Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one news story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg. If we know one thing about
Speaker 1: Donald Trump's foreign policy, he likes to tax trade.
Speaker 2: Most beautiful word in the dictionary is tariff, and it's
Speaker 2: my favorite word. It needs a public relations firm.
Speaker 1: We're going to have thousands of companies coming into this country.
Speaker 1: We're going to grow it like it's never grown before,
Speaker 1: and we're going to protect them when they come in
Speaker 1: because we're not going to have somebody undercut him. That
Speaker 1: was what the now president elect told Bloomberg in October.
Speaker 1: During his first term, the self proclaimed tariff man enacted
Speaker 1: duties on about three hundred and eighty billion dollars worth
Speaker 1: of imports. Now he's promising to go further with a
Speaker 1: twenty percent levy on all imported goods and sixty percent
Speaker 1: on Chinese products. Trump says the import taxes can help
Speaker 1: raise revenue as well as reduce US trade deficits and
Speaker 1: drive manufacturers to make more in America. They have the
Speaker 1: potential to completely upend global trade. Flows. So here's why
Speaker 1: Trump's tariff plan has global consequences. Bloomberok's trades are Brendan.
Speaker 1: Murray joins me now for more Brendan. From a historical
Speaker 1: point of view, how dramatic would the tariffs that Trump
Speaker 1: is promising be.
Speaker 2: Bloomberg Economics crunched these numbers and came up with an
Speaker 2: estimate that we haven't seen tariffs like this in the
Speaker 2: US for more than eighty years. So the sheer scale
Speaker 2: of them, twenty percent tariffs on all US imports would
Speaker 2: be a big shock to the sticker price of everything
Speaker 2: from cars to toys.
Speaker 1: How easily can Donald Trump actually impose these tariffs?
Speaker 2: So the power to imposed tariffs exists in the US Constitution.
Speaker 2: It's granted to Congress, but over the many years decades,
Speaker 2: Congress has essentially delegated a lot of that authority to
Speaker 2: the executive branch, to the president. President Trump exercised that
Speaker 2: authority pretty loudly during his first four year term. President
Speaker 2: Biden followed him with maintaining many of those tariffs and
Speaker 2: adding to some of them. And now Trump, being reelected
Speaker 2: coming back in is saying, if you thought that the
Speaker 2: first term tariffs were interesting, just wait till I get
Speaker 2: in office again. The first term seems like, you know,
Speaker 2: just kind of a test for what's something much bigger
Speaker 2: that's going to come.
Speaker 1: What would this mean in particular for China's economy because
Speaker 1: Donald Trump has particularly singled out China for heavy tariffs.
Speaker 2: That's right, he said, We're going to apply a sixty
Speaker 2: percent tariff on everything from China, which Bloomberg Economics has
Speaker 2: estimated that by twenty twenty eight that would reduce the
Speaker 2: US's imports of Chinese good by about fifty percent, so
Speaker 2: an absolutely huge number as the US would look to
Speaker 2: from other places. But as Trump has said, all these
Speaker 2: other countries, all these alternatives in China are going to
Speaker 2: have a tariff on them as well, a twenty percent tariff.
Speaker 2: So you can see how quickly this can turn into
Speaker 2: something where prices and an inflationary environment could cause some
Speaker 2: damage to the economy.
Speaker 1: What should we be thinking about in terms of the
Speaker 1: sectors that could be particularly hard hit by this, because
Speaker 1: it's something that you know, as you say, we're talking
Speaker 1: about big steps on a global scale, But are there
Speaker 1: particular sectors that stand to be punished by this?
Speaker 2: Well, if you listen to Trump's advisors. A big part
Speaker 2: of these campaign promises are meant to apply leverage on
Speaker 2: other countries, other economies, the European Union, for example, after China,
Speaker 2: the US administration under Donald Trump is going to go
Speaker 2: after the European Union and say, hey, look, we have
Speaker 2: some good trading relationships between us, but there's some imbalances
Speaker 2: that we need to address. So let's talk about cars.
