Speaker 1: Welcome to Brainstuff, a production of iHeartRadio, Hey brain Stuff
Speaker 1: Lauren Vogelbaum. Here, the economics of international trade are notoriously sticky.
Speaker 1: The World Trade Organization was formed for the express purpose
Speaker 1: of getting countries to play nice when it comes to
Speaker 1: the often dangerous and always intricate matters of global trade.
Speaker 1: But what happens when politicians don't want to play nice?
Speaker 1: Who actually wins and loses in a trade war? To
Speaker 1: investigate this question, we have to talk about tariffs. A
Speaker 1: tariff is basically a border tax levied on products coming
Speaker 1: into a country based on things like the country of origin,
Speaker 1: say China, or the type of product, say steel. When
Speaker 1: the United States implements a tariff, it is the US
Speaker 1: importer who pays the tax, not the foreign exporter. So,
Speaker 1: for example, let's say the Trump administration orders a twenty
Speaker 1: five percent tariff on Chinese steel. If an American company
Speaker 1: wants to buy one million dollars worth of steel from China,
Speaker 1: it would cost that American company one and a quarter million,
Speaker 1: including Trump's tariff. The extra quarter of a million goes
Speaker 1: to the American government, and again it is the American
Speaker 1: importer that pays this increasing cost. Not the Chinese exporter.
Speaker 1: The idea behind tariffs is that they should boost American business,
Speaker 1: with the hopes that instead of paying that quarter of
Speaker 1: a million dollar tax, American companies in need of steel
Speaker 1: will buy from American producers, thus helping this hard hit industry,
Speaker 1: which in turn will hire more workers to keep up
Speaker 1: with the increased demand. And sounds like a win for
Speaker 1: American business. But there's no guarantee that tariffs will play
Speaker 1: out this way, because none of this happens in a vacuum.
Speaker 1: Maybe Chinese steel is still less expensive than American steel
Speaker 1: even with the tariff. Maybe American steel producers aren't equipped
Speaker 1: to step up production fast enough to meet demand. If
Speaker 1: American companies in need of steel decide it's easier, for
Speaker 1: whatever reason, to just keep importing Chinese steel, consumer prices
Speaker 1: will go up on everything that contains steel, like cars
Speaker 1: or washing machines. That's because the cost of making those
Speaker 1: goods will go up, and companies aren't going to just
Speaker 1: eat the extra cost. They're going to pass it on
Speaker 1: to the consumer that in turn can have further reaching
Speaker 1: negative effects. Maybe consumers don't buy those products at all,
Speaker 1: which is bad for the companies. If consumers do cough
Speaker 1: up the dough for the higher price, they'll have less
Speaker 1: money to spend elsewhere. That means other American companies could suffer,
Speaker 1: which could cause a pullback in those industries, actually costing
Speaker 1: American jobs overall. For the article, this episode is based
Speaker 1: on how Stuff Works spoke back in twenty eighteen with
Speaker 1: Charles Hankla, professor of political science at Georgia State University
Speaker 1: in Atlanta. He said, what trade does in the aggregate.
Speaker 1: It expands production, it expands jobs, it lowers prices. It
Speaker 1: benefits countries in the aggregate, but it has distributional impacts.
Speaker 1: What does he mean by that. Let's stick with the
Speaker 1: example of steel. The American steel industry has been hurt
Speaker 1: by the trade of less expensive steel coming in from
Speaker 1: other countries. But the industries that use steel, those car
Speaker 1: or washing machine manufacturers, have benefited because the price of
Speaker 1: steel has gone down, and these days there's a lot
Speaker 1: more Americans working in manufacturing than in production. Of course,
Speaker 1: tariffs were not invented during the current political cycle. They're
Speaker 1: a fact of international trading. The World Trade Organization provides
Speaker 1: a forum for virtually all countries. It has on one
Speaker 1: hundred and sixty four members to hammer out trade agreements.
Speaker 1: The WTO got started just after World War II with
Speaker 1: the General Agreement on Tariffs in Trade, and it implements
Speaker 1: and monitors trade agreements, which includes what could be described
Speaker 1: as tariffs or trade barriers or taxes negotiated by all parties.
