1 00:00:02,480 --> 00:00:10,520 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and 2 00:00:10,560 --> 00:00:13,200 Speaker 1: this is Here's Why, where we take one news story 3 00:00:13,240 --> 00:00:15,240 Speaker 1: and explain it in just a few minutes with our 4 00:00:15,280 --> 00:00:22,360 Speaker 1: experts here at Bloomberg. If we know one thing about 5 00:00:22,360 --> 00:00:27,520 Speaker 1: Donald Trump's foreign policy, he likes to tax trade. 6 00:00:28,120 --> 00:00:32,120 Speaker 2: Most beautiful word in the dictionary is tariff, and it's 7 00:00:32,159 --> 00:00:37,600 Speaker 2: my favorite word. It needs a public relations firm. 8 00:00:37,840 --> 00:00:41,199 Speaker 1: We're going to have thousands of companies coming into this country. 9 00:00:41,200 --> 00:00:43,600 Speaker 1: We're going to grow it like it's never grown before, 10 00:00:44,120 --> 00:00:46,000 Speaker 1: and we're going to protect them when they come in 11 00:00:46,080 --> 00:00:48,600 Speaker 1: because we're not going to have somebody undercut him. That 12 00:00:48,760 --> 00:00:52,000 Speaker 1: was what the now president elect told Bloomberg in October. 13 00:00:52,479 --> 00:00:55,760 Speaker 1: During his first term, the self proclaimed tariff man enacted 14 00:00:55,840 --> 00:00:59,120 Speaker 1: duties on about three hundred and eighty billion dollars worth 15 00:00:59,120 --> 00:01:02,320 Speaker 1: of imports. Now he's promising to go further with a 16 00:01:02,360 --> 00:01:06,040 Speaker 1: twenty percent levy on all imported goods and sixty percent 17 00:01:06,120 --> 00:01:09,520 Speaker 1: on Chinese products. Trump says the import taxes can help 18 00:01:09,600 --> 00:01:12,600 Speaker 1: raise revenue as well as reduce US trade deficits and 19 00:01:12,720 --> 00:01:16,560 Speaker 1: drive manufacturers to make more in America. They have the 20 00:01:16,600 --> 00:01:22,600 Speaker 1: potential to completely upend global trade. Flows. So here's why 21 00:01:22,680 --> 00:01:28,440 Speaker 1: Trump's tariff plan has global consequences. Bloomberok's trades are Brendan. 22 00:01:28,520 --> 00:01:32,200 Speaker 1: Murray joins me now for more Brendan. From a historical 23 00:01:32,280 --> 00:01:35,720 Speaker 1: point of view, how dramatic would the tariffs that Trump 24 00:01:35,800 --> 00:01:36,720 Speaker 1: is promising be. 25 00:01:36,959 --> 00:01:40,319 Speaker 2: Bloomberg Economics crunched these numbers and came up with an 26 00:01:40,440 --> 00:01:43,039 Speaker 2: estimate that we haven't seen tariffs like this in the 27 00:01:43,160 --> 00:01:46,200 Speaker 2: US for more than eighty years. So the sheer scale 28 00:01:46,240 --> 00:01:49,640 Speaker 2: of them, twenty percent tariffs on all US imports would 29 00:01:49,640 --> 00:01:52,080 Speaker 2: be a big shock to the sticker price of everything 30 00:01:52,120 --> 00:01:53,960 Speaker 2: from cars to toys. 31 00:01:54,440 --> 00:01:58,440 Speaker 1: How easily can Donald Trump actually impose these tariffs? 32 00:01:58,680 --> 00:02:02,800 Speaker 2: So the power to imposed tariffs exists in the US Constitution. 33 00:02:03,080 --> 00:02:06,800 Speaker 2: It's granted to Congress, but over the many years decades, 34 00:02:07,040 --> 00:02:10,520 Speaker 2: Congress has essentially delegated a lot of that authority to 35 00:02:11,000 --> 00:02:14,359 Speaker 2: the executive branch, to the president. President Trump exercised that 36 00:02:14,440 --> 00:02:18,520 Speaker 2: authority pretty loudly during his first four year term. President 37 00:02:18,560 --> 00:02:21,919 Speaker 2: Biden followed him with maintaining many of those tariffs and 38 00:02:21,960 --> 00:02:24,480 Speaker 2: adding to some of them. And now Trump, being reelected 39 00:02:24,520 --> 00:02:27,120 Speaker 2: coming back in is saying, if you thought that the 40 00:02:27,160 --> 00:02:29,919 Speaker 2: first term tariffs were interesting, just wait till I get 41 00:02:29,919 --> 00:02:33,240 Speaker 2: in office again. The first term seems like, you know, 42 00:02:33,400 --> 00:02:35,799 Speaker 2: just kind of a test for what's something much bigger 43 00:02:35,800 --> 00:02:36,400 Speaker 2: that's going to come. 44 00:02:36,560 --> 00:02:39,920 Speaker 1: What would this mean in particular for China's economy because 45 00:02:40,040 --> 00:02:43,840 Speaker 1: Donald Trump has particularly singled out China for heavy tariffs. 