WEBVTT - Here's Why Trump's Tariff Plan Has Global Consequences

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and

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<v Speaker 1>this is Here's Why, where we take one news story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg. If we know one thing about

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<v Speaker 1>Donald Trump's foreign policy, he likes to tax trade.

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<v Speaker 2>Most beautiful word in the dictionary is tariff, and it's

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<v Speaker 2>my favorite word. It needs a public relations firm.

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<v Speaker 1>We're going to have thousands of companies coming into this country.

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<v Speaker 1>We're going to grow it like it's never grown before,

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<v Speaker 1>and we're going to protect them when they come in

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<v Speaker 1>because we're not going to have somebody undercut him. That

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<v Speaker 1>was what the now president elect told Bloomberg in October.

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<v Speaker 1>During his first term, the self proclaimed tariff man enacted

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<v Speaker 1>duties on about three hundred and eighty billion dollars worth

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<v Speaker 1>of imports. Now he's promising to go further with a

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<v Speaker 1>twenty percent levy on all imported goods and sixty percent

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<v Speaker 1>on Chinese products. Trump says the import taxes can help

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<v Speaker 1>raise revenue as well as reduce US trade deficits and

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<v Speaker 1>drive manufacturers to make more in America. They have the

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<v Speaker 1>potential to completely upend global trade. Flows. So here's why

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<v Speaker 1>Trump's tariff plan has global consequences. Bloomberok's trades are Brendan.

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<v Speaker 1>Murray joins me now for more Brendan. From a historical

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<v Speaker 1>point of view, how dramatic would the tariffs that Trump

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<v Speaker 1>is promising be.

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<v Speaker 2>Bloomberg Economics crunched these numbers and came up with an

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<v Speaker 2>estimate that we haven't seen tariffs like this in the

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<v Speaker 2>US for more than eighty years. So the sheer scale

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<v Speaker 2>of them, twenty percent tariffs on all US imports would

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<v Speaker 2>be a big shock to the sticker price of everything

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<v Speaker 2>from cars to toys.

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<v Speaker 1>How easily can Donald Trump actually impose these tariffs?

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<v Speaker 2>So the power to imposed tariffs exists in the US Constitution.

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<v Speaker 2>It's granted to Congress, but over the many years decades,

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<v Speaker 2>Congress has essentially delegated a lot of that authority to

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<v Speaker 2>the executive branch, to the president. President Trump exercised that

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<v Speaker 2>authority pretty loudly during his first four year term. President

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<v Speaker 2>Biden followed him with maintaining many of those tariffs and

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<v Speaker 2>adding to some of them. And now Trump, being reelected

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<v Speaker 2>coming back in is saying, if you thought that the

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<v Speaker 2>first term tariffs were interesting, just wait till I get

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<v Speaker 2>in office again. The first term seems like, you know,

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<v Speaker 2>just kind of a test for what's something much bigger

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<v Speaker 2>that's going to come.

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<v Speaker 1>What would this mean in particular for China's economy because

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<v Speaker 1>Donald Trump has particularly singled out China for heavy tariffs.

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<v Speaker 2>That's right, he said, We're going to apply a sixty

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<v Speaker 2>percent tariff on everything from China, which Bloomberg Economics has

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<v Speaker 2>estimated that by twenty twenty eight that would reduce the

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<v Speaker 2>US's imports of Chinese good by about fifty percent, so

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<v Speaker 2>an absolutely huge number as the US would look to

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<v Speaker 2>from other places. But as Trump has said, all these

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<v Speaker 2>other countries, all these alternatives in China are going to

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<v Speaker 2>have a tariff on them as well, a twenty percent tariff.

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<v Speaker 2>So you can see how quickly this can turn into

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<v Speaker 2>something where prices and an inflationary environment could cause some

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<v Speaker 2>damage to the economy.

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<v Speaker 1>What should we be thinking about in terms of the

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<v Speaker 1>sectors that could be particularly hard hit by this, because

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<v Speaker 1>it's something that you know, as you say, we're talking

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<v Speaker 1>about big steps on a global scale, But are there

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<v Speaker 1>particular sectors that stand to be punished by this?

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<v Speaker 2>Well, if you listen to Trump's advisors. A big part

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<v Speaker 2>of these campaign promises are meant to apply leverage on

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<v Speaker 2>other countries, other economies, the European Union, for example, after China,

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<v Speaker 2>the US administration under Donald Trump is going to go

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<v Speaker 2>after the European Union and say, hey, look, we have

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<v Speaker 2>some good trading relationships between us, but there's some imbalances

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<v Speaker 2>that we need to address. So let's talk about cars.