Speaker 2: Electric vehicles are a big issue right now. China's producing
Speaker 2: a lot of them, a lot of very good cars
Speaker 2: by all accounts, and the US has blocked those from
Speaker 2: coming into to the US market. Europe just recently imposed
Speaker 2: tariffs on Chinese made electric vehicles. So from there the
Speaker 2: debate will broaden out to other products, from agricultural goods
Speaker 2: to industrial machinery, you know, highly engineered manufactured goods.
Speaker 1: Could the EU, for example, hope to perhaps negotiate with
Speaker 1: the Trump administration and avoid a trade war, perhaps manage
Speaker 1: to carve out some exemptions. Is there room for diplomacy?
Speaker 1: And what we've heard from Donald Trump in the past
Speaker 1: and what he's done in the past.
Speaker 2: Well, this is the central question really as we shift
Speaker 2: from a rules based trading system, one where low tariffs
Speaker 2: are the guiding principle. If Donald Trump comes in and
Speaker 2: says to the European Union, look, we don't think our
Speaker 2: trading relationship is fair, then we will put twenty percent
Speaker 2: tariffs on every European product. That's where the negotiation starts.
Speaker 2: And you know, we could see lots of reciprocal action
Speaker 2: by Europe. You know, you can see how quickly this
Speaker 2: can cascade into a trade war.
Speaker 1: Yeah, indeed, I think we can all sort of imagine
Speaker 1: this would have a negative impact on all the firms
Speaker 1: that export goods to the US. But what would we
Speaker 1: expect this to mean for the US economy.
Speaker 2: Well, the goal, if you listen to Trump and his advisors,
Speaker 2: is to bring production back to the US. A lot
Speaker 2: of manufactured items are made elsewhere now, and the goal
Speaker 2: is to turn the US from a consumption based economy
Speaker 2: back to a production based economy. Now, that would mean
Speaker 2: bringing factories that otherwise would go to Southeast Asia or
Speaker 2: Latin America, Mexico. Even so, the goal would be bring
Speaker 2: your production to the US, Otherwise we're going to put
Speaker 2: a tariff on whatever you make. That ultimately is the goal,
Speaker 2: and good jobs would be the dividend that would come
Speaker 2: from that, but it's a long way down the road
Speaker 2: to accomplishing that, certainly longer than a four year president.
Speaker 1: And in the meantime, of course, then there's the inflationary
Speaker 1: impact of it as well for consumers to deal with.
Speaker 2: Yeah, exactly. I mean, tariffs themselves are not inflationary, but
Speaker 2: they can add inflationary pressure. Now there's a distinction to
Speaker 2: be made. And every time the Trump administration talks about
Speaker 2: their tariffs on their first term, they say, look, they
Speaker 2: weren't inflationary. We didn't have inflation during Donald Trump's first term. Well,
Speaker 2: if you look back at at some FED research, you
Speaker 2: can see signs that businesses were feeling price pressure from
Speaker 2: those tariffs. They were saying, we don't have any pricing pressure,
Speaker 2: we can't raise our prices. But then the pandemic came along,
Speaker 2: and the demand spike and the supply shock from the
Speaker 2: pandemic added fuel to what was already the embers of
Speaker 2: inflation starting to heat up.
Speaker 1: What I'm hearing is it's not simple, which I think
Speaker 1: is a good lesson for us to watch and see
Speaker 1: what happens next. Brendon Murray, our trades are here at Bloomberg.
Speaker 1: Thank you very much for joining us and talking us
Speaker 1: through some of the potential consequences of Donald Trump's tariff plant,
Speaker 1: and for more explanations like this from our team of
Speaker 1: twenty seven hundred journalists and analysts around the world. Search
Speaker 1: for Quick Take on the Bloomberg website or the Bloomberg
Speaker 1: Business app. I'll be back next week with more. Thanks
Speaker 1: for listening.