00:01:02,400 Speaker 1: for example, let's say the Trump administration orders a twenty 15 00:01:02,400 --> 00:01:06,560 Speaker 1: five percent tariff on Chinese steel. If an American company 16 00:01:06,600 --> 00:01:09,360 Speaker 1: wants to buy one million dollars worth of steel from China, 17 00:01:09,680 --> 00:01:12,679 Speaker 1: it would cost that American company one and a quarter million, 18 00:01:12,959 --> 00:01:16,840 Speaker 1: including Trump's tariff. The extra quarter of a million goes 19 00:01:16,880 --> 00:01:20,440 Speaker 1: to the American government, and again it is the American 20 00:01:20,520 --> 00:01:24,520 Speaker 1: importer that pays this increasing cost. Not the Chinese exporter. 21 00:01:26,560 --> 00:01:30,040 Speaker 1: The idea behind tariffs is that they should boost American business, 22 00:01:30,440 --> 00:01:33,080 Speaker 1: with the hopes that instead of paying that quarter of 23 00:01:33,120 --> 00:01:36,240 Speaker 1: a million dollar tax, American companies in need of steel 24 00:01:36,360 --> 00:01:40,280 Speaker 1: will buy from American producers, thus helping this hard hit industry, 25 00:01:40,560 --> 00:01:42,920 Speaker 1: which in turn will hire more workers to keep up 26 00:01:42,920 --> 00:01:45,560 Speaker 1: with the increased demand. And sounds like a win for 27 00:01:45,600 --> 00:01:50,960 Speaker 1: American business. But there's no guarantee that tariffs will play 28 00:01:50,960 --> 00:01:53,880 Speaker 1: out this way, because none of this happens in a vacuum. 29 00:01:55,200 --> 00:01:58,640 Speaker 1: Maybe Chinese steel is still less expensive than American steel 30 00:01:58,760 --> 00:02:02,640 Speaker 1: even with the tariff. Maybe American steel producers aren't equipped 31 00:02:02,640 --> 00:02:06,560 Speaker 1: to step up production fast enough to meet demand. If 32 00:02:06,600 --> 00:02:09,799 Speaker 1: American companies in need of steel decide it's easier, for 33 00:02:09,840 --> 00:02:14,480 Speaker 1: whatever reason, to just keep importing Chinese steel, consumer prices 34 00:02:14,520 --> 00:02:18,079 Speaker 1: will go up on everything that contains steel, like cars 35 00:02:18,200 --> 00:02:21,839 Speaker 1: or washing machines. That's because the cost of making those 36 00:02:21,840 --> 00:02:24,720 Speaker 1: goods will go up, and companies aren't going to just 37 00:02:24,800 --> 00:02:27,000 Speaker 1: eat the extra cost. They're going to pass it on 38 00:02:27,040 --> 00:02:32,240 Speaker 1: to the consumer that in turn can have further reaching 39 00:02:32,320 --> 00:02:36,120 Speaker 1: negative effects. Maybe consumers don't buy those products at all, 40 00:02:36,480 --> 00:02:39,880 Speaker 1: which is bad for the companies. If consumers do cough 41 00:02:39,960 --> 00:02:42,440 Speaker 1: up the dough for the higher price, they'll have less 42 00:02:42,480 --> 00:02:46,800 Speaker 1: money to spend elsewhere. That means other American companies could suffer, 43 00:02:46,840 --> 00:02:50,360 Speaker 1: which could cause a pullback in those industries, actually costing 44 00:02:50,440 --> 00:02:56,240 Speaker 1: American jobs overall. For the article, this episode is based 45 00:02:56,280 --> 00:02:58,760 Speaker 1: on how Stuff Works spoke back in twenty eighteen with 46 00:02:58,880 --> 00:03:02,359 Speaker 1: Charles Hankla, professor of political science at Georgia State University 47 00:03:02,360 --> 00:03:06,760 Speaker 1: in Atlanta. He said, what trade does in the aggregate. 48 00:03:06,960 --> 00:03:11,080 Speaker 1: It expands production, it expands jobs, it lowers prices. It 49 00:03:11,120 --> 00:03:15,840 Speaker 1: benefits countries in the aggregate, but it has distributional impacts. 