Speaker 1: Other agreements could be struck among nations too, like NAFTA
Speaker 1: the North American Free Trade Agreement which covers the US, Canada,
Speaker 1: and Mexico, but again those are deals that have to
Speaker 1: be agreed upon by all parties. U S presidents normally
Speaker 1: cannot impose tariffs without first going through the US International
Speaker 1: Trade Commission, which is an independent, nonpartisan government agency that
Speaker 1: was established in nineteen sixteen that researches international trade issues,
Speaker 1: provides analysis to the President and Congress, and helps settle disputes. However,
Speaker 1: the Trade Act of nineteen seventy four gave presidents power
Speaker 1: to impose tariffs in response to matters of national security.
Speaker 1: That's how Trump was able to push tariffs through in
Speaker 1: his previous term, during which his administration hit China with
Speaker 1: ten percent tariffs on two hundred billion dollars worth of imports,
Speaker 1: then increased that to twenty five percent. These penalties affected
Speaker 1: the prices that US consumers paid for scores of products
Speaker 1: ranging from computers to luggage, and Chinese officials responded by
Speaker 1: stepping up border inspections of US goods, holding up licenses
Speaker 1: for US companies to do business in China, and adding
Speaker 1: their own tariffs on US products. That kind of retaliation
Speaker 1: the cansteiny business is common in a trade conflict. In
Speaker 1: early January of twenty twenty five, Trump spoke about expanding
Speaker 1: tariffs by declaring a national Economic emergency, instituting global tariffs
Speaker 1: of as much as ten percent, a tariffs on Canadian
Speaker 1: and Mexican products of up to twenty five percent, and
Speaker 1: on Chinese products of up to sixty percent. Experts say
Speaker 1: that that would invoke a different act, the Inner National
Speaker 1: Emergency Economic Powers Act of nineteen seventy seven, though there's
Speaker 1: argument about whether that act would actually legally allow the
Speaker 1: Trump administration to do that, and furthermore about whether Trump
Speaker 1: was even making a serious threat. But this is hardly
Speaker 1: the first time that the US and other nations have
Speaker 1: become involved in conflicts over trade. Trade wars can happen
Speaker 1: for various reasons. It could be that one nation decides
Speaker 1: it's getting a raw deal because another nation provides subsidies
Speaker 1: to its manufacturers so they can export goods that are
Speaker 1: priced too low to compete with. Or it could be
Speaker 1: that a nation decides it wants to nurture its own
Speaker 1: industries by hindering their foreign competitors with protective tariffs. Trump
Speaker 1: has spoken extensively about wanting to lower the trade deficit
Speaker 1: and bring back American manufacturing jobs. However, many economists don't
Speaker 1: see the US trade deficit, which occurs when a country
Speaker 1: imports more than an exports, as that big of a deal.
Speaker 1: Some consider it necessary to the strength of the global economy,
Speaker 1: and many economic experts say that reviving manufacturing in America
Speaker 1: is a lost cause, that advancing technology is driving the
Speaker 1: industrialization here, not bad trade deals. Centuries ago, trade wars
Speaker 1: often involved actual violence. In the seventeen and early eighteen hundreds,
Speaker 1: for example, China sold a lot of tea and porcelain
Speaker 1: to the British Empire, so much so that the British
Speaker 1: got worried about the outflow of silver to pay for it.
Speaker 1: They decided to fix the trade imbalance by getting China
Speaker 1: to import large quantities of opium that the British produced
Speaker 1: in India. When the Chinese government eventually bulked at this arrangement,
Speaker 1: the British sent in their warships and forced the Chinese
Speaker 1: to sign the eighteen forty two Treaty that not only
Speaker 1: opened up China to British trade, but gave the territory
Speaker 1: of Hong Kong to the British. This conflict became known
Speaker 1: as the First Opium War, and it's super complicated a
Speaker 1: different episode, but even a bloodless trade war can cause
Speaker 1: plenty of suffering. A lot of observers are seeing unsettling
Speaker 1: parallels between Trump's multi front trade warfare and the trade
Speaker 1: war that erupted in the nineteen thirties after President Herbert
Speaker 1: Hoover signed into law the Smoot Holly Act, which raised
Speaker 1: US tariffs by an average of sixteen percent. Other countries
Speaker 1: enacted their own tariffs in response, leading to a disastrous
Speaker 1: global decline in trade. Hastuffworks also spoke via email back
Speaker 1: in twenty nineteen with Douglas A. Irwin, an economics professor
Speaker 1: at Dartmouth College. He said Smoot Hawley was passed by
Speaker 1: the House in the spring of nineteen twenty nine, before
Speaker 1: the business cycle peak at a time when the economy
Speaker 1: was doing well and the unemployment rate was low. However,
Speaker 1: it got held up by the Senate, and by that
Speaker 1: time the stock market had crashed in the fall of
Speaker 1: nineteen twenty nine and the economy was moving into a recession,
Speaker 1: which later became the Depression. The economy continued to get
Speaker 1: worse after the passage of Smooth Holly, and the retaliation
Speaker 1: against US exports that occurred because of it is thought
Speaker 1: to have contributed to the severe economic difficulties at the time.