46 00:02:44,240 --> 00:02:46,440 Speaker 2: That's right, he said, We're going to apply a sixty 47 00:02:46,440 --> 00:02:49,960 Speaker 2: percent tariff on everything from China, which Bloomberg Economics has 48 00:02:50,080 --> 00:02:53,120 Speaker 2: estimated that by twenty twenty eight that would reduce the 49 00:02:53,320 --> 00:02:57,080 Speaker 2: US's imports of Chinese good by about fifty percent, so 50 00:02:57,120 --> 00:02:59,800 Speaker 2: an absolutely huge number as the US would look to 51 00:03:00,600 --> 00:03:03,200 Speaker 2: from other places. But as Trump has said, all these 52 00:03:03,240 --> 00:03:05,560 Speaker 2: other countries, all these alternatives in China are going to 53 00:03:05,639 --> 00:03:08,000 Speaker 2: have a tariff on them as well, a twenty percent tariff. 54 00:03:08,080 --> 00:03:10,480 Speaker 2: So you can see how quickly this can turn into 55 00:03:10,680 --> 00:03:14,480 Speaker 2: something where prices and an inflationary environment could cause some 56 00:03:14,600 --> 00:03:15,600 Speaker 2: damage to the economy. 57 00:03:15,919 --> 00:03:18,200 Speaker 1: What should we be thinking about in terms of the 58 00:03:18,360 --> 00:03:22,239 Speaker 1: sectors that could be particularly hard hit by this, because 59 00:03:22,280 --> 00:03:24,519 Speaker 1: it's something that you know, as you say, we're talking 60 00:03:24,560 --> 00:03:27,560 Speaker 1: about big steps on a global scale, But are there 61 00:03:27,600 --> 00:03:30,200 Speaker 1: particular sectors that stand to be punished by this? 62 00:03:30,400 --> 00:03:33,120 Speaker 2: Well, if you listen to Trump's advisors. A big part 63 00:03:33,160 --> 00:03:38,040 Speaker 2: of these campaign promises are meant to apply leverage on 64 00:03:38,160 --> 00:03:42,200 Speaker 2: other countries, other economies, the European Union, for example, after China, 65 00:03:42,360 --> 00:03:45,080 Speaker 2: the US administration under Donald Trump is going to go 66 00:03:45,120 --> 00:03:47,360 Speaker 2: after the European Union and say, hey, look, we have 67 00:03:47,440 --> 00:03:50,400 Speaker 2: some good trading relationships between us, but there's some imbalances 68 00:03:50,400 --> 00:03:53,520 Speaker 2: that we need to address. So let's talk about cars. 69 00:03:53,640 --> 00:03:56,800 Speaker 2: Electric vehicles are a big issue right now. China's producing 70 00:03:56,800 --> 00:03:58,520 Speaker 2: a lot of them, a lot of very good cars 71 00:03:58,600 --> 00:04:01,880 Speaker 2: by all accounts, and the US has blocked those from 72 00:04:01,920 --> 00:04:05,240 Speaker 2: coming into to the US market. Europe just recently imposed 73 00:04:05,240 --> 00:04:08,680 Speaker 2: tariffs on Chinese made electric vehicles. So from there the 74 00:04:08,720 --> 00:04:12,680 Speaker 2: debate will broaden out to other products, from agricultural goods 75 00:04:12,760 --> 00:04:17,200 Speaker 2: to industrial machinery, you know, highly engineered manufactured goods. 76 00:04:17,400 --> 00:04:20,760 Speaker 1: Could the EU, for example, hope to perhaps negotiate with 77 00:04:20,800 --> 00:04:24,440 Speaker 1: the Trump administration and avoid a trade war, perhaps manage 78 00:04:24,480 --> 00:04:27,320 Speaker 1: to carve out some exemptions. Is there room for diplomacy? 79 00:04:27,320 --> 00:04:29,679 Speaker 1: And what we've heard from Donald Trump in the past 80 00:04:29,680 --> 00:04:31,120 Speaker 1: and what he's done in the past. 81 00:04:31,000 --> 00:04:33,640 Speaker 2: Well, this is the central question really as we shift 82 00:04:33,680 --> 00:04:37,800 Speaker 2: from a rules based trading system, one where low tariffs 83 00:04:37,960 --> 00:04:40,479 Speaker 2: are the guiding principle. If Donald Trump comes in and 84 00:04:40,520 --> 00:04:43,040 Speaker 2: says to the European Union, look, we don't think our 85 00:04:43,120 --> 00:04:46,479 Speaker 2: trading relationship is fair, then we will put twenty percent 86 00:04:46,520 --> 00:04:50,080 Speaker 2: tariffs on every European product. That's where the negotiation starts. 