50 00:03:18,080 --> 00:03:20,080 Speaker 1: What does he mean by that. Let's stick with the 51 00:03:20,080 --> 00:03:23,960 Speaker 1: example of steel. The American steel industry has been hurt 52 00:03:24,080 --> 00:03:26,480 Speaker 1: by the trade of less expensive steel coming in from 53 00:03:26,480 --> 00:03:31,239 Speaker 1: other countries. But the industries that use steel, those car 54 00:03:31,400 --> 00:03:35,120 Speaker 1: or washing machine manufacturers, have benefited because the price of 55 00:03:35,160 --> 00:03:38,520 Speaker 1: steel has gone down, and these days there's a lot 56 00:03:38,560 --> 00:03:44,800 Speaker 1: more Americans working in manufacturing than in production. Of course, 57 00:03:44,960 --> 00:03:48,600 Speaker 1: tariffs were not invented during the current political cycle. They're 58 00:03:48,640 --> 00:03:52,720 Speaker 1: a fact of international trading. The World Trade Organization provides 59 00:03:52,720 --> 00:03:55,680 Speaker 1: a forum for virtually all countries. It has on one 60 00:03:55,760 --> 00:03:59,000 Speaker 1: hundred and sixty four members to hammer out trade agreements. 61 00:04:00,040 --> 00:04:03,040 Speaker 1: The WTO got started just after World War II with 62 00:04:03,160 --> 00:04:06,960 Speaker 1: the General Agreement on Tariffs in Trade, and it implements 63 00:04:07,000 --> 00:04:10,360 Speaker 1: and monitors trade agreements, which includes what could be described 64 00:04:10,360 --> 00:04:15,320 Speaker 1: as tariffs or trade barriers or taxes negotiated by all parties. 65 00:04:16,960 --> 00:04:20,320 Speaker 1: Other agreements could be struck among nations too, like NAFTA 66 00:04:20,400 --> 00:04:23,840 Speaker 1: the North American Free Trade Agreement which covers the US, Canada, 67 00:04:23,880 --> 00:04:27,080 Speaker 1: and Mexico, but again those are deals that have to 68 00:04:27,080 --> 00:04:32,520 Speaker 1: be agreed upon by all parties. U S presidents normally 69 00:04:32,560 --> 00:04:36,560 Speaker 1: cannot impose tariffs without first going through the US International 70 00:04:36,600 --> 00:04:40,599 Speaker 1: Trade Commission, which is an independent, nonpartisan government agency that 71 00:04:40,680 --> 00:04:44,920 Speaker 1: was established in nineteen sixteen that researches international trade issues, 72 00:04:45,080 --> 00:04:51,359 Speaker 1: provides analysis to the President and Congress, and helps settle disputes. However, 73 00:04:51,600 --> 00:04:54,920 Speaker 1: the Trade Act of nineteen seventy four gave presidents power 74 00:04:55,080 --> 00:04:59,719 Speaker 1: to impose tariffs in response to matters of national security. 75 00:05:00,279 --> 00:05:02,680 Speaker 1: That's how Trump was able to push tariffs through in 76 00:05:02,720 --> 00:05:06,360 Speaker 1: his previous term, during which his administration hit China with 77 00:05:06,440 --> 00:05:09,680 Speaker 1: ten percent tariffs on two hundred billion dollars worth of imports, 78 00:05:10,120 --> 00:05:13,960 Speaker 1: then increased that to twenty five percent. These penalties affected 79 00:05:14,000 --> 00:05:17,160 Speaker 1: the prices that US consumers paid for scores of products 80 00:05:17,440 --> 00:05:22,440 Speaker 1: ranging from computers to luggage, and Chinese officials responded by 81 00:05:22,520 --> 00:05:26,120 Speaker 1: stepping up border inspections of US goods, holding up licenses 82 00:05:26,120 --> 00:05:29,200 Speaker 1: for US companies to do business in China, and adding 83 00:05:29,200 --> 00:05:33,279 Speaker 1: their own tariffs on US products. That kind of retaliation 84 00:05:33,520 --> 00:05:39,720 Speaker 1: the cansteiny business is common in a trade conflict. In 85 00:05:39,800 --> 00:05:43,520 Speaker 1: early January of twenty twenty five, Trump spoke about expanding 86 00:05:43,560 --> 00:05:48,479 Speaker 1: tariffs by declaring a national Economic emergency, instituting global tariffs 87 00:05:48,480 --> 00:05:51,279 Speaker 1: of as much as ten percent, a tariffs on Canadian 88 00:05:51,320 --> 00:05:53,800 Speaker 1: and Mexican products of up to twenty five percent, and 89 00:05:53,920 --> 00:05:57,880 Speaker 1: on Chinese products of up to sixty percent. Experts say 90 00:05:57,880 --> 00:06:00,440 Speaker 1: that that would invoke a different act, the Inner National 91 00:06:00,480 --> 00:06:05,040 Speaker 1: Emergency Economic Powers Act of nineteen seventy seven, though there's 92 00:06:05,200 --> 00:06:08,240 Speaker 1: argument about whether that act would actually legally allow the 93 00:06:08,279 --> 00:06:12,120 Speaker 1: Trump administration to do that, and furthermore about whether Trump 94 00:06:12,240 --> 00:06:16,840 Speaker 1: was even making a serious threat. But this is hardly 95 00:06:16,880 --> 00:06:19,279 Speaker 1: the first time that the US and other nations have 96 00:06:19,320 --> 00:06:23,520 Speaker 1: become involved in conflicts over trade. Trade wars can happen 97 00:06:23,560 --> 00:06:26,920 Speaker 1: for various reasons. It could be that one nation decides 98 00:06:26,960 --> 00:06:30,120 Speaker 1: it's getting a raw deal because another nation provides subsidies 99 00:06:30,120 --> 00:06:33,040 Speaker 1: to its manufacturers so they can export goods that are 100 00:06:33,080 --> 00:06:36,479 Speaker 1: priced too low to compete with. Or it could be 101 00:06:36,560 --> 00:06:39,000 Speaker 1: that a nation decides it wants to nurture its own 102 00:06:39,000 --> 00:06:45,400 Speaker 1: industries by hindering their foreign competitors with protective tariffs. Trump 103 00:06:45,400 --> 00:06:48,719 Speaker 1: has spoken extensively about wanting to lower the trade deficit 104 00:06:49,000 --> 00:06:54,320 Speaker 1: and bring back American manufacturing jobs. However, many economists don't 105 00:06:54,360 --> 00:06:57,360 Speaker 1: see the US trade deficit, which occurs when a country 106 00:06:57,440 --> 00:07:00,640 Speaker 1: imports more than an exports, as that big of a deal. 107 00:07:01,720 --> 00:07:04,840 Speaker 1: Some consider it necessary to the strength of the global economy, 108 00:07:05,920 --> 00:07:09,680 Speaker 1: and many economic experts say that reviving manufacturing in America 109 00:07:09,760 --> 00:07:13,360 Speaker 1: is a lost cause, that advancing technology is driving the 110 00:07:13,440 --> 00:07:20,040 Speaker 1: industrialization here, not bad trade deals. Centuries ago, trade wars 111 00:07:20,200 --> 00:07:25,200 Speaker 1: often involved actual violence. In the seventeen and early eighteen hundreds, 112 00:07:25,240 --> 00:07:29,000 Speaker 1: for example, China sold a lot of tea and porcelain 113 00:07:29,040 --> 00:07:32,040 Speaker 1: to the British Empire, so much so that the British 114 00:07:32,120 --> 00:07:34,640 Speaker 1: got worried about the outflow of silver to pay for it. 115 00:07:35,640 --> 00:07:38,800 Speaker 1: They decided to fix the trade imbalance by getting China 116 00:07:38,840 --> 00:07:42,160 Speaker 1: to import large quantities of opium that the British produced 117 00:07:42,200 --> 00:07:46,840 Speaker 1: in India. When the Chinese government eventually bulked at this arrangement, 118 00:07:47,240 --> 00:07:50,080 Speaker 1: the British sent in their warships and forced the Chinese 119 00:07:50,120 --> 00:07:53,080 Speaker 1: to sign the eighteen forty two Treaty that not only 120 00:07:53,120 --> 00:07:56,160 Speaker 1: opened up China to British trade, but gave the territory 121 00:07:56,160 --> 00:07:59,640 Speaker 1: of Hong Kong to the British. This conflict became known 122 00:07:59,680 --> 00:08:03,640 Speaker 1: as the First Opium War, and it's super complicated a 123 00:08:03,640 --> 00:08:08,280 Speaker 1: different episode, but even a bloodless trade war can cause 124 00:08:08,360 --> 00:08:12,400 Speaker 1: plenty of suffering. A lot of observers are seeing unsettling 125 00:08:12,440 --> 00:08:16,160 Speaker 1: parallels between Trump's multi front trade