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<v Speaker 2>Electric vehicles are a big issue right now. China's producing

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<v Speaker 2>a lot of them, a lot of very good cars

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<v Speaker 2>by all accounts, and the US has blocked those from

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<v Speaker 2>coming into to the US market. Europe just recently imposed

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<v Speaker 2>tariffs on Chinese made electric vehicles. So from there the

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<v Speaker 2>debate will broaden out to other products, from agricultural goods

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<v Speaker 2>to industrial machinery, you know, highly engineered manufactured goods.

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<v Speaker 1>Could the EU, for example, hope to perhaps negotiate with

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<v Speaker 1>the Trump administration and avoid a trade war, perhaps manage

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<v Speaker 1>to carve out some exemptions. Is there room for diplomacy?

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<v Speaker 1>And what we've heard from Donald Trump in the past

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<v Speaker 1>and what he's done in the past.

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<v Speaker 2>Well, this is the central question really as we shift

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<v Speaker 2>from a rules based trading system, one where low tariffs

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<v Speaker 2>are the guiding principle. If Donald Trump comes in and

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<v Speaker 2>says to the European Union, look, we don't think our

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<v Speaker 2>trading relationship is fair, then we will put twenty percent

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<v Speaker 2>tariffs on every European product. That's where the negotiation starts.

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<v Speaker 2>And you know, we could see lots of reciprocal action

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<v Speaker 2>by Europe. You know, you can see how quickly this

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<v Speaker 2>can cascade into a trade war.

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<v Speaker 1>Yeah, indeed, I think we can all sort of imagine

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<v Speaker 1>this would have a negative impact on all the firms

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<v Speaker 1>that export goods to the US. But what would we

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<v Speaker 1>expect this to mean for the US economy.

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<v Speaker 2>Well, the goal, if you listen to Trump and his advisors,

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<v Speaker 2>is to bring production back to the US. A lot

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<v Speaker 2>of manufactured items are made elsewhere now, and the goal

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<v Speaker 2>is to turn the US from a consumption based economy

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<v Speaker 2>back to a production based economy. Now, that would mean

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<v Speaker 2>bringing factories that otherwise would go to Southeast Asia or

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<v Speaker 2>Latin America, Mexico. Even so, the goal would be bring

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<v Speaker 2>your production to the US, Otherwise we're going to put

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<v Speaker 2>a tariff on whatever you make. That ultimately is the goal,

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<v Speaker 2>and good jobs would be the dividend that would come

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<v Speaker 2>from that, but it's a long way down the road

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<v Speaker 2>to accomplishing that, certainly longer than a four year president.

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<v Speaker 1>And in the meantime, of course, then there's the inflationary

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<v Speaker 1>impact of it as well for consumers to deal with.

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<v Speaker 2>Yeah, exactly. I mean, tariffs themselves are not inflationary, but

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<v Speaker 2>they can add inflationary pressure. Now there's a distinction to

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<v Speaker 2>be made. And every time the Trump administration talks about

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<v Speaker 2>their tariffs on their first term, they say, look, they

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<v Speaker 2>weren't inflationary. We didn't have inflation during Donald Trump's first term. Well,

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<v Speaker 2>if you look back at at some FED research, you

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<v Speaker 2>can see signs that businesses were feeling price pressure from

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<v Speaker 2>those tariffs. They were saying, we don't have any pricing pressure,

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<v Speaker 2>we can't raise our prices. But then the pandemic came along,

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<v Speaker 2>and the demand spike and the supply shock from the

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<v Speaker 2>pandemic added fuel to what was already the embers of

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<v Speaker 2>inflation starting to heat up.

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<v Speaker 1>What I'm hearing is it's not simple, which I think

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<v Speaker 1>is a good lesson for us to watch and see

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<v Speaker 1>what happens next. Brendon Murray, our trades are here at Bloomberg.

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<v Speaker 1>Thank you very much for joining us and talking us

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<v Speaker 1>through some of the potential consequences of Donald Trump's tariff plant,

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<v Speaker 1>and for more explanations like this from our team of

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<v Speaker 1>twenty seven hundred journalists and analysts around the world. Search

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<v Speaker 1>for Quick Take on the Bloomberg website or the Bloomberg

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<v Speaker 1>Business app. I'll be back next week with more. Thanks

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<v Speaker 1>for listening.