Speaker 1: So there is a cautionary tale here. Just because the
Speaker 1: economy is doing well and close to a peak does
Speaker 1: not mean that things cannot go badly if one moves
Speaker 1: in a protectionist direction. Smoot Hawlly also helped stimulate a
Speaker 1: surge of angry nationalism in other countries. Irwin said, if
Speaker 1: one country slaps tariffs on your goods, the usual response
Speaker 1: is to take offense and retaliate, rather than to turn
Speaker 1: the other cheap. Nationalists gain strength on perceived slights. And
Speaker 1: just think about how China still remembers being humiliated by
Speaker 1: Western powers during the Opium Wars of the nineteenth century,
Speaker 1: and it's vow to never be so weak again, when
Speaker 1: the Trump administration bullies countries today on trade, it naturally
Speaker 1: leads other countries to stiffen their resild to resist the US.
Speaker 1: Another big problem with trade wars is that, again, there
Speaker 1: can be a lot of collateral damage. Poor people tend
Speaker 1: to suffer disproportionately since basic necessities that they already struggle
Speaker 1: to afford, like food, shoes, and transportation, can become more expensive,
Speaker 1: and working class jobs can take a hit as well.
Speaker 1: Let's continue with the example of steel, which the Trump
Speaker 1: administration actually did impose tariffs on in twenty eighteen from Canada, Mexico,
Speaker 1: and the European Union. Ast off Works spoke by email
Speaker 1: in twenty nineteen with Philip I. Levy, who's now a
Speaker 1: lead trade economist at the World Bank. He explained, if
Speaker 1: you are in a steel using sector, like an autoparts manufacturer,
Speaker 1: you are more likely to be hurt by the steel tariffs.
Speaker 1: If you're in the construction sector, you're likely to be
Speaker 1: hurt by terras on steel. These are hits to income
Speaker 1: and employment, which are in addition to the hits people
Speaker 1: take as consumers. To be fair, if you're a shareholder
Speaker 1: US Steel, you're pretty happy you don't have to face
Speaker 1: as much competition. True for workers as well, but much
Speaker 1: of the job loss has been to automation, not trade,
Speaker 1: so the tariffs don't fix that. The world economy and
Speaker 1: global trade are stronger today than they were in the
Speaker 1: early nineteen thirties, but a trade war today might be
Speaker 1: even more damaging. Letty said, there's this unusual argument about
Speaker 1: why this is a great time for a trade war.
Speaker 1: It's a little like saying that today is a good
Speaker 1: day for me to slam my hand in the car
Speaker 1: door since I don't have to give a piano performance
Speaker 1: in the near future. While that may be true, it's
Speaker 1: still not a good idea to slam my hand in
Speaker 1: a car door. He continued. Why might now be worse
Speaker 1: than the nineteen thirties for the United States? Back then
Speaker 1: everyone was doing it and we didn't really have global
Speaker 1: supply chains. And now it is not the case that
Speaker 1: all countries are raising trade barriers against everyone else. It's
Speaker 1: the United States that is carving itself out of global
Speaker 1: supply chains. All of that means that because most of
Speaker 1: the rest of the world is still playing nice with
Speaker 1: trade deals, American businesses could be uniquely disadvantaged by expanding
Speaker 1: tariffs in the United States. Today's episode is based on
Speaker 1: the articles who Wins and Loses in a Trade War?
Speaker 1: Written by Patrick J. Higer and who Wins and Loses
Speaker 1: If the US imposes Steel Tariffs written by John Donovan
Speaker 1: on HowStuffWorks dot Com. Brain Stuff was production of iHeartRadio
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