warfare and the trade 126 00:08:16,200 --> 00:08:19,080 Speaker 1: war that erupted in the nineteen thirties after President Herbert 127 00:08:19,120 --> 00:08:22,559 Speaker 1: Hoover signed into law the Smoot Holly Act, which raised 128 00:08:22,640 --> 00:08:26,720 Speaker 1: US tariffs by an average of sixteen percent. Other countries 129 00:08:26,800 --> 00:08:30,680 Speaker 1: enacted their own tariffs in response, leading to a disastrous 130 00:08:30,800 --> 00:08:36,400 Speaker 1: global decline in trade. Hastuffworks also spoke via email back 131 00:08:36,440 --> 00:08:39,880 Speaker 1: in twenty nineteen with Douglas A. Irwin, an economics professor 132 00:08:39,920 --> 00:08:44,120 Speaker 1: at Dartmouth College. He said Smoot Hawley was passed by 133 00:08:44,160 --> 00:08:46,800 Speaker 1: the House in the spring of nineteen twenty nine, before 134 00:08:46,880 --> 00:08:49,320 Speaker 1: the business cycle peak at a time when the economy 135 00:08:49,360 --> 00:08:53,080 Speaker 1: was doing well and the unemployment rate was low. However, 136 00:08:53,320 --> 00:08:55,400 Speaker 1: it got held up by the Senate, and by that 137 00:08:55,520 --> 00:08:57,520 Speaker 1: time the stock market had crashed in the fall of 138 00:08:57,600 --> 00:09:00,720 Speaker 1: nineteen twenty nine and the economy was moving into a recession, 139 00:09:00,880 --> 00:09:04,800 Speaker 1: which later became the Depression. The economy continued to get 140 00:09:04,800 --> 00:09:07,800 Speaker 1: worse after the passage of Smooth Holly, and the retaliation 141 00:09:07,840 --> 00:09:10,240 Speaker 1: against US exports that occurred because of it is thought 142 00:09:10,280 --> 00:09:13,520 Speaker 1: to have contributed to the severe economic difficulties at the time. 143 00:09:14,679 --> 00:09:17,400 Speaker 1: So there is a cautionary tale here. Just because the 144 00:09:17,440 --> 00:09:20,360 Speaker 1: economy is doing well and close to a peak does 145 00:09:20,400 --> 00:09:23,120 Speaker 1: not mean that things cannot go badly if one moves 146 00:09:23,160 --> 00:09:29,400 Speaker 1: in a protectionist direction. Smoot Hawlly also helped stimulate a 147 00:09:29,440 --> 00:09:34,400 Speaker 1: surge of angry nationalism in other countries. Irwin said, if 148 00:09:34,440 --> 00:09:37,600 Speaker 1: one country slaps tariffs on your goods, the usual response 149 00:09:37,679 --> 00:09:40,240 Speaker 1: is to take offense and retaliate, rather than to turn 150 00:09:40,280 --> 00:09:44,880 Speaker 1: the other cheap. Nationalists gain strength on perceived slights. And 151 00:09:45,120 --> 00:09:48,120 Speaker 1: just think about how China still remembers being humiliated by 152 00:09:48,160 --> 00:09:50,960 Speaker 1: Western powers during the Opium Wars of the nineteenth century, 153 00:09:51,200 --> 00:09:54,280 Speaker 1: and it's vow to never be so weak again, when 154 00:09:54,280 --> 00:09:58,120 Speaker 1: the Trump administration bullies countries today on trade, it naturally 155 00:09:58,200 --> 00:10:01,640 Speaker 1: leads other countries to stiffen their resild to resist the US. 156 00:10:03,320 --> 00:10:06,520 Speaker 1: Another big problem with trade wars is that, again, there 157 00:10:06,520 --> 00:10:10,040 Speaker 1: can be a lot of collateral damage. Poor people tend 158 00:10:10,080 --> 00:10:13,920 Speaker 1: to suffer disproportionately since basic necessities that they already struggle 159 00:10:14,000 --> 00:10:18,480 Speaker 1: to afford, like food, shoes, and transportation, can become more expensive, 160 00:10:19,360 --> 00:10:21,720 Speaker 1: and working class jobs can take a hit as well. 161 00:10:22,600 --> 00:10:24,960 Speaker 1: Let's continue with the example of steel, which the Trump 162 00:10:25,000 --> 00:10:29,280 Speaker 1: administration actually did impose tariffs on in twenty eighteen from Canada, Mexico, 163 00:10:29,400 --> 00:10:33,360 Speaker 1: and the European Union. Ast off Works spoke by email 164 00:10:33,400 --> 00:10:36,360 Speaker 1: in twenty nineteen with Philip I. Levy, who's now a 165 00:10:36,440 --> 00:10:40,600 Speaker 1: lead trade economist at the World Bank. He explained, if 166 00:10:40,640 --> 00:10:44,200 Speaker 1: you are in a steel using sector, like an autoparts manufacturer, 167 00:10:44,480 --> 00:10:47,400 Speaker 1: you are more likely to be hurt by the steel tariffs. 