87 00:04:50,160 --> 00:04:52,919 Speaker 2: And you know, we could see lots of reciprocal action 88 00:04:53,120 --> 00:04:55,720 Speaker 2: by Europe. You know, you can see how quickly this 89 00:04:55,720 --> 00:04:57,320 Speaker 2: can cascade into a trade war. 90 00:04:57,440 --> 00:04:59,800 Speaker 1: Yeah, indeed, I think we can all sort of imagine 91 00:05:00,240 --> 00:05:02,080 Speaker 1: this would have a negative impact on all the firms 92 00:05:02,120 --> 00:05:04,760 Speaker 1: that export goods to the US. But what would we 93 00:05:04,839 --> 00:05:06,960 Speaker 1: expect this to mean for the US economy. 94 00:05:07,240 --> 00:05:11,400 Speaker 2: Well, the goal, if you listen to Trump and his advisors, 95 00:05:11,600 --> 00:05:14,479 Speaker 2: is to bring production back to the US. A lot 96 00:05:14,480 --> 00:05:18,760 Speaker 2: of manufactured items are made elsewhere now, and the goal 97 00:05:18,960 --> 00:05:22,479 Speaker 2: is to turn the US from a consumption based economy 98 00:05:22,600 --> 00:05:25,760 Speaker 2: back to a production based economy. Now, that would mean 99 00:05:25,880 --> 00:05:30,160 Speaker 2: bringing factories that otherwise would go to Southeast Asia or 100 00:05:30,240 --> 00:05:33,960 Speaker 2: Latin America, Mexico. Even so, the goal would be bring 101 00:05:34,000 --> 00:05:36,080 Speaker 2: your production to the US, Otherwise we're going to put 102 00:05:36,080 --> 00:05:39,159 Speaker 2: a tariff on whatever you make. That ultimately is the goal, 103 00:05:39,360 --> 00:05:42,600 Speaker 2: and good jobs would be the dividend that would come 104 00:05:42,640 --> 00:05:45,320 Speaker 2: from that, but it's a long way down the road 105 00:05:45,520 --> 00:05:48,600 Speaker 2: to accomplishing that, certainly longer than a four year president. 106 00:05:48,839 --> 00:05:51,280 Speaker 1: And in the meantime, of course, then there's the inflationary 107 00:05:51,279 --> 00:05:53,240 Speaker 1: impact of it as well for consumers to deal with. 108 00:05:53,800 --> 00:05:58,080 Speaker 2: Yeah, exactly. I mean, tariffs themselves are not inflationary, but 109 00:05:58,120 --> 00:06:01,120 Speaker 2: they can add inflationary pressure. Now there's a distinction to 110 00:06:01,200 --> 00:06:04,440 Speaker 2: be made. And every time the Trump administration talks about 111 00:06:04,520 --> 00:06:06,479 Speaker 2: their tariffs on their first term, they say, look, they 112 00:06:06,480 --> 00:06:10,279 Speaker 2: weren't inflationary. We didn't have inflation during Donald Trump's first term. Well, 113 00:06:10,320 --> 00:06:13,760 Speaker 2: if you look back at at some FED research, you 114 00:06:13,839 --> 00:06:17,560 Speaker 2: can see signs that businesses were feeling price pressure from 115 00:06:17,560 --> 00:06:20,400 Speaker 2: those tariffs. They were saying, we don't have any pricing pressure, 116 00:06:20,440 --> 00:06:23,240 Speaker 2: we can't raise our prices. But then the pandemic came along, 117 00:06:23,360 --> 00:06:26,880 Speaker 2: and the demand spike and the supply shock from the 118 00:06:26,920 --> 00:06:30,720 Speaker 2: pandemic added fuel to what was already the embers of 119 00:06:30,760 --> 00:06:32,320 Speaker 2: inflation starting to heat up. 120 00:06:32,440 --> 00:06:34,599 Speaker 1: What I'm hearing is it's not simple, which I think 121 00:06:34,680 --> 00:06:36,279 Speaker 1: is a good lesson for us to watch and see 122 00:06:36,279 --> 00:06:39,600 Speaker 1: what happens next. Brendon Murray, our trades are here at Bloomberg. 123 00:06:39,640 --> 00:06:41,479 Speaker 1: Thank you very much for joining us and talking us 124 00:06:41,480 --> 00:06:45,200 Speaker 1: through some of the potential consequences of Donald Trump's tariff plant, 125 00:06:45,560 --> 00:06:47,599 Speaker 1: and for more explanations like this from our team of 126 00:06:47,680 --> 00:06:51,200 Speaker 1: twenty seven hundred journalists and analysts around the world. Search 127 00:06:51,200 --> 00:06:53,600 Speaker 1: for Quick Take on the Bloomberg website or the Bloomberg 128 00:06:53,680 --> 00:06:57,000 Speaker 1: Business app. I'll be back next week with more. Thanks 129 00:06:57,000 --> 00:06:57,520 Speaker 1: for listening.