168 00:10:47,760 --> 00:10:49,960 Speaker 1: If you're in the construction sector, you're likely to be 169 00:10:50,000 --> 00:10:53,520 Speaker 1: hurt by terras on steel. These are hits to income 170 00:10:53,559 --> 00:10:56,400 Speaker 1: and employment, which are in addition to the hits people 171 00:10:56,440 --> 00:10:59,920 Speaker 1: take as consumers. To be fair, if you're a shareholder 172 00:11:00,160 --> 00:11:02,480 Speaker 1: US Steel, you're pretty happy you don't have to face 173 00:11:02,480 --> 00:11:06,000 Speaker 1: as much competition. True for workers as well, but much 174 00:11:06,040 --> 00:11:08,840 Speaker 1: of the job loss has been to automation, not trade, 175 00:11:09,120 --> 00:11:14,760 Speaker 1: so the tariffs don't fix that. The world economy and 176 00:11:14,840 --> 00:11:17,400 Speaker 1: global trade are stronger today than they were in the 177 00:11:17,440 --> 00:11:20,640 Speaker 1: early nineteen thirties, but a trade war today might be 178 00:11:20,760 --> 00:11:26,280 Speaker 1: even more damaging. Letty said, there's this unusual argument about 179 00:11:26,280 --> 00:11:28,200 Speaker 1: why this is a great time for a trade war. 180 00:11:28,559 --> 00:11:30,600 Speaker 1: It's a little like saying that today is a good 181 00:11:30,679 --> 00:11:32,440 Speaker 1: day for me to slam my hand in the car 182 00:11:32,480 --> 00:11:34,800 Speaker 1: door since I don't have to give a piano performance 183 00:11:34,800 --> 00:11:37,520 Speaker 1: in the near future. While that may be true, it's 184 00:11:37,520 --> 00:11:39,440 Speaker 1: still not a good idea to slam my hand in 185 00:11:39,480 --> 00:11:44,320 Speaker 1: a car door. He continued. Why might now be worse 186 00:11:44,360 --> 00:11:47,319 Speaker 1: than the nineteen thirties for the United States? Back then 187 00:11:47,440 --> 00:11:50,360 Speaker 1: everyone was doing it and we didn't really have global 188 00:11:50,360 --> 00:11:53,400 Speaker 1: supply chains. And now it is not the case that 189 00:11:53,480 --> 00:11:57,240 Speaker 1: all countries are raising trade barriers against everyone else. It's 190 00:11:57,280 --> 00:12:00,000 Speaker 1: the United States that is carving itself out of global 191 00:12:00,080 --> 00:12:06,240 Speaker 1: supply chains. All of that means that because most of 192 00:12:06,280 --> 00:12:08,520 Speaker 1: the rest of the world is still playing nice with 193 00:12:08,600 --> 00:12:13,400 Speaker 1: trade deals, American businesses could be uniquely disadvantaged by expanding 194 00:12:13,440 --> 00:12:21,000 Speaker 1: tariffs in the United States. Today's episode is based on 195 00:12:21,040 --> 00:12:23,360 Speaker 1: the articles who Wins and Loses in a Trade War? 196 00:12:23,440 --> 00:12:26,360 Speaker 1: Written by Patrick J. Higer and who Wins and Loses 197 00:12:26,440 --> 00:12:29,520 Speaker 1: If the US imposes Steel Tariffs written by John Donovan 198 00:12:29,679 --> 00:12:33,439 Speaker 1: on HowStuffWorks dot Com. Brain Stuff was production of iHeartRadio 199 00:12:33,559 --> 00:12:35,880 Speaker 1: in partnership with how Stuffworks dot Com and is produced 200 00:12:35,880 --> 00:12:39,360 Speaker 1: by Tyler Klang. Four more podcasts my heart Radio, visit 201 00:12:39,400 --> 00:12:42,440 Speaker 1: the iHeartRadio app, Apple Podcasts, or wherever you listen to 202 00:12:42,480 --> 00:12:43,360 Speaker 1: your favorite shows.